In: Operations Management
1. Pritchard & Baird was a reinsurance broker. A reinsurance broker arranges contracts between insurance companies so that companies that have sold large policies may sell participations in these policies to other companies in order to share the risks. Pritchard & Baird was controlled for many years by Charles Pritchard, who died in December 2013 Prior to his death, he brought his two sons, Charles, Jr. and William, into the business. The pair assumed an increasingly dominant role in the affairs of the business during the elder Charles’s later years. Starting in 2010, Charles, Jr. and William began to withdraw from the corporate account ever-increasing sums that were designated as “loans” on the balance sheet. These “loans,” however, represented a significant misappropriation of funds belonging to the corporation’s clients. By late 2015, Charles, Jr. and William had plunged the corporation into hopeless bankruptcy. A total of $12,333,514.47 in “loans” had accumulated by October of that year. Mrs. Lillian Pritchard, the widow of the elder Charles, was a member of the corporation’s board of directors until her resignation in December 2015, the day before the corporation filed for bankruptcy. Francis, as trustee in the bankruptcy proceeding, brought suit against United Jersey Bank, the administrator of the estate of Charles, Sr. He also charged that Lillian Pritchard, as a director of the corporation, was personally liable for the misappropriated funds on the basis of negligence in discharging her duties as director. Is Francis correct?
2. Muller, a shareholder of SCM, brought an action against SCM over his unsuccessful negotiations to purchase some of SCM’s assets overseas. He then formed a shareholder committee to challenge the position of SCM’s management in that suit. To conduct a proxy battle for management control at the next election of directors, the committee sought to obtain the list of shareholders who would be eligible to vote. At the time, however, no member of the committee had owned stock in SCM for the six-month period required to gain access to such information. Then Lopez, a former SCM executive and a shareholder for more than one year, joined the committee and demanded to be allowed to inspect the minutes of SCM shareholder proceedings and to gain access to the current shareholder list. His stated reason for making the demand was to solicit proxies in support of the committee’s nominees for positions as directors. Lopez brought this action after SCM rejected his demand. Will Lopez succeed?
3. Wilshire, while serving as an officer of Riffe Oil Company, received a secret commission for work he did on behalf of a competing corporation. Can Riffe Oil recover these secret profits and, in addition, recover the compensation Riffe Oil paid to Wilshire during the period that he acted on behalf of the competitor? If Riffe refuses to take any action, is there any thing that can be done by other interested parties? Explain fully.
1. Duty of Diligence. Indeed. All corporate directors, as fiduciaries, are answerable for dealing with the business and undertakings of the organization. They should practice their obligations in compliance with common decency and with the tirelessness, care, and expertise of a customarily reasonable person. In any event, a director should have some essential comprehension of the enterprise's matter of fact and exercises. An executive ought to likewise stay up to date with the budgetary status of the venture by a customary audit of the fiscal summaries. This audit may bring about an obligation to research any suspicious issues. After such an examination, an executive may have an obligation to protest any shamefulnesses, .
Here, Mrs. Pritchard ought to have realized that Pritchard and Baird was in the reinsurance business as an intermediary and that it every year handled millions of dollars having a place with, or inferable from, surrendering organizations and reinsurers. Accused of that information, an executive in Mrs Pritchard's position had, at the absolute minimum, a commitment to request and read the yearly financial statements. Mrs Pritchard never recognized what Charles, Jr. furthermore, William were doing on the grounds that she never put forth any attempt to release any of her obligations as an executive. In any case, her carelessness doesn't bring about risk except if it is a proximate reason for the organization's misfortunes.
2. Right to Inspect Books and Records. Indeed. Lopez's demand was plainly presented so there was no procedural reason for the defendant's rejection. The review of investor records to encourage an intermediary challenge to occupant executives is a valid purpose and the weight is on the enterprise to show an inappropriate reason for the demand. Lopez' involvement with Muller, who is occupied with a case with SCM, doesn't establish an absence of sincere trust in his solicitation. Further, it would even be legitimate to examine such prosecution with the investor.
3.Breach of Duty. Yes, Judgment for Wilshire Oil Company. Riffe's activities in tolerating the mystery commission from a contending enterprise comprise both a hardheaded break of his work contract and a rupture of his trustee obligation to the company originating from his situation as a corporate official. Either activity alone is adequate to legitimize denying Riffe remuneration for the time of his misdealing. Riffe, at that point, isn't just liable to the enterprise for the benefits acknowledged yet additionally should discount all compensation paid to him by the company during the period in which the ruptures were submitted.