Even before statutory formulations of directors’ duty of care, courts sometimes invoked the business judgment rule in determining whether to impose liability in a particular case

In doing so, courts have sometimes used language similar to the standards set forth in Section 14-2-830(a). The elements of the business judgment rule and the circumstances for its application are continuing to be developed by the courts. In view of that continuing judicial development, Section 14-2-830 does not try to codify the business judgment rule or to delineate the differences, if any, between that rule and the standards of director conduct set forth in this section. That is a task left to the courts. The Code preserves the approach of prior law in permitting contractual variation of directors’ liabilities. Thus Section 14-2-202(b)(4) permits the articles of incorporation to relieve directors from liability to the corporation or its shareholders for breaches of the duty of care set out in Section 14-2-830(a)(2). Similarly, where such exculpation has not been provided in advance, shareholders can indemnify directors for such liability under Section 14-2-856. The statement of the director’s duties in subsection (a) follows former Georgia law more closely than the Model Act. It preserves the ‘‘good faith’’ description of the duty of loyalty. But where former law required only a general ‘‘good faith,’’ this formulation specifies the object of the good faith — the best interests of the corporation. Subsection (a)(2) establishes a general standard of care for all directors. It requires a director to exercise ‘‘the care an ordinarily prudent person in a like position would exercise.’’ Subsection (a) does not use the term ‘‘fiduciary’’ because that term could be confused with the unique attributes and obligations of a fiduciary imposed by the law of trusts, some of which are not appropriate for directors of a corporation. Subsection (a)’s reference to ‘‘ordinary prudent person’’ recognizes the need for innovation, essential to profit orientation, and focuses on the basic director attributes of common sense, practical wisdom, and informed judgment. The phrase ‘‘in a like position’’ recognizes that the ‘‘care’’ under consideration is that which would be used by the ‘‘ordinarily prudent person’’ if he or she were a director of the particular corporation. The combined phrase ‘‘in a like position . . . under similar circumstances’’ is intended to recognize that (a) the nature and extent of responsibilities will vary, depending upon such factors as the size, complexity, urgency, and location of activities carried on by the particular corporation, (b) decisions must be made on the basis of the information known to the directors without the benefit of hindsight, and (c) the special background, qualifications, and management responsibilities of a particular director may be relevant in evaluating his compliance with the standard of care. Even though the quoted phrase takes into account the special background, qualifications and management responsibilities of a particular director, it does not excuse a director lacking business experience or particular expertise from exercising the common sense, practical wisdom, and informed judgment of an ‘‘ordinarily prudent person.’’ As Learned Hand wrote in Barnes v. Andrews, 298 F. 614 (S.D.N.Y. 1924), directors ‘‘need not — indeed, perhaps they should not — have any technical talent.’’ Subsection (a)(3) of the Model Act, which required a director to act ‘‘in a manner he reasonably believes to be in the best interests of the corporation,’’ was deleted from the Code as a departure from existing Georgia law. The Code combined the requirements of Model Act subsections (a)(1) and (a)(3), to require a good faith belief, rather than separate requirements of good faith and a reasonable belief. The reasonableness of the board’s action is to be tested in the totality of the situation. Thus the belief that action is in the best interests of the corporation is a facet of the good faith requirement. The good faith must relate to the director’s belief that the action is in the best interests of the corporation. The ‘‘reasonably believes’’ language was omitted because it could have the effect of isolating a specific piece of information, or a specific source of information. Subsection (b) provides that a director complying with the standards expressed in Section 14-2-830(a) is entitled to rely upon information, opinions, reports or statements, including financial statements and other financial data, prepared or presented by the persons or committees described in subsection (b). The right to rely under this section applies to the entire range of matters for which the board of directors is responsible. Under subsection (c), however, a director so relying must be without knowledge concerning the matter in question that would cause his reliance to be unwarranted. Implicit in this is the understanding that directors are not required to be suspicious of employees and experts they have hired in good faith. Subsection (b) permits reliance upon