Chapter 1: Topic 1: Directors' Fiduciary Duties | p. 4-11

A CEO or CFO serving on a board is considered ________
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Conflicts of InterestMatters involving financial or familial interest. SG pg. 5 exact (LC)Name 4 situations where duties are put to the test?- Conflicts of Interest - Corporate Transactions - Controlled Entities. - Divided Loyalties SG pg. 5-6 exact (MK)Revlon StandardThis case specifically requires directors to obtain the best price for shareholders if a decision has been made to sell the company. SG pg. 6 exact (LC)Controlled EntitiesA person, group of people, or entity holds a controlling percentage of the stock's voting power (i.e. more than 50%). SG pg. 6 exact (LC)How are the board fiduciary duties tested with controlled entities, and give an example?If a controlled entity engages in a transaction, directors should be cognizant of increased scrutiny around their fiduciary duties, because the business judgment rule no longer applies. Instead, the transaction must meet a standard of "entire fairness," which requires a fair price and a fair process. For example, the company might be majority owned by a private equity firm, venture capital (VC) firm, holding/parent company, or group of family members. SG pg. 6 exact (MK)Who can be considered a controlled entities?Private equity firm, venture capital firm, holding/parent company, or a group of family members all who own more than 50 % of a company could all be considered........ SG pg. 6 (LC)Entire Fairness doctrineInstead of the Business Judgment Rule, this doctrine applies if a controlled entity engages in a transaction. This standard will require a fair price and a fair process for the company. SG pg. 6 (LC)The Entire Fairness Doctrine is waived if....If there are protections for minority shareholders this standard is waived. SG pg. 6 exact (LC)Caremark case (Caremark standard)Landmark case that stated directors must "attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists." (a/k/a the duty to oversee effectiveness and to assure compliance) SG pg. 7 blue line exact (LC)List 4 Guidelines for upholding your Fiduciary Duties1. Ensure that the only relationship you have with the company you serve is through your position as a director. 2. Only use company resources for business purposes, never for personal use. 3. Take adequate time to prepare for and attend meetings. 4. Don't be afraid to be the contrarian in board meetings. SG pg. 6-7 exact (MK)What is Smith v. von Gorkham?An example of board Failure in "duty of care" This case, also known as the "TransUnion case," was the result of a leveraged buyout merger approved by the TransUnion board and by shareholders. Although there were strategic reasons for the merger (related to the company's tax position) and although the price was not unreasonable, the court found gross negligence. Prior to this case, only breaches of the duty of loyalty could thwart the business judgment rule. Following this case, Delaware and other states passed laws permitting companies (with shareholder approval) to adopt charter amendments that exculpate directors from personal liability for breaches of the duty of care. (There is no exculpation for a breach in the duty of loyalty, including a breach of good faith.) SG pg. 7 exact (MK)Questions for Directors to Ask about Fiduciary Duty: Am I reasonably familiar with, and do I understand, all of the state and federal laws applicable to my duties as a director?ponderQuestions for Directors to Ask about Fiduciary Duty: Has the corporation I serve provided me with a director job description outlining all of my duties? Does the board have corporate governance guidelines, and, if not, have I insisted upon creating such a document?ponderQuestions for Directors to Ask about Fiduciary Duty: Have I disclosed any actual or potential conflicts of interest to my board, such as serving on the board of a competitor, a company in the same industry, or a company with which we do business?ponderQuestions for Directors to Ask about Fiduciary Duty: Do I have an immediate family member who receives compensation from the corporation I serve?ponderQuestions for Directors to Ask about Fiduciary Duty: Am I prepared to recuse myself from any board discussions and decision making about a matter in which I have a real or perceived conflict of interest?ponderQuestions for Directors to Ask about Fiduciary Duty: Am I continually monitoring my company's activities and reading all materials provided to me prior to board and committee meetings so that I am properly informed to vote on board and committee actions?ponderQuestions for Directors to Ask about Fiduciary Duty: Do I attend all board and committee meetings and devote adequate time to preparation for those meetings?ponderQuestions for Directors to Ask about Fiduciary Duty: Does my board keep adequate records to fully summarize deliberations for nonroutine matters about material transactions?ponderQuestions for Directors to Ask about Fiduciary Duty: Am I an active participant in board meetings, asking probing questions until I have received satisfactory answers and fully comprehend an issue?ponderQuestions for Directors to Ask about Fiduciary Duty: Am I willing to voice a contrarian opinion and present facts that are at odds with the facts currently being relied upon?ponderQuestions for Directors to Ask about Fiduciary Duty: Does the corporation I serve provide directors and officers (D&O) liability insurance, and do I understand the extent of the coverage? If not, have I engaged a third party to evaluate and explain the benefits and limitations of the coverage?ponder