Corporations and Organization governance

corporate governance

the professional structure and management of US entities

• large companies more than just their owners

shareholders

the owners of the company who invest money and have a claim on the assets of the company

• don’t normally directly participate in management (some exceptions)

Board of Directors

a group of people selected by the shareholders who make major decisions for the company

• have the duty to act in the best interest of the company

• Required by public corporations

Corporate officers

the people in the corporation who run the company’s daily operations

• chosen by the board of directors

  • Ex. Vice president, treasurer, president

Nonprofit structure

Board of directors → executive director/CEO → volunteers/staff

fiduciary duty

a legal duty to act primarily for another’s benefit

duty of care

requires officers and directors to act in the best interest of the corporation

• decisions must be rational, legal, and informed

derivative lawsuit

a lawsuit brought by a shareholder on behalf of the corporation against a director, officer, or third party who had breached their duties

• claim of the suit belongs to the corporation

• damage comes to corporation, not shareholders

Shlensky V. Wrigley

shareholder derivative lawsuit against the board of directors for mismanagement

• they refgused to install lights and play night games

• court ruled with board of directors

Business judgment rule

managers have a duty of care and loyalty to their company

• act without conflict of interest

• stops courts from interfering without an absence of fraud/breach of good faith

duty of loyalty

prohibits managers from making decisions that benefit them at the expense of the company/partners

business self-dealing

decisions that benefit another company associated with the manager

personal self-dealing

decisions that benefit the manager directly

• can be ok with proper approval

piercing the corporate veil

courts can sometimes make shareholders liable for corporation debt/obligations

• not common

• only seen in closely held companies