Selfdealingisaviolationofthedutyof loyaltynextslide

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Unformatted text preview: act without a conflict of interest, with the care of an ordinary prudent person and in the best interests of the company. Resolving the Conflict: The Business Judgment Rule • This rule allows directors to do their job without fear of excessive court intervention. remaining with the company; protected by BJR?) (Lippman v. Shaffer: Board decision to pay out “severance” to officer Kulper - Econ 189 Kulper 9 • The duty of loyalty prohibits managers Duty of Loyalty from making a decision that benefits them at theexpense of the corporation. • Self­Dealing is a violation of the duty of loyalty (next slide) • Corporate Opportunity – Managers are in violation of the corporate opportunity doctrine if they compete against the corporation without its consent. Kulper - Econ 189 Kulper 10 • A manager makes decisions that benefit himself or another company associated with the manager. • Self­dealing transactions may be acceptable if: Self­Dealing – The disinterested members of the board of directors approve the transaction. – The disinterested shareholders approve it. – The transaction was fair to the corporation. Kulper - Econ 189 Kulper 11 • The duty of care requires officers and Duty of Care directors to act in the best interests of the corporation and to use the same care that an ordinarily prudent person would in the management of her own needs. – Decisions must have a rational business purpose. – Decisions and actions are legal. – Managers must make informed decisions. (RSL...
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This note was uploaded on 03/17/2010 for the course ECON 100B taught by Professor Kilenthong during the Spring '08 term at UCSB.

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