Flush-n-Go Corp. manufactures toilets for airplanes and buses. The companys product is more environmentally friendly than its
Question:
Flush-n-Go Corp. manufactures toilets for airplanes and buses. The company’s product is more environmentally friendly than its competitors because it uses fewer toxic chemicals; for the same reason, the product is also more expensive. Since going public three years ago, the company has barely turned a profit. Sumit Khana, the chief executive officer, believes that the company’s best hope is to promote itself with opinion leaders and senior managers of companies with large travel budgets. Accordingly, she proposes that the company become a “sponsor” of the city’s symphony orchestra, at a cost of $300,000. The names of sponsors are prominently displayed in all symphony programs and publications, and sponsoring organizations are given free tickets to all symphony performances. Sumit proposes this gift to her board of directors with the argument that it will help the company achieve name recognition and create a favorable impression with people who can help promote its product. She knows this, she says, because she and her husband are classical music fans and because her husband’s brother is under consideration for the position of conductor. The board approves the gift even though it will reduce the annual dividend from $5/share to $4/share. The resolution of approval states that “the board finds that the gift will materially enhance the company’s strategy of increasing market penetration.” You are a corporate attorney with a small firm in town. A dissident shareholder asks you to represent him, on a contingency fee basis, in a lawsuit challenging the Flush-n-Go gift. Should you take the case?
Step by Step Answer:
The Law Of Governance Risk Management And Compliance
ISBN: 9781454881988
2nd Edition
Authors: Geoffrey Parsons Miller