lesson 19

Question 1

management

Answer 1

board of directors led by chairmen

Question 2

management officers include

Answer 2

president, VP, treasurer, secretary, supervisors

Question 3

stakeholders include

Answer 3

employees, customers, creditors, suppliers, and communities

Question 4

traditional view of management duties

Answer 4

focus on interests of corp and shareholders, other stakeholders irrelevant

Question 5

during 80s and 90s with the advent of hostile takeovers, it became apparent that

Answer 5

when BoD and management only considered shareholders, huge negative consequences could result

Question 6

business judgement rule

Answer 6

officers and directors of a corp owe a fiduciary duty to, and must act in best interest of, both the corporation and the shareholders

Question 7

main effect of business judgement rule

Answer 7

originally to set out minimal standards for officers and directors, the main effect of the rule now is to protect officers and directors who make decisions in good faith that, nonetheless, turn out badly for the corp/shareholders

Question 8

what does business judgement rule accomplish

Answer 8

1. permits directors to do their job, won’t be worried if result is negative
2. keeps courts out of corp management
3. encourages directors to serve (often not paid)

Question 9

what if board members violate business judgement rule?

Answer 9

ordinarily will allow for potential liability of violator

Question 10

circumstances that protect individual that violates the BJR

Answer 10

1. special committee is formed to approve of decision. if committee is independent and they conduct a thorough analysis before approving decision.
2. disinterested shareholders approve the action after they have been provided with all relevant and accurate info
3. approval by a court

Question 11

issues relating to BJR

Answer 11

1. legality
2. self-dealing
3. corporate opportunity

Question 12

BJR - legality

Answer 12

if a member of board or officer engages in illegal activity as part of his corporate decision making, he has violated BJR.

Question 13

legality example

Answer 13

employee discovers company has spilled toxic chemicals in waterway, goes to a board member, offered 10k to be quiet. even though bribery helps corp, it’s illegal

Question 14

BJR - self dealing

Answer 14

occurs when a manager makes a corp decision that either benefits himself or some other person, involves duty of loyalty to corporation

Question 15

self dealing example

Answer 15

david on BoD, business purchases and resells camping products. when cost of tents increases, company looks for new supplier. david and friend form new company, doesn’t tell anyone at his job, and strongly suggests that company starts buying tents from his own company. he has violated duty of loyalty and BJR

Question 16

BJR - corporate opportunity

Answer 16

when managers learn of bus. opportunities through their position in business, they cannot take advantage of that opportunity. they must give corporation the option to accept opportunity, disinterested board member must clearly decline before manager can act

Question 17

how could catherine have legally bought land?

Answer 17

1. advised corporate officers, they decline, she purchases
2. if she could prove that company would not have benefitted from the opportunity, she has not violated the rule.

Question 18

rational business purpose

Answer 18

any decision by a manager that does not have rational business purpose violated BJR.
- courts will ordinarily make every effort to defer to the judgement of the manager and decline to find decision was irrational

Question 19

BJR requires that decisions be made by _______.
courts do not actually care about _______.
courts do care that __________.

Answer 19

• reasonably informed managers
• actual decision or results of decision
• manager acted as a reasonable person that was reasonably informed