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Quote of the Day “Corporations, which should be the carefully restrained creatures of the law and servants of the people, are fast becoming the people’s masters.” Grover Cleveland, United States President docsity.com Duty of Loyalty • The duty of loyalty prohibits managers from making a decision that benefits them at the expense of the corporation. • Self-Dealing is a violation of the duty of loyalty. – See next slide for more on self-dealing. • Corporate Opportunitiy – Managers are in violation of the corporate opportunity doctrine if they compete against the corporation without its consent. docsity.com Self-Dealing • Business Self-Dealing – decisions that benefit another company associated with the manager. • Personal Self-Dealing --decisions that benefit the manager directly. • Self-dealing transactions may be acceptable if: – The disinterested members of the board of directors approve the transaction. – The disinterested shareholders approve it. – The transaction was fair to the corporation. docsity.com Duty of Care • The duty of care requires officers and 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. docsity.com State Anti-Takeover Statutes • Most states have passed statutes to deter hostile takeovers: – Statutes that automatically impede hostile takeovers. – Statutes that authorize companies to fight off hostile takeovers. docsity.com “Directors have the authority to manage the corporate business, but they also have important responsibilities to shareholders and other stakeholders (such as employees, customers, creditors, suppliers and neighbors).” docsity.com