Question

Jimmy is the CEO of News Corp. His son, Johnny, runs Television Inc. One day Jimmy suggests that Johnny sell Television Inc. to News Corp. Jimmy and Johnny work together to radically inflate the value of Television Inc. Jimmy brings a proposal to the Board of Directors to buy Television Inc. for $500 million dollars even though the corporation is only worth $2 million. The board of directors diligently examines the transaction, but due to clever forgeries, the board does not discover the radical inflation of the corporation. Jimmy never discloses his relationship with Johnny. The sale goes through, and it is shortly discovered that Television Inc., is practically worthless.

A shareholder sues alleging that Jimmy violated his fiduciary duty of loyalty.

Additionally, the shareholder claims that the directors violated their fiduciary duties of care.

Is the shareholder correct?

The requirements below must be met for your paper to be accepted and graded:  

Write between 500 – 750 words (approximately 2 – 3 pages) using Microsoft Word.

Attempt APA style, see example below.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 60% of your paper must be original content/writing.

No more than 40% of your content/information may come from references.

Use at least two references from outside the course material, preferably from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the two reference requirement.

Answer 1

The shareholder from his standpointis absolutely correct since Fiduciary Duty is one where one partywill act in the best interest of the other party. The party who isobligated is called a fiduciary or in other words a person whois entrusted withthe care of money or property is alsoreferred to as the fiduciary party, this act of obligation is alsocalled as fiduciary obligation.

It isevident that Jimmy has definitely violated his duty of loyalty byforging the values and inflating the documents. As a CEO of thecompany he should have done his moral duties right which he failedto do. Hence the shareholders are now taking him to task. Fiduciaryduty of loyalty is an affirmative duty of the board to protect theinterests of the corporation which Jimmy has failed to do. So, theshareholders are correct from their viewpoint.

The shareholders statement claimingthat the directors have failed to meet their fiduciary duties ofcare also stands valid in consideration with the Business JudgmentRule since according to the rule, the courts will determine if thedirectors have discharged the duty of care. In other words the Business Judgment rule saysthat the directors will not be held responsible for unfavourableoutcomes if they had acted in good faith and if at all a reasonableperson had acted.