Board Oversight

Question 1

Under Aronson, when is a stockholder’s pre-suit demand upon a board of directors to redress an alleged wrong to the corporation excused as futile?

1. when reasonable doubt is created that the directors are disinterested and independent
2. when reasonable doubt is created that the directors are interested and independent
3. when reasonable doubt is created that the challenged transaction was the product of a valid exercise of business judgment
4. when reasonable doubt is rebutted that the challenged transaction was the product of a valid exercise of business judgment
5. 1 and 3 only

Answer 1

1 and 3 only

Question 2

In Shlensky v. Wrigley, what did the court require to overcome the business judgment rule?

1. MLB lighting requirements
2. increased costs to the company
3. fraud, illegality or conflict of interest
4. reasonableness of shareholder plaintiffs
5. benefit to the corporation

Answer 2

fraud, illegality, or conflict of interest

Question 3

The business judgment rule is:

1. an irrebutable presumption insulating directors’ decisions from judicial scrutiny if they acted in an honest, well-meaning, informed and rational manner
2. a rebuttable presumption subjecting directors’ decisions to judicial scrutiny if they acted in an honest, well-meaning, informed and rational manner
3. a presumption that directors have breached their fiduciary duties
4. a rebuttable presumption insulating directors’ decisions from judicial scrutiny if they acted in an honest, well-meaning, informed and rational manner
5. an irrebutable presumption subjecting directors’ decisions to judicial scrutiny if they acted in an honest, well-meaning, informed and rational manner

Answer 3

a rebuttable presumption insulating directors’ decisions from judicial scrutiny if they acted in an honest, well-meaning, informed, and rational manner

Question 4

According to Aronson and countless other cases, what is the “cardinal precept” of corporation law?

1. the board of directors shall have the power to vote, sue or sell the corporation
2. derivative suits shall be allowed only in Delaware and New York
3. the business and affairs of every corporation shall be managed by or under the direction of a board of directors
4. the board of directors shall meet quarterly, in person or by proxy
5. 3 and 4 only

Answer 4

the business and affairs of every corporation shall be managed by or under the direction of a board of directors

Question 5

Which of the following might be a justification for the business judgment rule?

1. judges are not experts in business
2. if board decisions are regularly subjected to judicial review, certainty will be difficult for businesses
3. insulating directors from suit creates a conflicted climate for corporate teamwork
4. allowing shareholders to sue directors makes financial planning easier for directors
5. 1 and 2 only

Answer 5

1 and 2 only

Question 6

After the Smith v. Van Gorkom decision, first Delaware and then other states enacted laws:

1. leading to the ascension of New York as the primary place for corporation law
2. forbidding the application of the business judgment rule
3. permitting corporations to provide for director exculpation from liability in their articles of incorporation
4. requiring corporations to insure directors for the full amount of potential liability
5. providing that LLCs can impose liability on member-managers in the event of a fiduciary duty violations

Answer 6

permitting corporations to provide for director exculpation from liability in their articles of incorporation

Question 7

Under MBCA Section 8.30, a director has latitude to take action he or she:

1. believes will benefit him or her personally
2. reasonably believes will perpetuate the status quo of the corporation
3. regardless of reasonable belief, as long as it falls within the definition of negligence or gross negligence
4. regardless of reasonable belief, as long as it perpetuates the status quo of the corporation
5. reasonably believes to be in the best interests of the corporation

Answer 7

reasonably believes to be in the best interests of the corporation

Question 8

One of the court’s objections to the directors’ decision in Smith v. Van Gorkom was:

1. the lack of experience of the board members
2. the length of the board meeting
3. the consultation with an attorney
4. Van Gorkom’s minimal history with Trans Union
5. the addition of a “market test” period

Answer 8

the length of the board meeting

Question 9

Shlensky v. Wrigley was a _______________; Smith v. Van Gorkom was a ______________.

1. derivative suit; direct suit
2. direct suit; derivative suit
3. derivative suit; derivative suit
4. direct suit; direct suit
5. none of the above

Answer 9

derivative suit; derivative suit

Question 10

Directors’ fiduciary duties:

1. include a duty of care
2. include a duty of loyalty
3. are based on the fact that they are agents of the corporation
4. require them to consider the best interests of the corporation
5. all of the above

Answer 10

all of the above