Bài giảng Business Law (13th edition) - Chapter 43: Management of Corporations

Learning Objectives Corporate objectives Corporate powers The Board of Directors Officers of the corporation Directors’ and officers’ duties to the corporation Corporate and management liability

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CorporationsHistory & Nature of CorporationsOrganizational and Financial Structure of CorporationsManagement of Corporations10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.CorporationsShareholders’ Rights & LiabilitiesSecurities RegulationLegal & Professional Responsibilities of Auditors, Consultants, and Securities Professionals10McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.Management of CorporationsPAETRHC43“Managers should work for their peopleand not the reverse.”Kenneth Blanchard, Leadership and The One Minute Manager (2000)Learning ObjectivesCorporate objectivesCorporate powersThe Board of DirectorsOfficers of the corporationDirectors’ and officers’ duties to the corporationCorporate and management liability43 - *Shareholders own the corporation, but elect a board of directors to manage the firmFor board to act, a quorum must be present and each director has one voteBoard committees: executive, nominating, compensation, shareholder litigationAudit committee required by Sarbanes-Oxley ActDirectors are elected by shareholders at the annual shareholder meetingBoard of Directors43 - *Straight voting: shareholder may cast as many votes for each nominee as s/he has shares; top votegetters elected as directorsClass voting: certain shareholder classes have right to elect a specified number of directorsCumulative voting: shareholders multiply their shares by number of directors to elect; cast resulting total for one or more directorsElecting Directors43 - *Board delegates management duties to officers, who hire managers and employees Officers of a corporation include the president, one or more vice presidents, a secretary, and a treasurerThe Officers43 - *MBCA permits close corporation owners to either dispense with the board and manage the firm or restrict the board’s discretionA nonprofit corporation must have at least three directors on the board, members elect directors, and only one officer performing duties of a corporate secretary is requiredDirectors often volunteer (no compensation)Close & Nonprofit Corporations43 - *Directors and officers owe a fiduciary duty to corporation, including duty to act within the scope of corporate powers and within their express or implied authorityDirectors and officers are liable for corporate losses caused by the lack of care or diligenceBusiness judgment rule: absent bad faith, fraud, breach of fiduciary duty, judgment of directors and officers is conclusiveDirector & Officer Duties43 - *As agents, directors and officers owe duties of loyalty, including duty not to self-deal (a conflict of interest) or usurp an opportunity the corporation could have exploitedCourt may void an unfair transactionIntrinsic fairness standard: transaction fair if reasonable persons in arm’s-length bargain would have bound the corporationBreach of Fiduciary Duty43 - *Generally, corporate purposes are broadly stated to avoid the claim that corporation acted beyond its powers (ultra vires) by: Shareholder seeking to enjoin a corporation from executing a proposed ultra vires action;In re The Walt Disney Company Derivative LitigationCorporation suing its management for damages from exceeding corporate powers;State’s attorney generalThe Ultra Vires Doctrine43 - *Shareholders isolated by another group of shareholders may complain of oppressionFreeze-out: corporation merges with newly formed corporation under oppressive terms by which minority shareholders receive cash instead of shares of new corporationGoing private is a freeze-out of shareholders of publicly owned corporationsMinority Shareholders43 - *Corporate officer ordinarily has no liability on contracts made for corporation if officer signs on behalf of corporation rather than in personal capacityA person is always liable for his own torts, even if committed on behalf of a principal, but under respondeat superior, corporation is liable for employee’s tort reasonably connected to employee’s authorized conduct Management Liability43 - *A person is always liable for his own crimesCorporations also may be liable for crimes when criminal act is requested, authorized, or performed by:Director, officer, manager with responsibility for company policy, or high-level manager with supervisory responsibility over subject matter of the offense and acting within scope of employmentManagement Liability: Crimes43 - *Since officers and directors risk liability, corporations typically agree to indemnify those who serve as a director or an officerIn addition, D & O insurance is available as a risk management toolIndemnification & Insurance43 - *When an outsider attempts to gain control of a publicly held corporation (target), outsider (raider) makes a tender offer for the shares Tender offer is an offer to shareholders to buy their shares at a price above current market priceRaiders hope to acquire a majority of shares, giving control of the target corporationCorporate management generally opposes tender offers using a variety of defensesThe Tender Offer43 - *Test Your KnowledgeTrue=A, False = BThe board of directors own a corporation.Corporations have legal power to do anything that an individual may do.Sarbanes–Oxley Act requires all publicly held firms to have audit committees comprised of independent directors.Class voting permits shareholders to multiply shares by number of directors to be elected and cast total for one or more directors43 - *Test Your KnowledgeTrue=A, False = BOfficers are agents of the corporation.A hostile takeover occurs when there is an offer to shareholders to buy their shares at a price above current market price.Under the intrinsic fairness test, directors and officers are protected from liability to their corporation for usurping corporate opportunities.43 - *Test Your KnowledgeMultiple ChoiceAbsent bad faith, fraud, or breach of fiduciary duty, the rule that the judgment of directors and officers is conclusive is known as: (a) The fiduciary duty rule(b) The D&O rule (c) The business judgment rule (d) The business purpose test(e) none of the above43 - *Test Your KnowledgeMultiple ChoiceWhich of the following statements is false? (a) Each person is liable for his/her own torts(b) A corporation may be criminally liable if an officer or director authorized an employee to do a criminal act(c) An officer or director cannot be personally liable for a crime(d) Corporations may protect or insure their officers and directors from the risk of liability43 - *Thought QuestionRoberto Goizueta, former CEO of Coca-Cola, said in 1992: “Business now shares in much of the responsibility for our global quality of life.” Do you agree or disagree with Goizueta? Support your opinion. 43 - *