Pg 26 Flashcards
How long does a director serve for?
Until his term expires or he is removed.
If shareholders vote to reduce the size of the board, does that impact a current director’s term?
No
If shareholders vote to move up the annual meeting date, does that shorten the director’s terms?
No
The general rule is that directors are not liable for losses to the corporation unless what happens with regard to their supervisory role?
- they were reckless in putting confidence in obviously untrustworthy employees, or
- they neglected to perform their duties as a director, or
- they ignored obvious danger signs of employee wrongdoing
What should be in place within a corporation to give senior management and directors timely information?
Reporting systems
In what situation do directors incur personal liability with regard to their supervisory role?
If they utterly failed to implement any reporting information system or controls, or if they implemented a system but conscientiously failed to monitor or oversee its operations
What is the American Law Institute of corporate governance project?
This says that public corporations should have independent directors that are active in monitoring and addressing overreaching by management and management should be replaced if they don’t meet established corporate goals, etc. This is just a suggestion for where the law should go, it is not the law.
What does it mean to need a quorum to be present with regard to directors making a vote?
This usually means a simple majority of the directors need to be present. But the articles of incorporation or bylaws could set a different number. I.e.: 15 member board, you need 8 to make a quorum
What do you need in order to pass a vote through the directors?
- first you need a quorum [majority of the board must be present]
– next you need a simple majority of the vote of the directors that are present at the meeting.
Ie: 15 person board, if only 8 are present, 5 can vote in the affirmative and make a decision that binds the corporation
If there isn’t a quorum, can the directors bind the corporation?
No, they must adjourn. Although if an action is taken at a meeting without a quorum, it can be later ratified at a directors’ meeting or by the shareholders
Can a vote at a directors’ meeting be given by proxy?
No
If a meeting of directors begins with a quorum, but members leave, can the meeting continue even if there isn’t a quorum later?
Yes
If a corporation has 20 directors and the articles of incorporation say that a quorum is 60% of the directors and a vote is a simple majority of the quorum, how many directors do you need to make a quorum and what is the minimum amount of votes that are needed to pass something?
– need 12 directors for a quorum
– need a minimum of 7 votes to pass something
What is the duty of care that only applies to directors?
Directors have a duty of care about the process that is used to reach decisions and he must fulfil his monitoring obligations with regard to officers.
What are the two major duties that directors owe to the corporation?
Duty of care and duty of loyalty
What is the duty of care that is required from a director to his corporation?
He must use the same care and diligence and devote the same time and attention as an ordinarily careful and prudent person would be reasonably expected to do under similar circumstances.
What are the three major areas to consider under a director’s duty of care?
– obligation to be ATTENTIVE
– to make reasonable INQUIRY
– to have a RATIONAL BASIS for decision-making
What is involved in the duty of care component that says that directors have a duty to be attentive to corporate business?
Absolute duty to:
- regularly attend corporate board meetings
– keep themselves informed about activities of the corporation, finances, and performance by monitoring affairs and policies
– read internal reports and summaries of corporate activities
– act reasonably based on information they discover through a reasonable investigation
What does it mean that a director has an absolute duty to be attentive to corporate business?
If he is ill, elderly, or unable to attend a board meeting, that does not relieve him of his duty
What is involved in the director’s duty of care that requires that he be reasonably informed on matters coming before the board?
He must learn more about specific matters that come before the board so he can be reasonably informed to make a decision
If a board is considering a bid by an accounting firm to serve as the corporation’s auditors, what must each director be reasonably informed about with regard to his duty of care?
– whether the firm has the expertise needed to do the job
– the price that other suitably qualified firms would charge for the same thing
What does it mean under the director duty of care to deliberate?
The board must actually discuss and consider issues that come before it, they cannot just automatically approve things without a debate. All of the directors should benefit from the due diligence of each director, so if one director finds important information, all of them can benefit from it.
What is required under the director duty of care that demands that there be a rational basis for director decisions?
Everyone must be a rational actor that uses information available to them, and the decisions of the board must be made in good faith, based on reliable information, and there must be a rational basis for them.
Is there a duty for the directors to be profitable in their decision making or correct in their decision making?
No, it is looked at from the standard of the information that was available to the directors at the time the decision was made, and as long as they had a rational basis for their decision, there is no liability even if it turns out they could’ve made more money by doing something else.
