Lesson 5

Question 1

Board of Directors

Answer 1

The Board of Directors manages the corporation’s business.

This has four basic components:

1. Make policy decisions for the corporation (e.g., products, services, labor relations).
2. Appoint the corporation’s officers and determine their compensation. The officers implement the board’s
   policy decisions and manage the business on a day-to-day basis.
3. Monitor performance of corporate officers.
4. Declare dividends.

Question 2

Officers

Answer 2

The officers of a corporation implement the policy decisions of the board of directors.

Question 3

Director’s Duty of Care

Answer 3

The director’s duty of care requires that directors exercise the degree of skill, diligence, and care that a reasonably prudent person would exercise in similar circumstances.

Question 4

Interlocking Directorate

Answer 4

An Interlocking Directorate is a case where two corporations share one (or more) directors. A conflict of interests arises when the corporations contract with each other, since the common directors have a duty to serve the best interests of both corporations.

Question 5

Duty of Loyalty

Answer 5

Directors, as part of their fiduciary duty to the corporation, have a duty of loyalty to the corporation. They must serve the corporation’s best interests without regard for personal gain.