Wednesday, May 10, 2006

On self interested deals

Self-interested dealing is allowed in corporations. A self-interested deal is where a director or officer of one corporation looks to make a deal between that corporation and another corporation where he is a director or officer. The concept suggests that the director is self-dealing, meaning that he is profiting from a business decision from one of his corporations to another. The public policy is that self-interested dealing does not violate the fiduciary duty of loyalty where there has been full disclosure to the board authorizing the transaction, the interest is discolsed to the shareholders who can vote, and the shareholders authorize the transaction by vote or written consent. Finally, the transaction must be fair and reasonable to the corporation. This final rule sets up the duty of loyalty. Your job is to enhance shareholder value, to put the coroprate interests before your own. As such, you need to show that the actions taken were done so in good faith, with honesty and fairness.

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