Roger is a director of a major car manufacturer. This is one of the few remaining car companies yet to introduce a sport utility vehicle. Roger convinces the board to investigate forming a new division to design, build and market a sport utility vehicle. Roger also convinces the board that the first sport utility vehicle that the division introduces should be the largest yet sold to the general public.
The board set up a committee to do some research, and this committee hired a marketing consulting firm. The committee and the consulting firm both had a few reservations about such a large vehicle, but the data showed that the market could most likely support it. After much discussion, the board of directors voted in favor of creating the new division and the huge sport utility vehicle as its first product. The vote was 9 to 6 in favor of the plan.
Shortly before this vehicle was introduced, there was a major oil supply disruption that caused the price of crude oil to nearly triple. Few purchasers were found for the huge new sport utility vehicle and the company lost considerable money. A shareholder files suit against Roger claiming he violated his duty to the corporation by convincing the board to build and market the large SUV.
Discuss Roger's duties as a director and any defenses he has to the lawsuit.
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Roger's duties are to the car maker and not to any individual shareholder. In carrying out his functions the main duty of Roger is to remain loyal to the company and avoid conflicts of interest. Further, Roger as a director is expected to display a high standard of care, skill and diligence. It is the duty of Roger to act in good faith, to promote success of the car company (2). The courts have followed the presumption that a director has been motivated in his conduct by bona fide regard for the interest of the car manufacturing company.
To challenge the actions of Roger the shareholder must give evidence that Roger in reaching the decision of launching the sport utility vehicle breached fiduciary duty of good faith, loyalty to the company, or due care. If the shareholder does not establish this in court, the shareholder is likely to lose the case.
In case of Roger, the action to launch the sport utility vehicle was not taken by the board of directors in isolation. First, the board set up a committee to do research and this committee hired a marketing consulting firm. The research done by committee and the consulting firm came across data that showed that the market could most likely support the launch of a large sport utility vehicle. In other words this meant that the decision was taken to promote the success of the ...
The answer to this problem explains the case study relating to duties as director and defenses . The references related to the answer are also included.