Corporate Governance, Fiduciary Duties

Question 1

What is the basic bargain between investors and the corporation?

Answer 1

Operational control is in the hands of officers and other managers, in return the investors have the right to vote on board members and share in profits

Question 2

What is the basic conflict between investors and the corporation?

Answer 2

Managers look for compensation and equity awards which dilute ownership, shareholders look for dividends and price appreciation

Question 3

Unocal Corp v. Mesa Petroleum Co

Answer 3

Action taken to block a takeover must be motivated by a good faith concern for the welfare of the corporation and its stockholders, must be reasonable in relation to the threat posed

Question 4

Enhanced scrutiny standard

Answer 4

Applies to actions taken to oppose a takeover but if there is a reasonable belief that a hostile takeover will jeopardize long-term value and the board’s defense was reasonable then BJR

Question 5

What is the effect of shareholder approval on business decisions?

Answer 5

The duty of care is met and the burden is on the challenger to show a breach of duty of loyalty

Question 6

Entire fairness doctrine

Answer 6

Implicated when there is a conflicted transaction or controlling party transaction

Question 7

In re MFW Shareholders

Answer 7

BJR applies to going-private mergers if the mergers are conditioned on approval of an independent committee and a shareholder vote

Question 8

Corwin v. KKR Financial Holdings

Answer 8

BJR is the appropriate standard for a post-closing damages action when a merger has been approved under MFW

Question 9

Blasius Industries

Answer 9

The board cannot undertake action with the primary purpose of interfering with a shareholder vote even if it acts in the good faith best interest of the corporation

Question 10

Duties of the board of directors

Answer 10

Duty of care, duty of loyalty (disclosure, good faith)