Essay On Fiduciary Duty
Fiduciary duty:
A fiduciary duty is a legal obligation to act in the best interest of a client or broader corporate entity. It sets the expectation that directors and officers place the interests of the firm over their personal interests.
Business judgment rule:
The business judgment rule lays out two requirements for directors and officers: that they uphold the duty of care and the duty of loyalty. In brief, they must conduct reasonable research before making corporate decisions, and must not prioritize private interests.
Key fiduciary obligations of corporate directors:
Corporate directors must pursue the best interests of the “corporate person,” serving as “trustees” of the stockholders. This requires the fulfillment traditional duties
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Furthermore, the arbitrary and capricious use of corporate funds amounts to mismanagement and waste of corporate assets. The board had an obligation to deny these practices, but instead negligently allowed them. This comports with laws governing fiduciary duties of directors in Delaware (where Fred’s Foods, Inc. is incorporated).
C. Pertinent Standards and Rules:
The General Incorporation Law of the State of Delaware applies in this case. Wheeler v. The Pullman Iron & Steel Co. provides the particular evaluation standard. It establishes that “The majority of shares of its stock… must be permitted to control the business of the corporation in their discretion,” so long as it does not violate the law or corruptly subvert the rights of a shareholder.” Moreover, since it is “not [the courts’] function to resolve for corporations questions of policy and business management,” they must carefully pinpoint the breaking of law or corruption.
For the rest of the board, gross negligence must be proven. Such a standard requires evidence of “reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason.” They must also comply with the relevant parts of the business judgment rule. “Duty of care” and “duty of loyalty” must be adhered
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