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Washington Law Review

Adam J. Richins

Abstract

Section 23B.08.300 of the Revised Code of Washington (RCW) defines the general standards of conduct for directors in discharging corporate duties. The Washington State Legislature developed these standards to govern the manner in which directors perform their duties, rather than to impose liability on directors for negligent business decisions under the business judgment rule. Indeed, the business judgment rule, as defined by leading corporate-law jurisdictions and the American Bar Association, generally protects directors from liability associated with negligent business decisions so long as the director makes decisions in good faith, on an informed basis, without self-interest, and in accordance with the director's belief of what is best for the corporation. Nevertheless, the Washington State Supreme Court has suggested in dicta that the ordinary due-care standard of conduct included in RCW 23B.08.300 is an element of the business judgment rule standard of liability. Under the court's interpretation of the business judgment rule, the quality or substance of a director's business decision will not be protected from liability unless an ordinarily prudent person would have made the same decision under like circumstances. This Comment first argues that the standards of conduct set forth in RCW 23B.08.300 are separate and distinct from the business judgment rule standard of liability, and should not impose liability on directors for unfavorable business decisions. Second, this Comment proposes a legal framework for applying the business judgment rule in Washington state that is consistent with court precedent and the legislative intent underlying RCW 23B.08.300. Finally, this Comment proposes that Washington state courts adopt section 8.31 of the Model Business Corporations Act to provide the judiciary, directors, and the corporate bar with additional guidance in applying the business judgment rule.

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