Doctors, lawyers and accountants can be sued for malpractice if their negligence harms their clients. But suits against corporate officers and directors are treated differently. If corporate leaders make bad decisions, the "business judgment rule" can shield them from liability to shareholders who claim the mistakes cost them money. That rule says that, even if an officer or director blunders, he or she will not be liable unless the challenged decision involved fraud, illegality or self-dealing. The business judgment rule has worked for a long time to prevent suits against officers and directors for routine business misjudgments.
In many states, the same rule applies to bank officers and directors. Where it applies, the good-faith lending decisions made by bank officers and directors are protected from liability, even if the loans turn bad and cause the bank losses.
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Originally published by American Banker.
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