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Business Law and the Legal Environment for a New Century
                         Alternate Edition
            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


                                                     36
Business Law and the Legal Environment for a New Century
                    Alternate Edition
   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.
                                                        36
Business Law and the Legal Environment for a New Century
                     Alternate Edition
    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.
                                                       36
Business Law and the Legal Environment for a New Century
                     Alternate Edition
              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.           36
Business Law and the Legal Environment for a New Century
                     Alternate Edition
                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.   36
Business Law and the Legal Environment for a New Century
                       Alternate Edition
               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.
                                                   36
Business Law and the Legal Environment for a New Century
                    Alternate Edition
     More Conflict: Takeovers
   There are three ways to acquire control
      of a company:
       • Buy the company’s 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
                                                    36
Business Law and the Legal Environment for a New Century
                     Alternate Edition
      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 board’s
         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.
                                                       36
Business Law and the Legal Environment for a New Century
                      Alternate Edition
  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.




                                                      36
Business Law and the Legal Environment for a New Century
                     Alternate Edition
      “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).”

                                                   36
Business Law and the Legal Environment for a New Century
                    Alternate Edition

								
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