Strategic Legal and Social Issues

The wag of Directors of a confederacy be vested with the ascendancy to exercise unified powers, exile all telephone circuit and control and hold all properties of the corporation. The supreme dominance insofar as the management of the business regular and ordinary personal business of the corporation is vested with the Board of Directors. With great power however comes great responsibility. Directors spot as fiduciaries to the corporation, and once elected they must military service the best interests of the corporation and the sh atomic number 18holders.This fiduciary trading arises out of the boards fiduciary relationship with the corporation and sh areholders. (Saboor H. Abduljaami p2) The following are the three-fold duties of a music film conductor duty of fealty duty of diligence and duty of loyalty. Duty of Obedience The duty of loyalty mandates that every conductor of the corporation must do and perform merely those mos designed to achieve its mission. The mission and goals of the corporation are indicated in the articles of incorporation.Thus, the manager must constantly check whether his stageion is within the scope of his imprimatur and in pursuance of the goals of the comp whatever as indicated in its articles of incorporation. (Role contend When do Board Members Step Over the Linep2) Further, obedience does non only mean compliance with the territorys of the corporation but it also fashion informing the corporation of any identification number done in trespass of the rules of the corporation. This means that every managing coach is mandated to refrain from violating the internal rules of the corporation.As theater theatre directors they are also required to inform the corporation of any wrongdoing pull by one director that seriously prejudices the interest of the corporation. Thus, a director who willfully and knowingly votes or assents to patently unlawful acts of an other(a) director renders him jointly and sev erally likely for any damage resulting to the corporation. Duty of intentness The rule is that every director of the corporation is required to manage the bodied personal matters and perform his puzzle outs with sensitive care and prudence.As an officer of the corporation, the responsibility of the director towards the corporation is not limited to willful breach of trust or excess of power but extends to negligence. This means that even if at that place was no unlawful intent or evil motive in performing a corporate act, he can still be held nonimmune if it can be established that he acted negligently. This liability of a director for his negligent acts rests upon common law rule which renders the agent likely who violates his authority or neglects his duty to the damage of the principal. It must be in a bad way(p) however that the degree of diligence required of a director is relative.The prototype of diligence is that which an ordinary prudent director could reasonab le be pass judgment to exercise in a like position under alike(p) circumstances. The directors are also bound to observe the limits placed upon their powers in consistency with the Articles of Incorporation or charter, and if they transcend such limit and cause such damage, they incur liability. (Ruben Ladia, p. 164) Thus, if a director willfully performs an act which he knows or ought to know to be unauthorized and beyond the scope of his authority, he is understandably liable for any injury.It is however essential to state that though directors are liable for their negligence which has caused serious prejudice to the corporation, they are not liable for losses due to the imprudence or honest error of judgment. This is the concept of business judgment rule which is a defense on the part of the director to escape any liability for his actions. In principle, this states that questions of policy and management are left solely to the honest decision of the board of directors and th e courtrooms are without authority to substitute its judgment as against the director.It is said that business judgment rule is purely a case law derived concept whereby a court will not review the management decisions of a corporations board of directors absent some sort of showing that the board of directors violate their duty of care or loyalty. (Jon Canfield 1) It must be stressed that directors are not insurers of the property of the corporation or guarantors of the success of the corporation. So extensive as the director exercised reasonable diligence in the performance of its function the courts will not interfere and render it liable for negligence. Duty of truenessIt is a general knowledge that there exists a fiduciary relationship betwixt the directors of the corporation and the corporation and its stockholders. As fiduciaries, they are expected to act with design candor and fair dealing for the interest of the corporation and without dishonor of selfish motives. Th us, the directors are not only required to act with reasonable diligence in managing the affairs of the corporation, they are also expected to act with utmost good faith. Thus, the directors of the corporation are expected to first serve the interest of the corporation and their interest later.They are enjoined not to manipulate the affairs of the corporation to the detriment and disregard of the standards of morality and decency. As corporate insiders, the director cannot utilize any inside information they have acquired for their own benefit. He cannot violate the requirements of fair play by doing indirectly what he cannot do directly. Further as directors of the corporation they are not allowed to obtain any personal meshing, commissions, bonus or gain for their official actions. Lastly, a director is prohibited from seizing any business opportunity or growth it at the expense and with the facilities of the corporation.Thus, the duty of loyalty requires a fiduciary to act in t he best interests of the corporation and in good faith. (Jiangyu Zhu 2) Thus, as corporate officers an undivided loyalty is expected of every director. This fiduciary relationship between the director and the corporation imposes a strict duty to act in accordance with the highest standard which a man of the finest honor and reputation office impose upon himself. It must be stressed that the duty to act with utmost good faith is imposed upon all the directors.The law imposes upon the director liability for violating this duty of loyalty regardless whether the director actually received profit from his undisclosed transaction. This was affirmed in the case of stage Software v. Fassihi. crusade of breaker point Software v. Fassihi. Facts Item Software entered into transaction with another company. Item Software has a managing director and a marketing director. It specifically provided in its quash with the marketing director that it cannot take advantage of any mystic information it has learned while employed with Item Software.It appears that while Item Software and the other company were engaged in negotiations, its marketing director had been visiting the other company informing it of his intention to form a new company and his intent to transact directly with the other company. The contract between the two companies did not materialize. Item Software later open out about the actuations of its marketing director. He was eventually summarily disregard from employment and sued by his own company. Issue whether the respondent should be held liable by the corporation for its act of disloyalty even if it did not profit from its misconduct.Held It is irreverent whether the director profited from his misconduct. The sole factor to be determined here is that the director committed a breach of its duty when it failed to disclose its transactions with the other company. The duties of a director imposed by law are mostly higher than those imposed on an employee because he is more than simply a general manager of the company, he is a fiduciary who, with his fellow directors, is accountable for the success of the companys business.Section 317 of the Companies Act of 1985 states that it is the duty of the director of a company, who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the spirit of his interest at a meeting of the directors of the company. (Section 317 Companies Act of 1985) Thus, the marketing director was in breach of his duties both as an employee and as a director and the Item Software was entitled to recover from him damages for breach of that duty suffered as a result of the termination of the contract.