The Business Judgment Rule Self-Quiz
Eric has been the line manager
for a major business unit of Exo, Inc for the past thirty years. His regular
duties are to supervise the work of over 200 exmployees, hire and fire
employees that work for his line, and make decisions about the proper
schedule and maintenance of the line to ensure its optimal performance.
One day, after a major breakdown in his line, Eric calls up a machinery
manufacturer and hires them to replace and retool the machines in his
production area. If, subsequently, the machinery manufacturer is not paid
and sues the company, the company will likely:
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Going Co. recently engaged
in a major acquisition of one of its competitors. However, it quickly
turned out that the market was not prepared for the transaction and subsequently,
the value of Going’s stock plummeted. Going’s directors had
considered the possibility of such a situation, but determined it was
an unlikely scenario. Subsequently, the board was sued by a shareholder
for the loss of the company’s value. In their defense, the board
will likely claim the protection of:
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The board of EmpCo, Inc.
recently agreed to enter a binding fifty year contract with one of its
suppliers. However, the board failed to investigate the long term of the
contract, its exceedingly high price, or the fact that the contract gave
the supplier significant power over EmpCo’s operations. The board
had simply acted on a recommendation of the supplier that it was offering
the best deal around. If the board is subsequently sued by a shareholder,
that shareholder will claim that the board failed to exercise:
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Hilary, Lisa, and Joy are
directors of NewInc Co. For the past fifteen years, NewInc. Co. has done
well in the business of producing kitchen goods. On a whim, and without
doing any research or having any knowledge in the area, the board decides
to enter into the production of portable DVD players. After trying to
start the DVD business and spending millions of dollars to that end, the
company fails. If the board is later sued by shareholders for the loss,
they will likely be viewed by the courts as having:
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