Introduction
Corporate directors owe the corporation and its shareholders a fiduciary obligation of trust and confidence. This fiduciary responsibility entails an obligation to obey, a duty of care, loyalty, and an act of good faith. Directors have to count on others for information, opinions, reports, or comments from experts, reliable and capable executives, employees, or a committee of other board directors to carry out their responsibilities.
Critical Legal Thinking
A director will not be held accountable for errors in judgment or negative outcomes as long as these decisions were made with appropriate care and relied on other sources of data and analysis. This is according to the principles of law and the Business Judgment Rule. This necessitates that the director makes an informed choice with no personal interests in conflict with the corporation’s interests.
Principles of Law
The court uses a business judgment rule to evaluate if the director satisfied their duty of care and acted in good faith, for the corporation’s best interests. For sincere errors in judgment, a director is not accountable; this is the Business Judgment Rule. Without hindsight, the decision-making process assesses whether or not the corporate director complied with their duty of care and acted in good faith.
Key Facts
The business judgment rule protects Roger since he was allowed to depend on the directors’ committee’s and the outside marketing consultant’s information and analysis. It was fair for the board to undertake an inquiry through a committee, and relying on the marketing consulting firm’s conclusions was appropriate. Roger should not be sued because he is assumed to have behaved in the corporation’s and shareholders’ best interests.
Analysis
To create the largest sport utility vehicle ever offered to the general public, Roger persuades the board to look into creating a new one. However, the motion was approved by six out of the nine directors: this represents two-thirds of the director’s division (Kwadade-Cudjoe, 2020). Few buyers could be found for the enormous new sport utility vehicle because of the surprisingly swift increases in fuel prices.
Conclusion
Based on the suggestions of a board committee and information given by an independent marketing expert, the board agrees to produce the SUV. Even though the outcome was a substantial financial loss for the corporation Roger should not be sued for persuading the board to create and advertise the huge SUV. This is because he is assumed to have behaved in the corporation’s and shareholders’ best interests.
Reference
Kwadade-Cudjoe, F. (2020). C. Pareto’s rule 80/20 Pareto’s rule on global wealth and material distribution: The role of start-ups to change the dynamics of the rule. Archives of Business Research, 8(2), 134–142. Web.