Quiz 25: Corporate Directors, Officers, and Shareholders
Proxies: A company needs the vote of the shareholders before changing the policy of the company. The proposals given by the shareholders are presented to the board of the directors and are asked to include in the materials of the proxy. Now all the public companies have provided the option of the internet proxy to its shareholders. The shareholders have the option to choose from the paper documents or information via the internet. Although the internet access is evolving rapidly but corporation still prefers the old method of sending the paper documents because of the following reasons: 1. The Single proxy system is shared by the number of clients which questions the effectiveness of the proxy servers. 2. The information includes the legal and financial documents which can be easily accessed under the digital documents as they can be hacked. 3. It is relatively easy to read the printed papers, then the digital documents as notes can be made easily. 4. Strong internet connection is not available everywhere (such as remote location) so distributing hard copies is a better way. Hence, the above advantages of the printed documents encourage the companies to continue the solicitation of proxies in the old fashioned way.
The directors are answerable to shareholders and corporation for their acts. It is expected that their act will be the best-suited act in a given situation and it will be towards the benefit of the organisation. If in any case it is found that there is a breach of trust by the directors then shareholders can sue them. If, 1. Company X's was a performing stock and/or 2. purchase of stock was a strategic move to enter into new business, and/or 3. it was to consolidate existing position or any other reason Then it was a good move of company W to purchase stock of company X. However, the directors of company W have given preferences to the personal interest over the interest of the company, which is a violation of Duty of Loyalty. The directors have also not acted in good faith. In this case, directors must have allowed and done the needful for purchasing the stocks. This act is purely a case of Breach of trust of shareholders. If they would have made full disclosure of the interest before purchasing the stock and would have not been the part of voting in which this was decided that company W will purchase the stock and would have actually purchased then it would not have been the "Interest of Conflict" and a violation of Duty of Loyalty. Unfortunately here directors failed in duties and have interest of conflict. Mr Y as a shareholder of the organisation can do the complaints to the Corporate Directors for action. If Corporate Directors refuse to enact within a period of 90 days a Derivate Suit can be filed after 90days by the shareholders on behalf of the company W.
The major responsibilities of the Corporate Directors and Officers are:- Duties of care and Duty of loyalty; Duties of care: The directors and officers or office bearers has to exercise their duties with due care. The negligence from the part of directors or office bearers will turn to be very costly to the corporation. Further, they are expected to be informed in all the matters of corporate laws and matters. Moreover, they have to conduct their duties with reasonable reasoning and proper investigation before making a decision. Duty of loyalty: Loyalty is the faithfulness to ones duties and obligations. The directors or office bearers has to subordinate their personal goals to the welfare of the corporation. They should not use corporate funds or properties for their personal advantage. Further, they must refrain from self-dealing for the matters pertaining to financial assets of the corporation.