[DesertCat]

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Here are two more to consider:

1. There is an offer to buy a genetic engineering company that is majority owned by Doctor and Doctor Frankenstein. A human genetic company in Romania wants to buy the genetic engineering company. The Romanian company offers the doctors a premium for their stock of 200% of FMV, while the other shareholders will only get a premium of 50%. The board is asked to approve the transaction, what should the board do.


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I'm assuming that all stock is common stock with the same rights. They board can't approve this, it exposes the board to a lawsuit and huge liabilities, the last thing any board member wants. The deal will get restructured so that the two Drs. will get "employment agreements" paying them huge amounts of money post deal, and all shares will be cashed out at the same price, keeping the board "clean". Though even this approach will be challenged in court by shareholders if the "employment agreements" are too excessive.

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2.Corporation A needs to build a factory in Philadelphia, Pa. There are five sites available. One of the available sites is owned by an independent director, director x, of this company. The site search committee, which consists only of officers and no directors of the company, determine that the best site is the one owned by director x. The committee does not know the site is owned by director x. They make a recommendation to the board to go with site owned by director x. Even though the committee has determined the fifth site to be the best one, it is the most expensive. The president is going to make a recommendation to board. What should president and board do?

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This is a tough one. The first goal of a board member is to CYA. This doesn't sound like a situation where the board can redo the search by hiring an independant firm (in a process director x is recused from) to validate the choice. Even if you could find a firm with the proper skills, you are over-riding what's essentially an internal management decision. This seems a little over the line, it would mean the board is actually making management decisions, which no good board wants to do.

My guess is that we'd get a fairness opinion stating that the price paid for the site is reasonable. Second, document that management was not influenced by director x's ownership (or at least claims it wasn't). I think that cover's everyone's behind as best as possible.