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Business Organizations
last updated 31-Oct-2003

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DIALECTICA
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CLASS NOTES

 

VI. Corporate Duties
A. Duty of Care
1. Standard of Care
a. Duty of oversight
  • Role/function of directors - "Corporate Director's Guidebook" 
    • become informed 
    • attend meetings 
    • set corporate strategy 
    • select / monitor / fire CEO 
    • respond to conflicts / illegality / crises
  •  Duty to supervise / monitor 
    •  mismanagement 
      • duty to be informed? 
      • causation: could directors have prevented?
    • defalcations / diversions 
      • duty to investigate? 
      • causation: relaxed analysis
    • illegality 
      • duty to investigate? only when "on notice"? create monitoring devices? 
      • reaction to danger signs / correct behaviro / liability for failure not to respond
  • Relation of monitoring duty to  
    • business judgment rule 
    • MBCA § 8.30(a)
  • Duty of lawyer in representing director / corporation 
    • lawyer as director 
    • multiple representation
Thought of the day
"My observation (which is quite different than the one many lawyers have) was that most people on a board want to do the right thing. The fundamental problem is not that they are lazy or that they are mildly corrupt. The fundamental problem was that so often it was not clear what the right thing to do was." 
Problems

Foodtown Corp. runs a chain of grocery stores in Winston-Salem, a bucolic community of 170,000 in the piedmont region of North Carolina.  Winston-Salem has a blue law that requires businesses close on Sunday mornings.  The Foodtown board decides nonetheless to open its stores all day Sunday, and business couldn't be better.  A Foodtown shareholder sues the board claiming a breach of fiduciary duties.

Party A (Shareholder) Argue the court should compel the board to comply with the blue law. 

Party B (Management) Argue the court should not compel the board to comply with the blue law.

Readings
  • Westfield, Elisa. Globalization, governance, and multinational enterprise responsibility: corporate codes of conduct in the 21st century. 42 Va. J. Int'l L. 1075-1108 (2002). [L][W