Quiz 48: Management of Corporations
A) This would be a conflict of interest if a director of a company serves on the board of a competing business. Therefore, this statement is incorrect. b) Directors of corporation have a duty to help their corporation achieve contracts, not take it for their own benefit. Therefore, this statement is incorrect. c) Directors can rely on information by their corporate officers to manage the business. Therefore, this statement is correct. d) There must be a vote by all directors to grant a loan to a shareholder or anyone an should not at all performed by one director. Therefore, this statement is incorrect.
Refer to the case In re Bear Stearns Litigation to answer question as below: Facts to this case • A financial company entered a merger with a banking company in which the finance company's stocks would be valued at $10 per share. • The directors were told by their advisors that this was a fair exchange price. • Shareholders disagreed with this price and sued Case Issue The issue is what defenses are available to the board of directors in this suit. Relevant Terms, Laws, and Cases Business Judgment Rule - is a defense when board of director's actions causes damage, but taken in a manner that was informed, in good faith, and in the interest of their company, then they may be precluded from a lawsuit for the damage. Analysis and Conclusion The board in this case may state the business judgment rule defense. In fact, the court stated that the plaintiffs (shareholders) have the burden to prove that the board breached their fiduciary duty to the company or acted in bad faith. The court held for the board. They argued that: • The board had no self interest in the merger and they were not affiliated with the acquiring banking company. • There was no proof that they acted in bad faith. • The lowered stock price level was due to the financial emergency the company faced and the board's decisions have prevented the firm from bankruptcy. • Thus, the board showed that it acted reasonably in light of these dire circumstances. Therefore, the board had a valid business judgment defense.
A) The board serve as a governing body of a corporation, thus they can repeal the bylaws. Therefore, this is not the answer. b) The board serves as a governing body of a corporation. Declaring dividends is a part of the board's authority. Therefore, this is not the answer. c) The board serves as a governing body of a corporation, thus they fix their compensation granted if it is not exorbitantly high. Therefore, this is not the answer. d) The article of incorporation would be the foundation of a corporation and its business, the board would not have the authority to change it. Therefore, this is the answer.
There is no answer for this question