Question

Part 2: During this same time Mark, a director at CSK Auto, Inc., discovered that Tammy, another director, was embezzling funds CSK Auto, Inc., illegally using the company car to her own ends, and generally acting in a manner deleterious to the firm. Tammy, however, was an expert on stock issuances and had recently advised the firm that it should make a new issue of bonds to cover an upcoming transaction. While Mark knew that Tammy was generally untrustworthy, he believed that the advice Tammy had given the board was financially sound. The bond issuance tanked and the board of directors was sued. Should Maynard be held personally liable or were his beliefs about Tammy - as to the quality of her advice – were reasonable and protected by the Business Judgment Rule?

As you respond to the above prompts, be sure to include the reasons why officers and directors have duties to the corporation and shareholders.

Answer 1

Answer-

As per Business Judgement Rule there is a legal principal that protects the director of a company from personal liability to the company for loss incurred in the business transactions that are within their authority and power to make when sufficient evidence demonstrates that the transaction was made in good faith. Texas also added a standard that allows director to escape from the liability arised on making wrong decisions made in the good faith of the business on the advice of finance consultant or its team member.

While officers and directors have the duties to the corporation and shareholders because they have been chosen as their representative and they have to act and take decisions on their behalf and in the good faith of company. That's why officers and directors have the legal as well as social responsibilities to make rational decisions. But as per law there are some releives and escapes which are given as considered the factor of human nature. Also as in this case board of directors was sued for the wrong decisions made upon the advice of it's member but the decision was made in the good faith of company because the board thought it was financially sound decision therefore as per business judgement rule directors are not personally liable for this.