Under the business judgment rule, a director or officer may be excused from conduct which has adverse circumstances for the company if their judgment, albeit poor judgment, was exercised in good faith and in the interests of the company.

In an action in Delaware, USA, the CEO was denied this assistance by the court because, faced with job uncertainty, he put his own interests above those of shareholders.

The court refused to dismiss the fiduciary claim against the CEO. He failed to keep the financial advisers fully informed and did not always follow the board’s requested negotiation strategy. His job was uncertain and he sided with a bidder which had indicated its willingness to work with the existing management including the CEO. Because he failed to keep shareholders properly informed, and there was evidence that he put his own interests first, a motion to dismiss a fiduciary duty claim against him was rejected.

The South African Companies Act, like virtually all company legislation, requires directors and officers to act in good faith and in the interests of the company.

The case is In re Xura Inc. Stockholder Litigation, Delaware Court of Chancery C.A.