neck it's not that simple! Fiduciary Duty: What does it mean and has CBAI violated shareholders interest in a 14A Prelim filing? Let's explore...
I want to offer an overview of the principal fiduciary duties of boards of directors. I will speak mostly from a common law perspective.
Fiduciary duties of directors were first elaborated by common law judges, operating without any guidance from the formal written law. Indeed, the company laws of the United States, and many other common law jurisdictions, contain no statement at all of the core fiduciary duties of care and loyalty. The fiduciary duties of directors are continuing to evolve, again without formal written law.
The classic statement, still found in many American law school textbooks, is that directorsowe to shareholders, or perhaps to the corporation, two basic fiduciary duties:
the duty of loyalty and the duty of care. (((COULD IT BE ARGUED THAT A MASSIVE 500:1 RS COUPLED WITH AS DILUTION HARMS CURRENT SHAREHOLDERS? COULD IT BE ARGUED THAT A PRELIM 14A FILING HAS NEG IMPACTED SHAREHOLDERS?)))
(((A COUPLE OF FOLKS HERE POSTED CCEL SHAREHOLDER LAWSUITS... MAYBE READ WHAT YOU POSTED. CCEL WAS LIABLE FOR SHAREHOLDER FAILINGS... AND FORCED TO SETTLE!)))
I believe that this is too simple a picture. There are at least two additional core duties that directors have today: a duty of disclosure, and a duty that has no precise name, that I will call the duty of extra care when your company is a takeover target.
I want to offer, for each of these duties, a brief statement of the duty, why it exists; and how the duty is enforced or, sometimes, not enforced. I will speak about duties of directors, but these duties apply to officers also.
Duty of Loyalty - Pit has been mentioning it for months...
The most important fiduciary duty is the duty of loyalty. The concept is simple: the decision makers within the company should act in the interests of the company, and not in their own interests. The easiest way to comply with this duty is not to engage in transactions that involve a conflict of interest.
We often call these "self-dealing" transactions. The concept is that the directors are dealing with themselves, and may not reach an agreement that is fair to the company. An alternative, that is accepted in most countries because a flat ban on self-dealing transactions can be impractical, especially for smaller firms, is to have self-dealing transactions approved by a noninterested decision maker. That decision maker can be noninterested directors, noninterested shareholders, or sometimes both.
WHERE IS RICHARD NEESON, the non interested Director? Resigned!
In the United States, if a conflict-of-interest transaction is negotiated and approved by the noninterested directors ((WHICH CBAI DIRECTOR IS NON-INTERESTED SINCE RICHARD NEESON RESIGNED THAT APPROVED A PRELIM 14A?)), in a manner that approximates arms-length negotiations, including the right of the noninterested directors to reject the transaction altogether, the transaction is accepted unless a shareholder proves in court that the transaction is not entirely fair to the company. The burden is on the shareholder to show lack of entire fairness.
Otherwise, the transaction is considered invalid if challenged, unless the directors prove in court that the transaction is entirely fair to the company. The burden is on the directors to show entire fairness.
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