Corporate

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CHAPTER 36
Corporate Management
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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 peoples
  masters.
• Grover Cleveland,
• United States President

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Managers vs. Shareholders The Inherent Conflict

• Managers want, first to keep their jobs and
  second, to build a strong company.
• Managers have a fiduciary duty to act in the best
  interests of the shareholders.
• Shareholders want the price of stock to
  increase.
• Stakeholders want the business to grow and
  continue to use the stakeholders services.

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Resolving the Conflict The Business Judgment Rule

• Business Judgment Rule -- The manager has a duty
  of loyalty and a duty of care.
• The manager must act without a conflict of
  interest, with the care of an ordinary prudent
  person and in the best interests of the company.
• This rule allows directors to do their job
  without fear of excessive court intervention.

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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.

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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.

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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.

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More Conflict Takeovers

• There are three ways to acquire control of a
  company
• Buy the companys assets.
• Merge with the company.
• Buy stock from the shareholders.
• Takeovers and tender offers are regulated
• Federal Regulation of Tender Offers The Williams
  Act
• State Regulation of Takeovers
• Common Law of Takeovers

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Prevention of Takeovers

• Companies may try to prevent takeovers in many
  ways
• Transferring assets, re-distributing stock,
  re-structuring the board of directors, etc.
• When establishing takeover defenses, shareholder
  welfare must be the boards primary concern.
• If the company must ultimately be sold, it must
  go to the highest bidder it cannot give
  preferential treatment to a lower bidder.

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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.

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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).