d.However, shareholders can also be opportunistic.e.So the correct solution is to have the court decide on its own the level of independence and good faithof the committee, taking into account written findings by the parties and also public policy. i.So basically, the court first conducts its own discoveryii.And then exercises its “own business judgment” on whether the suit should be dismissed. F.Aronson v. Lewis clarifies where the line between Gall and Zapata lies.
Business Organizations Outline Autumn 2011Sarah Staudt1.In order to be protected by the BJR, directors must be disinterested, and they must reasonably inform themselves and discharge their duties with requisite care.2.But we can’t allow shareholders to say that anything is excused as futile. 3.So, A suit is ONLY excused as futile ifa.A reasonable doubt is createdthat the directors are disinterested and independent AND b.The transaction was otherwise the product of a valid exercise of business judgment. 4.The “mere threat of personal liability” for approving a questioned transaction is not enough to challenge disinterestedness. So, in essence, the identity of the directors as potential or actual parties will not in and of itself mean that the board is not disinterested. 5.If we allowed demands to be excused as futile and not have to be presented to the board at all in a broad swath of cases, the exception would swallow the rule. III.The Duty of Loyalty and Self-DealingA.The common law rule was that transactions that had directors’ personal interests at stake were void if challenged.B.DE §144 modifies this rule1.DE §144(a)says that transactions between a corporation and its director are not voidable solely because the transaction is with a director. There are three requirements to make it ok:a.Disclosure of the interest to the board of directors, followed by a majority vote of the disinterested board members ORb.Disclosure to shareholders and a majority vote of shareholders ORc.The contract is “fair as to the corporation as of the time it is authorized”.2.Interested directors can count towards constituting a quorum at the approving board meeting, but not towards voting for the transactionC.Marciano v. Nakash holds that the application of §144a is not exclusive; in certain factual situations, judges may simply test intrinsic fairness.1.This was a case of total shareholder deadlock. The loans, while fair to the corporation, would have been immediately blocked by the other 50% shareholder.2.The loans were in good faith and were necessary3.This is why the intrinsic fairness allowance in §144 exists – so that shareholders cannot create this deadlock purely using of accusations of self-dealingIV.Executive Compensation
Business Organizations Outline Autumn 2011Sarah StaudtA.Shareholders sometimes try to attack executive compensation schemes on the logic that the compensation is not commensurate with the services provided, essentially violating a fiduciary duty.
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