Risk It to Lead It: Protections for Directors When Making Decisions

To start or not start a new program. To continue or discontinue an existing program. To hire or not hire the candidate in front of you as CEO. To approve or not approve a large purchase. To approve or not approve a merger or collaboration with another organisation.

These are all examples of matters that may come across your desk as a director, to be considered and decided in your boardrooms. You may have limited time to decide on these subjects. You may have many competing, urgent decisions that all require your attention. In a world where not-for-profit directors are increasingly pulled in many different directions and have more and more to consider when making decisions - such as the use and governance of AI, funding considerations and increased regulatory requirements - how can you as a director make sure you are balancing risk and opportunity when making decisions? How can you ensure protections are in place when making decisions?

Read on for some practical guidance on these questions through the lens of the business judgment rule (BJR) as contained in the Corporations Act 2001 (Cth) (Corporations Act) and the ACNC Governance Standards.¹

Duty of care and diligence

Company directors should be well acquainted with their duties as directors and officers of companies. Amongst the duties owed by directors is section 180(1) of the Corporations Act – the duty of care and diligence. That section provides that:

‘A director or officer of a corporation must exercise their powers and discharge their duties with a degree of care and diligence that a reasonable person would exercise if they:

• were a director or officer of a corporation in the corporation’s circumstances; and
• occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.’

When the Australian Charities and Not-for-profits Commission (ACNC) was introduced, a provision was inserted into the Corporations Act to ‘switch off’ this duty for charities registered with the ACNC.² However, a corresponding duty to section 180(1) appears in ACNC Governance Standard 5.³ Under ACNC Governance Standard 5, the onus is on the charity itself (rather than the individual director) to take reasonable steps to ensure its responsible people (generally, the directors) act with reasonable care and diligence.

Business judgment rule

The business judgment rule (BJR) can be found at section 180(2) of the Corporations Act⁴ and is largely replicated at regulation 45.110 of ACNC Regulations.⁵ The BJR corresponds to the duty of care and diligence in that directors will be taken to have met the duty if they take the steps listed in the BJR.

A director of a charity will meet the BJR if they make a decision in relation to the charity, and the director meets all of the following:

• the director makes the decision in good faith for a proper purpose;
• the director does not have a material personal interest in the subject matter of the decision;
• the director informs themselves about the subject matter of the decision, to the extent they reasonably believe to be appropriate; and
• the director rationally believes that the decision is in the best interests of the charity.⁶

The protection can only be invoked where a director has made a decision.⁷ So what is a decision? A decision can include a decision to act or not to act in relation to a matter relevant to the charity’s operation.⁸

Generally, this will include decisions related to entering into transactions for financial purposes,⁹ budgeting,¹⁰ and forecasting.¹¹ Failure to consider something will not be a decision/business judgment. You need to actually have turned your mind to the matter at hand.¹²

The BJR is relatively new and has not been used successfully in many cases. Recent judicial consideration of the rule was contained in the judgment of Star, involving the directors and officers of Star Entertainment Group Limited.

Nevertheless, the BJR provides us with a useful framework for the decision-making process as a director. Get informed. Actively turn your mind to the matters at hand - not just rubber-stamping decisions or the recommendations of management. Be inquisitive. Record your decisions and the process of how you got to the decision.

What should you do to ensure you can invoke the protection of the BJR if ever needed?

Ensure sure there are no conflicts. Do not have a material personal interest in the subject matter of the decision. You can only rely on the BJR if you meet all of the elements, and that is one of the elements.¹³

Get informed prior to making a decision. Read your board papers! If you don’t think you have enough information to make a decision - ask for more information, and more time! You are not at the behest of management or whoever prepares your board papers when it comes to information. Seek out the gaps.

Think about the information you have been given. Ask:

• Is it a summary of a broader report?
• Does it contain outdated or current information?
• Does it make any key assumptions that may need to be challenged?
• Does it consider the risks - especially the obvious ones?
• Do you have sufficient internal expertise to consider the risks of the decision? Is there any professional advice which could assist in making the decision? You may want to pursue legal or financial advice.

Consider whether the decision is in the best interests of your organisation. Ask:

• How does the decision align with your organisation’s purposes, risk appetite and its strategy?
• Is it in the best interests of the organisation?

Record, record, record! Ensure the discussion and decision-making process is documented (including the information considered). The key to this is ensuring that your meeting minutes are clear, appropriately detailed and accurate. Ensure you review the minutes when they come out in draft. Review them while your memory is still fresh. This is not just a box ticking exercise. If you have any suggested changes, speak up.

Making courageous decisions

As a director, you should be able to freely make decisions. Sometimes these decisions may not work out as they were intended. However, boards need to be empowered and feel confident in making courageous decisions in light of, and to effect, change. Innovation inherently involves risk. Following these practical steps will go a long way to ensure you are protected if anything ever goes awry. They will assist you to risk it to lead it - as you strive onwards to governing with courage.

This article was originally published in the 2026 Better Boards Conference Magazine.

Disclaimer

This article is not legal advice. If you need specific advice on the topics discussed, please contact the author.

Further Resources

Compliance and Creativity: the strategic obligations of directors

Difficult Conversations About Director Performance

Directors Duties – Understanding Core Business

AI in the Boardroom: Why Directors’ Safe Harbours May Not Hold

Gavin Nicholson on Handling Complexity in Board Decision Making

References