Fiduciary Duty
Douglas Tolliver
Grantham University
Fiduciary Duty A fiduciary is a person with a duty to act primarily for another’s benefit. In a corporation, the directors and officers of the company serve as the fiduciaries. Their fiduciary duties include the duty of loyalty and the duty of care. In the scenario, the shareholder is well within their rights to sue Jimmy, the CEO of News Corp, for violating his fiduciary duty obligation of loyalty to the corporation. The fiduciary duty of loyalty requires that corporate officers and directors place their personal interests second to the welfare of the corporation. Jimmy conspired with Johnny to over inflate the valuation of Johnny’s company Television Inc. Next, Jimmy proposed to the Board of Directors to purchase Television Inc for $500 million when he knew it was only worth $2 million. These acts illustrate how Jimmy’s decisions were driven by his personal interests versus the interests of the corporation. In most instances, courts would consider the “business judgement rule” when making a ruling. The Business Judgement Rule relieves corporate management from liability for actions that are undertaken in good faith. When management or directors make honest, informed
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With duty of care, directors are obligated to be honest and to use prudent business judgement in the conduct of corporate affairs. They must use the same degree of care in their business decisions as they would with their personal ones. In the scenario, the Board of Directors closely examined the proposed transaction but they were unable to discover the gross inflation of Television Inc because of Jimmy’s forgeries. The directors executed their responsibility to the best of their ability and they should not be held liable. The shareholder should not have a case against the directors for violating their fiduciary duty of
This decision was made in good faith and cannot be conspicuously construed to have self-interests veiled in them. Further, the executive directors made an informed decision to refrain from passing this information to the board and they did believe that this would be in the best interests of the company as disclosure would have brought an end to the company’s existence much before the actual downfall. Thus this judgment met all the requisites prescribed under the provisions of Section 180 (2) of the Corporations Act, 2001 (Rawhouser, Cummings and Crane 2015). This case was the first to comprehensively lay down the business judgment defense and apply it to the facts and circumstances of a case. This defense would negate the apparent breach of the duties of the directors as prescribed by the statute and under common
When it comes to the audit objectives, the public and the auditing profession maintain varying expectations. The public expects the prevention of fraud to be the auditor’s responsibility. However, the auditors believe that they are responsible for fraud detection, but not obliged to find all of it. In addition, the public views the fraud by the characteristics displayed by management and employees. For example, WoolEx Mills’ management wanted to exude a prevailing financial position and to uphold reputations. By committing financial statement fraud, it made the company look successful even though Sales and cash flows were decreasing. The public would view these particular characteristics as pressures to why the company committed fraud. Greed, recognition, and influences also impacted the public’s view of Wool Ex Mills’ fraud scheme. The CEO used authority to influence employees to take part in the fraud scheme. The public would see that the CEO utilized power to manipulate shareholders, which impacted their trust with WoolEx Mills (Cohen, Ding, Lesage, & Stolowy 2015) (Krishnan & Shah
The size of the company has a fluctuating impact on the ramifications of the law administering the inconvenience of risk on companies. The thought of forcing the liability is unique in relation to the worry of distinguishing the tenet, which will be connected to the case. In specific cases, it might be an improper law to carry out cases, which lacks the foundation of criminal liability of the company involved within the case. Big companies have a convoluted chain of command, which has multilevel frameworks inside the
Ethics policies are implemented in almost all businesses. Companies search for candidates that will be moral in their actions so they can ensure long-term financial success. Throughout history we have seen businesses fall due to unethical behavior. In recent years the business Enron Corporation is best known for the scandal that led to the bankruptcy of a company with more than 60 billion dollars in assets. We will examine the circumstances that led to the downfall of Enron, how the scandal was realized, as well as the outcome of one of the largest bankruptcies in American history; a case that exemplifies unethical professional behavior.
