BUS 101 1st Edition Lecture 9 Outline of Previous Lecture- Section 8: Adelphia Case Adelphia Corporation Caseo Backgroundo SEC & Bank irregularitieso Trying to Change ImageOutline of Current Lecture - Section 9: The Corporate Entity Fiduciary duties and the corporationo Intro questionso Adelphia Caseo The Corporate EntityCurrent Lecture- Section 8: The Corporate Entity Fiduciary Duties and the Corporationo Intro Questions: What is the best way to avoid conflict of interest?- Independence – must have an independent auditor not connected with the organization, in order to make sure everything is right and hold the accountants and board of directors accountable Who do the board of directors owe a fiduciary duty to?- Stockholders and business entity What is one of the reasons we are concerned about investors when considering the decisions made by the board, is because investors…?- Are passive decision makers Adelphia was a complete failure, because of what?- There was no board of director oversighto Adelphia Case Within a family partnership, you have no investors. Because of this, you are able to do what you want with the money and profits.  With a corporation, this freedom does not exist; you have fiduciary duties to your investorso The Corporate EntityThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. The corporate entity – legally has the same rights as a person; the right to be protected.- Not an active participant, laws view corporate entity as needing to have protection. - Problems arise – do corporate entities have free speech and 1st amendment rights? o Decisions have duty to protect the duties and rights of corporate entity- What happens when the board makes decisions that hurt the corporate entity? Lawsuits.o Shareholders also have fiduciary duties to make decisions in the best interest of the company because of contractual duties – buy stock, do best to increase stocko If the board of directors is undermining the integrity of the company and brand, shareholders may step in to represent the company Direct Action Lawsuits – sue the company directly if the individual has been directly injured due to a decision Derivative Action Lawsuit – Shareholders may sue on behalf of the corporate entity if they believe the company is being underminedo Board of director’s defense Business Judgment Rule – If corporate decision makers are acting honestly and in good faith, even if it is with poor judgment, they may not be held responsible for any damages, and charges may be cleared- Stakeholder Issueso Customers may be considered consumers; have monetary investments in the corporation, investing in real estate, goods and services through tendering money to companies and getting/ expecting a return Consumers are passive, no say in corporate decisions; take it or leave ito Government regulations is due to lack of market leverage; consumers, investors and employees have no market leverageo Suppliers have market leverage – separate entity, acting business-to-businesso Fiduciary obligations should not apply to other stakeholders Financing, governance, and structure to those who you owe fiduciary