Corporate Governance and Trustee Governance

Explanation

This question is trying to highlight the different standards of business care fiduciaries must uphold in charitable organizations and trusts respectively. Thus, fiduciaries at charities are bound by the business judgment rule, since they are comparable to directors of business corporations. In contrast, trustees are governed by the Prudent Man Rule. This distinction in the standard duties applicable to fiduciaries in different situations should be recognized.

The correct answer is F. Prudent Man Rule; business judgment rule.

Corporate directors are governed by the business judgment rule, while trustees are governed by the Prudent Man Rule.

1. Business Judgment Rule: The business judgment rule is a legal principle that guides corporate directors in making decisions on behalf of a company. It states that directors should exercise their judgment and make decisions in good faith, with reasonable care, and in the best interests of the company and its shareholders. The rule provides a level of protection to directors, stating that as long as they act in accordance with their fiduciary duties and exercise reasonable care, their decisions will not be questioned or second-guessed by the courts.

2. Prudent Man Rule: The Prudent Man Rule is a legal principle that governs the actions of trustees, who are responsible for managing and investing assets on behalf of beneficiaries. Under this rule, trustees are required to act with the care, skill, prudence, and diligence that a hypothetical "prudent person" would exercise when managing someone else's assets. Trustees must make investment decisions that are reasonably expected to preserve and grow the assets, considering factors such as risk, diversification, and the needs of the beneficiaries.

Therefore, option F is the correct answer: Corporate directors are governed by the business judgment rule, while trustees are governed by the Prudent Man Rule.