Ethical behavior is behavior that a person considers to be appropriate. A person’s moral principals are shaped from birth, and developed overtime throughout the person’s life. There are many factors that can influence what a person believes whats is right, or what is wrong. Some factors are a person’s family, religious beliefs, culture, and experiences. In business it is of great importance for an employee to understand how to act ethically to prevent a company from being sued, and receiving criticism from the public while bringing in profits for the company. (Mallor, Barnes, Bowers, & Langvardt, 2010) Business ethics is when ethical behavior is applied in an business environment, or by a business. There are many situations that can arise in which a person is experiencing an ethical dilemma. They have to choose between standing by their own personal ethical standards or to comply with their companies ethical standards. In some instances some have to choose whether to serve their own personal interests, or the interest of the company. In this essay I will be examining the financial events surrounding Bernie Madoff, and the events surrounding Enron.
Sollars, G. C. 2001. An appraisal of shareholder proportional liability. Journal of Business Ethics, 32(4), 329-345.
Trustees are fiduciaries with a trust relationship and confidence towards another, Millet J in Bristol West Building v Mothew states that fiduciary duties would be imposed on a person who holds a position on trust, confidence and influence. While there are established categories of fiduciary e.g. trustee/beneficiary and solicitor/client, the categories are not closed. Thus, Fridman found that an agent is a fiduciary because whether he is paid or acts gratuitously, he has the power to alter the legal relation of the principal. This essay will discuss the duties of a fiduciary, examining case laws and academic arguments.
As mention before, the BJR protects corporation’s decision makers from due care and bad decisions. Because of unpredictable business situations and the best plans may often go wrong, a corporation is always at risk of losing money. Therefore, if it is proven that directors and officers acted in good faith, I agree that they should not be liable for their actions and courts should not review their case. Above all, I believe directors and officers should be aware and prepare for the uncertainly, make the best decision for the company success.
The Relevance of the Salomon v. Salomon Case 'Salomon v Salomon is an outdated case with little relevance to modern company law.' Discuss. Salomon v Salomon[1] served to establish the principle of corporate personality that 'forms the cornerstone of company law. '[2] It is my contention that despite various attempts by both the legislature and the judiciary to circumvent the principle, this 'cornerstone' has not been eroded, rather, it forms the very foundations of modern company law.
The duty of loyalty provides that board members act in the best interest of the company during company decision making and activities, as opposed to their own individual interests (Lau & Johnson, 2014c). Therefore, to implement proactive policies concerning board member internet and email use in addition to employee internet use, reassures shareholder confidence. By agreeing to a board member internet use policy, board members are active participants in contributing to policymaking that reflects their fiduciary responsibilities pertaining to their individual internet and email use.
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.
In the aftermath of Enron, Washington Mutual Bank, TYCO, and World Comm these companies went against the grain of what good ethical behavior is and what their respective company’s code of ethics were. The criminal justice system has made it clear that it will not allow companies and their executives to get away with the misuse of public trust by allowing them to make themselves rich at the expense of the employee. Where these crimes are both ethically and morally wrong, the CEO’s of major corporations are being punished by a ...
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
They were committing fraud by creative accounting, acting illegally when using insider trading and shredding their documents relevant to the investigation. Next, consider the stakeholders. Anyone who owns stock in the company would suffer, along with every employee. Under the values bullet we can assume that they have none. Greed and power got the better of every one of them.
Board of Directors) is expected to do an extensive research before taking such an important decision, which Andy clearly did not. Hence, Andy does have a liability under section 180(1) of the Corporations Act, since he did not take did not act with due care or diligence, which he was supposed to, being on the board of directors of the company. Further, (In Re Brazilian Rubber Plantations and Estates Ltd (1911) 1 Ch 425 at 437) Justice Neville said of a director of a company that- ‘He is not, I think, bound to take any definite part in the conduct of the company’s business, but so far as he does undertake it he must use reasonable care in its dispatch. Such reasonable care must, I think, be measured by the care an ordinary man might be expected to take in the same circumstances on his own behalf.’ In the case of (Australian Securities and Investments Commission v Healey (2011) FCA 717), it was held that, Each and every director has a cardinal role in the management of the company and is positioned at the top of the structure of the organisation. It is also a set law that the higher the position held by a person in an organisation the greater would be the responsibility on