According to Lindsay Llewellyn (2013), the director of a corporation stands in a fiduciary relationship that is characterized by trust and confidence with both the corporation as well as the shareholders. For this reason, the directors act as fiduciaries. This is an indication that they owe the corporation and the shareholders fiduciary duties that are inclusive of fidelity and diligence in their capacity as directors. Based on the identified provisions, it would be possible to argue that Roger’s obligations were inclusive of the duty of care as well as loyalty. Essentially, Rogers’ duty of care involved the fulfillment of his obligation that calls for acting on an informed ground. Conversely, the duty of loyalty requires that the directors and the board of a corporation maintain the best interests of the corporation’s shareholders (Llewellyn, 2013). They are required to do so in good faith.
As the director, Rogers was responsible for setting the goals for the car manufacturer, overseeing the business plans set up to meet the objectives, and to review the progress of the set up plans. These roles outline his duty to the corporation to exercise care and diligence. When considering whether he had met his duty of exercising care and diligence, several circumstances might be considered, which includes the composition of the corporation’s board as well as the distribution of several obligations in the board. However, the application of business judgment rule by the courts presumes that the director was able to meet his duty of care, if his actions were in good faith (Sciulli, 2001). Conversely, this application presumes that the director was honest and was acting in the best interest of the corporation.
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It would be possible to posit that Roger executed his duty of exercising diligence by making an informed decision devoid of any conflict that might arise from his personal interests. In discharging his duty of care, the director relied on the votes from the board to execute the decision to introduce the sport utility vehicle. The board made its decision based on the reports and statement provided by the marketing consulting firm that was hired to conduct research on the feasibility of introducing the sport utility vehicle. Since Roger is entitled to depend on the board to discharge his duty of care, the decision could form part of his defenses he has to the lawsuit.
As provided for by Zabihollah Rezaee (2008), directors have the obligation to rely on the information, reports, expert opinions, and the board of directors, among other entities, to make decisions that would affect the achievement of a corporation’s goals. This means that they are not liable to making mistakes when they make decisions, which is the fundamental constituent of the business judgment rule (Rezaee, 2008). For the identified reason, the assurance of whether the director has fulfilled his duty of care could be measured based on the time that the director made the decision without the benefit of an afterthought. Since the director did not executed his duty of care and diligence in making the decision to introduce the sport utility vehicles by relying on information presented by the marketing consulting firm and from the votes from the board, he will not be liable for the undesired results. Conversely, he will not be liable for making a mistake in judgment.
Even though the business judgment rule is offered by the courts, it would act as Roger’s defense. Llewellyn (2013) indicates that the business judgment rule insulates a corporation’s officer or director from liabilities for business decisions that they might have made in good faith. The insulation is also provided if the corporation’s officer or director has received suitable information with respect to the subject of a business decision to the extent that the officer or director believes that the decision was for the best interest of the corporation (Llewellyn, 2013). The circumstances before the oil supply disruption allowed Rodger to introduce the sport utility vehicle to the corporation’s market, which would have been in the best interest of both the corporation and the shareholders. For this reason, the business judgment rule would protect him since he was a weal-meaning director that was mistaken for the decision he had made. He was competent in his capacity as the director since the recommendations from the marketing consultants indicated that the decision to introduce the sport utility vehicle would have benefitted the company.
To conclude, it would be vital to take note of the provision that the business judgment rule protected Roger. He exercised his duty of care and diligence since he relied on the information presented the marketing consultants as well as the committee. Even though the committee and the marketing consulting firm had few reservations, the data they had collected indicating that the market supported the introduction of the sport utility vehicle. Conversely, by relying on the votes that were in favor of executing the plan, Rodger performed his duty as the director in an appropriate manner. For this reason, he made the decision to execute the plan with the best interest of the corporation and the shareholders as well.
References
Llewellyn, L. (2013). Breaking Down the Business- Judgment Rule. Commercial & Business Litigation , 14 (3), 1-4.
Rezaee, Z. (2008). Corporate governance and ethics . Hoboken, N.J: Wiley.
Sciulli, D. (2001). Corporate power in civil society: An application of societal constitutionalism . New York: New York University Press.
