From shareholder primacy to stakeholder governance: Business judgment rule and China's sustainable path

Resumo

As the concept of sustainable development has been increasingly reinforced in corporate governance worldwide, ESG has gradually become an important criterion for measuring corporate sustainability and has been progressively brought within the ambit of directors’ duty of care. The refinement of the business judgment rule, the standard against which directors’ duty of care is judicially reviewed, constitutes an important institutional tool for addressing short-termism in directors’ decision-making and driving the transition of China’s corporate governance from the shareholder primacy model to the stakeholder governance model. How to adjust the framework governing the application of the business judgment rule and strike a balance between the institutional requirements of sustainable governance and the boundaries of directors’ liability constitutes a core issue to be addressed in China’s current commercial legislation and judicial practice. This study analyzes the current state of legislative gaps and inconsistent judicial application of the business judgment rule in China, compares and draws upon the judicial experience of the United States and Germany, and proposes construction pathways based on China’s legislative context: legislatively incorporating provisions on the business judgment rule; judicially applying an expansive interpretation of the constituent elements of the traditional business judgment rule to integrate ESG factors; and concurrently refining adjudicative logic by applying a dual-track application model tailored to different types of business decisions. The coordinated refinement of legislation and judicial practice will strike a balance between directors’ liability and decision-making discretion and provide a robust institutional safeguard for enterprises to implement sustainable governance.