outside advisers, including not only those in the professional disciplines customarily supervised by state authorities, such as lawyers, accountants, and engineers, but also those in other fields involving special experience and skills, such as investment bankers, geologists, management consultants, actuaries, and real estate appraisers. The concept of ‘‘expert competence’’ in subsection (b)(2) embraces a wide variety of qualifications and is not limited to the more precise and narrower recognition of experts under the Securities Act of 1933. Subsection (b)(2) of the Model Act was amended by adding a reference to investment bankers as experts upon whom directors may rely, if the matter is within their professional competence. This preserves former law. Subsection (b) permits reliance upon a committee of the board of directors, whether performing supervisory or other functions, as well as in instances where either the full board of directors or the committee take dispositive action. In conditioning reliance upon reasonable belief that the board committee merits the director’s ‘‘confidence,’’ subsection (b)(3) recognizes a difference between a board committee and an expert. In subsection (b)(1) and (2) the reference is to ‘‘competence of an expert,’’ which recognizes the expectation of experience and in most instances technical skills on the part of those upon whom the director may rely. In subsection (b)(3), the concept of ‘‘confidence’’ is substituted for ‘‘competence’’ in order to avoid any inference that technical skills are a prerequisite. By identifying those upon whom a director may rely in discharging his duties, Section 14-2-830(b) does not limit the ability of directors to delegate their powers under Section 14-2-801(a) to committees of the board of directors or officers of the corporation, except where this delegation is expressly prohibited by the Act. Delegation should be carried out in accordance with the standards set forth in subsection (a). See also Section 14-2-825 and its Comment with respect to delegation to committees. Subsection (c) expressly prevents a director from ‘‘hiding his head in the sand’’ and relying on information, opinions, reports, or statements when he has actual knowledge which makes reliance unwarranted. Subsection (d) is self-executing, and the individual director’s exoneration from liability is automatic, if compliance with the standard of conduct set forth this section is established. Like the exculpation provisions of Section 14-2-202(b) (4) and the indemnification provisions of Section 14-2-856, it provides relief only from liability to the corporation or the shareholders. The Model Act provision was amended by the addition of the phrase ‘‘to the corporation or to its shareholders,’’ to emphasize the limits of this provision. Section 14-2-830 is intended to regulate only relationships among the participants in the corporate enterprise — shareholders, directors, and the corporation itself. As was stated in the Comment to the comparable statement of directors’ duties and liabilities in the American Law Institute’s Principles of Corporate Governance: Analysis and Recommendations (T.D. No. 4), § 14-2-401, at 12: ‘‘The duty of care standards set forth in § 14-2-401 involve duties owed directly to the corporation. It should be emphasized that § 14-2-401 is not intended to create new third-party rights (e.g., for tort claimants or government agencies) against directors or officers. The standards set forth in Part IV apply only to the relationships among directors, officers, shareholders, and their corporations.’’ Where the standards of this section are met, there is no need to consider possible application of the business judgment rule. The possible application of the business judgment rule need only be considered if compliance with the standard of conduct set forth is not established. Subsection (d) makes clear that this subsection will apply whether or not affirmative action was in fact taken. Subsection (d) applies (assuming its requirements are satisfied) to any conscious consideration or matters involving the affairs of the corporation. It also applies to the determination by the board of directors of which matters to address and which not to address. Section 14-2-830(d) does not apply only when the director has failed to consider taking action which under the circumstances he is obliged to consider taking. Section 14-2-830 generally deals only with directors. Section 14-2-842 and its Comment explain the extent to which the provisions of Section 14-2-830 apply to officers. Cross-References Committees of board of directors, see § 14-2-825. Conflict of interest, see § 14-2-860 et seq. Derivative proceedings, see § 14-2-740. Duty of board of directors, see § 14-2-801. Exculpation, see § 14-2-202. Indemnification, see § 14-2-850 et seq. Meetings of board of directors, see §§ 14-2-820 & 14-2-821. Officer standards of conduct, see § 14-2-842. Officers, see §§ 14-2-840 & 14-2-841. Quorum of directors, see § 14-2-824. Removal of directors, see § 14-2-808. Unlawful distributions, see § 14-2-831.