First Corporation, a Massachusetts company, decides to expend $100,000 to

publicize its support of a candidate in an upcoming presidential election. A

Massachusetts statute forbids corporate expenditures for the purpose of

influencing the vote in elections. Chauncey, a shareholder in First Corporation,

feels that the company should support a different presidential candidate and files

suit to stop the company's publicizing efforts. What is the result? Why?

2. Assume in Exercise 1 that Chauncey is both an officer and a director of First

Corporation. At a duly called meeting of the board, the directors decide to dismiss

Chauncey as an officer and a director. If they had no cause for this action, is the

dismissal valid? Why?

3. A book publisher that specializes in children's books has decided to publish

pornographic literature for adults. Amanda, a shareholder in the company, has

been active for years in an antipornography campaign. When she demands

access to the publisher's books and records, the company refuses. She files suit.

What arguments should Amanda raise in the litigation? Why?

4. A minority shareholder brought suit against the Chicago Cubs, a Delaware

corporation, and their directors on the grounds that the directors were negligent in

failing to install lights in Wrigley Field. The shareholder specifically alleged that the

majority owner, Philip Wrigley, failed to exercise good faith in that he personally

believed that baseball was a daytime sport and felt that night games would cause

the surrounding neighborhood to deteriorate. The shareholder accused Wrigley

and the other directors of not acting in the best financial interests of the

corporation. What counterarguments should the directors assert? Who will win?

Why?

5. The CEO of First Bank, without prior notice to the board, announced a merger

proposal during a two-hour meeting of the directors. Under the proposal, the bank

was to be sold to an acquirer at $55 per share. (At the time, the stock traded at

$38 per share.) After the CEO discussed the proposal for twenty minutes, with no

documentation to support the adequacy of the price, the board voted in favor of

the proposal. Although senior management strongly opposed the proposal, it was

eventually approved by the stockholders, with 70 percent in favor and 7 percent

opposed. A group of stockholders later filed a class action, claiming that the

directors were personally liable for the amount by which the fair value of the

shares exceeded $55an amount allegedly in excess of $100 million. Are the

directors personally liable? Why or why not?