8.6 The BJR as a mitigation technique for mental deception?

Some authors believe that the introduction of the BJR in the Netherlands could possibly prevent hindsight bias in the courtroom. This point of view gave rise to examining the desirability of introducing the BJR standard in the Netherlands.

The BJR originates from Delaware. The rationale behind the rule is that a director should be protected from excessive review by the court. It must be avoided that the judge steps into the shoes of the director. The Delaware BJR entails that a director who has made a business decision whilst being sufficiently informed to this effect and who has acted in good faith and in the genuine belief that the act was in the best interests of the corporation, shall be protected. When these conditions are met, it is for the claimant to prove that the director nevertheless failed to fulfil his duties of loyalty and care. Subsequently, the court will only assess the duties of loyalty and care and refrain from an objective and substantive review. Briefly put, the duty of loyalty means that a director acts in good faith in the best interests of the corporation and avoids conflicts of interest. The duty of care requires a director to act knowledgeably and with diligence and prudence. A limited judicial review ensures that the judge’s central focus is not on the outcome of a business decision, but rather on the way in which the decision was made. The difficulty with the Delaware BJR is the presumption that the director is acting in good faith. It is not easy for the claimant to demonstrate that the director has failed in his duty of loyalty and/or duty of care.

Germany has implemented a different BJR than Delaware. A director in Germany is not personally liable for a corporate business decision, which has had an adverse effect on the company if the director (1) can reasonably assume; (2) on the basis of sufficient information; (3) that he acted in the best interests of the company; (4) without having a conflict of interest in regard to this decision. When these conditions are met, the director will enjoy a ‘safe harbour’, i.e. restraint judicial review. An important difference between the German BJR and the Delaware BJR is that the presumption of good faith has been abandoned in Germany. A claimant in Germany can only dispute the applicability of the BJR and it is then for the director himself to demonstrate that he has acted in good faith and in accordance with his duties.

After reviewing the arguments to introduce the BRJ, I have concluded that introducing the BJR in the Netherlands is not desirable. Firstly, I believe that the fear of liability among directors is not legitimate in view of the high threshold of serious personal blame (art. 2:9 DCC) and the convergence in standards (for example, the standard of art. 2:9 DCC to 2:138/248 DCC and art. 6:162 DCC). Following my empirical research, I also believe that the fear of liability among directors is not as bad as expected. Secondly, the introduction of the BJR does not provide directors with more legal certainty than the current spectrum of standards embedded in serious personal blame, which is based on all circumstances of the case. Thirdly, the introduction of the BJR carries the risk of box-ticking behaviour among directors. Such behaviour removes the sense of responsibility among directors and can ultimately even lead to less appropriate management decisions. Finally, the introduction of a Dutch BJR leads to the possibility that the judge imagines himself safe from the impact of hindsight bias. The BJR can serve as a tool for the judge and potentially reduce the likelihood of hindsight bias. However, one problem persists, as the introduction of the BJR does not mean that the court’s review disappears altogether. The judge is still faced with the task of assessing the conditions for applying the BJR. For this purpose, the judge is dependent on the provision of information by both parties. This still leaves the risk of hindsight bias. Therefore, in practice, one must be alert that the introduction of the BJR can ensure that the judge does not unjustly imagine himself safe from the impact of hindsight bias. That actually increases the likelihood that hindsight bias will have an impact.