Deck 34: Management Duties

Question 1

If a court determines that a manager's corporate decision amounted to self-dealing,

A)the business judgment rule will not apply.
B)the transaction being challenged will be automatically voided.
C)the manager is automatically personally liable to the corporation.
D)the manager will automatically be fired.

Answer 1

A

Question 2

A manager who has engaged in self-dealing has violated the duty of loyalty to the corporation,unless the self-dealing was entirely fair to the corporation.

Answer 2

True

Question 3

What is a "scorched earth strategy"?

A)A takeover strategy whereby a bidder secretly buys stock from the shareholders.
B)A defensive takeover strategy where the target sells off the assets that the takeover company most wants.
C)A takeover strategy whereby the bidder merges its company with that of the target firm.
D)A defensive takeover strategy where the target effectively limits how large a block of stock an investor can buy.

Answer 3

B

Question 4

The Williams Act regulates the conduct of the target company in a takeover situation.

Question 5

Tender offers are regulated on the federal level by the National Labor Relations Act.

Question 6

States are not involved in the regulation of corporate takeovers.

Question 7

Courts are sympathetic to managers acting in the best interests of the corporation,even when the acts are illegal.

Question 8

A fundamental problem of the modern corporation is the conflict of interests between managers,shareholders,and stakeholders.

Question 9

A public offer to buy a block of stock directly from shareholders is called a tender offer.

Question 10

A speculator plans to acquire control of Kelp Corporation and then resell it at a profit.A speculator is sometimes known as a corporate raider.

Question 11

Which of the following is a fundamental goal of shareholders?

A)To have the business survive
B)To keep their jobs
C)To have an immediate increase in stock price
D)To have the business provide jobs

Question 12

A finding by a court that a manager's decision had a rational business purpose does not necessarily protect the manager from a finding that he breached a duty of care.

Question 13

Generally,managers that make informed decisions will not be liable even if their decision turned out badly.

Question 14

A manager who first offers an opportunity to disinterested directors or shareholders who turn it down has the right to take advantage of the opportunity herself.

Question 15

The "business judgment rule" has been replaced by "good faith statutes" in most states.

Question 16

In order to use poison pills,staggered boards of directors,and supermajority voting as takeover defenses,they must first be authorized by the shareholders.

Question 17

A director violates the corporate opportunity doctrine if he or she competes with the corporation,unless the disinterested directors approve of the director's actions.

Question 18

Directors have the authority to manage the corporate business.

Question 19

Anti-takeover tactics include all EXCEPT

A)staggered board of directors.
B)negative tender offers.
C)greenmail.
D)poison pills.

Question 20

Jenny is an officer of a corporation.She made a difficult business decision.When challenged about her decision,the court ruled she had acted in good faith and that the business judgment rule applied.As such

A)Jenny will not be held personally liable for any harm her decision has caused the company.
B)Jenny's decision will be reviewed by a court.
C)Jenny is immune from a lawsuit.
D)Jenny must resign from the board.

Question 21

The Williams Act

A)is designed to regulate the conduct of those attempting to take over a company.
B)is designed to regulate the conduct of the target company subject to a takeover.
C)was established to prohibit corporate defensive tactics.
D)was established to resolve conflicts of interests between directors and stakeholders.

Question 22

Which of the following is NOT a method to acquire control of a company?

A)Buy stock from the shareholders through a tender offer
B)Buy the company's assets
C)Make an initial public offering
D)Merge with the company

Question 23

For the business judgment rule to apply,the manager must

A)be trying to resolve a conflict of interest.
B)have exercised extraordinary care in resolving the situation.
C)have acted in the best interests of the corporation.
D)prove he or she was aware of the decision being made.

Question 24

Which of the following is NOTtrue in applying the Williams Act?

A)An individual or group acquiring more than 5 percent of a company's publicly traded stock must file a public disclosure document with the SEC.
B)A bidder must keep a tender offer open for at least 30 business days initially.
C)If any substantial change is made in the terms of the tender offer, it must be kept open for at least ten business days following the change.
D)Any shareholder may withdraw acceptance of the tender offer at any time while the offer is still open.

Question 25

A manager used her position in the company to develop a new business the company might have pursued on its own.This is a breach of the

A)duty of care.
B)duty of non-competition.
C)duty of loyalty.
D)duty of recognition.

Question 26

The Model Business Corporation Act states: "All corporate powers shall be exercised by or under the authority of,and the business and affairs of the corporation managed by or under the direction of its

A)shareholders."
B)officers."
C)board of directors."
D)executive committee."

Question 27

Which of the following statements is correct with respect to state efforts to offer protection to companies targeted for hostile takeovers?

A)Courts offer the only legal protection to companies targeted for hostile takeovers.
B)Statutory law offers the only legal protection to companies.
C)Both statutory law and the state courts have provided some degree of protection for companies.
D)State courts and state statutes have offered no protection for companies targeted for hostile takeovers.

