In January 1995, when Gene became the President and CEO of X Corporation, the corporation was doing quite well and making a great deal of money. Upon Gene's recommendation, the board of directors decided to diversify the product line of X corporation. As a result, the stock of X corporation went from $10.00 a share in January, 1995, when Gene became president, to an all-time low of $1.45 on December 31,1999. A group of shareholders seeked to sue Gene arguing that he has driven the company into the ground and his decision making has cost them the value of their stock. Can they succeed?

A.Yes. Because Gene owes a fiduciary duty to the company and the shareholders, he is personally responsible for the economic downturns of the corporate entity. In as much as his decisions are those which resulted in the damage to the corporation, he is liable to the stockholders.

B.Yes. As President and CEO of X Corporation Gene takes on a personal responsibility for the liability of the corporation. This strict liability requires that he be responsible for the damage suffered by the shareholders.

C.No. Gene's decisions are protected by the business judgment rule.The decisions Gene made and the recommendations that he made were within his managerial authority and in compliance with his fiduciary duties. Gene was acting within the powers of the corporation and there was a reasonable basis for the decision. For those reasons, Gene has no liability to the shareholders.

D.No. Neither a member of the board of directors nor an officer of a corporation is ever liable to the shareholders for damage suffered as a result of their decision making. Under the business judgment rule, neither officers or directors can be held liable under any circumstance for economic downturn.