Corporate Governance Fiduciary Duties & Legal Liability

Question 1

Which fiduciary duty requires corporate directors to act in the best interests of the corporation and its shareholders rather than pursuing personal gain?

Accepted Answer

Duty of loyalty

Answer

Duty of care

Answer

Duty of disclosure

Answer

Duty of obedience

Question 2

Under the Business Judgment Rule, courts will generally defer to a board decision if the directors acted on an informed basis, in good faith, and:

Accepted Answer

In the honest belief it was in the corporation's best interest

Answer

With unanimous board approval

Answer

After consulting outside counsel

Answer

Following a shareholder vote

Question 3

A director who learns of a corporate opportunity and pursues it personally without offering it to the corporation first most likely violates which duty?

Accepted Answer

Duty of loyalty

Answer

Duty of care

Answer

Duty of confidentiality

Answer

Duty of disclosure

Question 4

What standard does the duty of care typically require of corporate directors?

Accepted Answer

The same care a reasonably prudent person would exercise under similar circumstances

Answer

The highest possible standard of perfection

Answer

The standard applied to professional fiduciaries such as trustees

Answer

Zero-tolerance for any business loss

Question 5

Which doctrine allows courts to review director decisions with heightened scrutiny when a board takes defensive measures in response to a hostile takeover?

Accepted Answer

Unocal doctrine

Answer

Business Judgment Rule

Answer

Revlon doctrine

Answer

Caremark doctrine

Question 6

Under the Revlon doctrine, a board's primary obligation shifts to maximizing short-term shareholder value when:

Accepted Answer

The company enters a change-of-control transaction

Answer

Annual earnings decline two consecutive quarters

Answer

A shareholder activist acquires a 5% stake

Answer

The CEO is replaced by an outsider

Question 7

A director who holds a material financial interest in a contract being considered by the board should FIRST:

Accepted Answer

Disclose the conflict and recuse from the vote

Answer

Vote against the contract to avoid the appearance of bias

Answer

Resign from the board before the vote

Answer

Ask the CEO to decide without board involvement