Question
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
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?
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