Corporate Governance Fiduciary Duties & Legal Liability 2

Question 1

The Caremark decision established that directors have an oversight duty that requires them to:

Accepted Answer

Implement and monitor a system of controls to detect legal violations

Answer

Personally audit financial statements each quarter

Answer

Hire an independent compliance officer reporting only to shareholders

Answer

Conduct annual site visits to all company facilities

Question 2

Which of the following best describes an 'exculpation clause' in a corporate charter?

Accepted Answer

A clause eliminating or limiting director monetary liability for breaches of the duty of care

Answer

A provision requiring directors to carry personal liability insurance

Answer

A requirement that the corporation indemnify shareholders for merger losses

Answer

A board resolution removing a director for cause

Question 3

Corporate indemnification of directors and officers typically covers legal expenses when they are sued in connection with their corporate role, UNLESS the director or officer:

Accepted Answer

Acted in bad faith or for personal profit at the corporation's expense

Answer

Opposed the board majority on a vote

Answer

Failed to attend more than 25% of board meetings

Answer

Disclosed board discussions to a major institutional investor

Question 4

Under Delaware law, which party bears the burden of proof when a plaintiff challenges a board decision protected by the Business Judgment Rule?

Accepted Answer

The plaintiff shareholder

Answer

The corporation

Answer

The independent directors

Answer

The lead underwriter

Question 5

A derivative lawsuit in corporate law is one filed by:

Accepted Answer

A shareholder on behalf of the corporation to remedy a wrong done to the corporation

Answer

The SEC on behalf of defrauded investors

Answer

The board against a departing executive for breach of contract

Answer

An unsecured creditor seeking recovery of unpaid obligations

Question 6

Which of the following scenarios most clearly constitutes a breach of the duty of care?

Accepted Answer

A director approves a major merger without reviewing any financial data or management reports

Answer

A director votes to approve an acquisition that later loses value

Answer

A director relies on an expert fairness opinion before approving a transaction

Answer

A director misses one board meeting per year

Question 7

The concept of 'entire fairness' review in Delaware corporate law applies most directly when:

Accepted Answer

A conflicted transaction is approved without adequate independent oversight

Answer

A board fails to hold an annual meeting on schedule

Answer

Management bonuses exceed peer group benchmarks by 20%

Answer

A minority shareholder accumulates more than 10% of shares