Question 28

The business judgement rule is designed to protect

A)only the manager.
B)only the manager's decision.
C)both the manager and the manager's decison.
D)a business from a conflict of interest.

Question 29

Which of the following is the most appropriate term to use when describing management's duty to its shareholders?

A)Official duty
B)Legal duty
C)Fiduciary duty
D)Statutory duty

Question 30

Which of the following is correct concerning anti-takeover efforts?

A)Most states have passed laws to deter hostile takeovers, but these statutes have not totally eliminated hostile takeovers.
B)Federal statutes have been more effective than state statutes in eliminating hostile corporate takeovers.
C)The most effective federal statute has been the Poison Pill Act.
D)The Williams Act has been the most effective legislation in regulating of the actions of the target company.

Question 31

In the late 1960s a shareholder of the company that owned the Chicago Cubs baseball team sued the company because the directors refused to install lights in Wrigley Field.The court decided that the directors

A)had a rational purpose for not installing lights and were not liable for doing anything improper.
B)were not protected by the business judgment rule.
C)had not acted with any rational purpose and were liable to its shareholders for damages caused by their actions.
D)had the right to make decisions for the team without any concern for the desires of the shareholders.

Question 32

What type of transaction employs special committees made up of disinterested board members who review the transaction to determine if it is entirely fair to the corporation?

A)Hostile takeover
B)Self-dealing
C)Rational business purpose
D)Corporate opportunity

Question 33

Which of the following describes the duty of loyalty?

A)It requires managers to make decisions they reasonably believe to be in the best interest of the corporation.
B)It prohibits managers from making a decision that benefits them at the expense of the corporation.
C)It requires consideration of the interests of the surrounding community.
D)It requires using care that an ordinarily prudent person would take in a similar situation.

Question 34

Which of the following takeover defenses is evidenced by the target buying back the shark's stock at a premium price?

A)poison pill
B)blank check
C)Supermajority voting
D)greenmail

Question 35

The Anderson v.Bellinocase held that

A)the defendant did not act in good faith and violated the corporate opportunity doctrine.
B)the business judgment rule protected the plaintiff's decision to award the Keno contract to an outside firm.
C)the plaintiff was not able to show that the defendant violated the corporate opportunity doctrine.
D)the defendant's action was not a conflict of interest and was made in good faith.

Question 36

Management's duty to have a rational business purpose,avoid illegal behavior,and make informed decisions refers to its

A)duty of care.
B)duty of loyalty.
C)duty of openness.
D)duty of fairness.

Question 37

On the day a tender offer begins,

A)greenmail must be sent to the SEC.
B)a bidder must file a disclosure statement with the SEC.
C)assets of the target corporation must be locked up until an inventory is completed.
D)the SEC issues a binding order to the target company to file audited financial statements to the bidder.

Question 38

Amy is on the board of directors of Computers Plus.Computers Plus is looking for a warehouse to purchase.Amy owns a warehouse.In order for Amy to sell her warehouse to Computers Plus

A)the transaction must be fair to both Amy and Computers Plus.
B)the disinterested members of the board of directors must approve the transaction.
C)she must resign her position on the board of directors of Computers Plus before any negotiations for the warehouse begin.
D)a court must review the opportunity to determine its favorability.

Question 39

Alex is a director of ABC,Inc.Alex wants to personally make a major purchase from Bravo Co.If it knew of the opportunity,ABC might be also interested in making that same purchase.Alex must

A)advise the boards of both corporations of his conflict of interest.
B)first offer the opportunity to make the purchase to the disinterested directors of ABC or its shareholders.
C)resign from the board of directors.
D)abandon the idea of making the purchase himself.

Question 40

RayCorp offers to buy out MegaCorp by paying $69 per share.LandCo,who also wants to buy MegaCorp,offers to pay $75 per share.When the bidding process is finally over,RayCorp has offered $85 per share and LandCo has offered to pay $90 per share.MegaCorp agrees to sell to RayCorp on grounds that,all things considered,the takeover by RayCorp would be better for the business.LandCo claims that MegaCorp should have sold the company to it since it was the highest bidder.Is LandCo correct?

A)Yes.This is a breach of duty.MegaCorp must sell the company to the highest bidder; it cannot give preferential treatment to a lower bidder.
B)No. This is covered by the Williams Act.
C)No. The directors have broad discretion in deciding to whom to sell the company.
D)No. MegaCorp is acting in good faith by considering all things, not just the offering price of the shares.

Question 41

Major Corporation wants to acquire control of Forte Company.What are some legal steps Forte can take to resist a hostile takeover?

Question 42

One of the directors of Independent Pallet Mill purchases 100 acres of timberland.In order for him to sell the timber from this land to Independent,what must he do? If he does not act properly in this situation,what duty would he violate,and what would be the result?

Question 43

What is the definition of the business judgment rule?

Question 44

Discuss the purposes of the "business judgment rule."

Question 45

List and discuss the three ways to acquire control of a corporation.