The Business Judgment Rule is a form of protection that guards a corporation’s board of directors against constant second-guessing by courts or other parties, regarding the tools and techniques they use in conducting the day to day operations of the business. However, it is a requirement that the board acts loyally and to the best interest of the company. There should not exist any conflict of interest, and all directors should take it upon themselves to have all the details before agreeing to vote for or, against any decision that the company so wishes to make (Stimmel, Stimmel & Smith, 2019).
Therefore, although corporate law protects directors from frivolous claims by other parties, it is generally their responsibility to display loyalty and care for the company, to make sound choices that are both justifiable and right (Sharfman, 2019). Mr. Synn, chairman and CEO of California Corporation, together with his board of directors all face a lawsuit that claims they had a conflict of interest while handling the affairs of the corporation. The plaintiff argues that Synn together with all the members of the board conspired to satisfy their needs to maintain their positions in the company by agreeing to do support each other and take advantage of the company’s finances and, hide behind the protection of corporate law.
It is particularly sad and, most of all, unhealthy for the business that the company’s logo is Mr. Synn’s official signature. It is the most direct sign of a convolution of corporate and personal interests, one that, more often than not proves costly to the shareholders. The company logo is one of the symbols which clients use to identify the company from afar. Since the company is a separate entity, it begs an understanding of how much power the CEO has against the other lines of the business. It is even more shocking that a considerable number of the persons who secured membership to the executive table were Synn’s personal friends, or, in the least, had affiliations to him in ways more than one.
A corporation is supposed to run independently. It should not rely heavily on an individual’s presence that the people may begin to mistake him as a synonymous with the company. In light of this, the directors were most assuredly at fault to believe that the establishment would suffer nothing but impairment if they lost the services of Mr. Synn. It becomes more unreasonable when, information unfolds from the CEO’s former wife that the board has, throughout the history of the company, voted against Synn for only three times. A healthy company is one with a broad range of opinions and reasoning. A company is more likely to progress if it has a free environment where all stakeholders can voice their concerns. Unfortunately, in Synn Resorts, there only seems to be one voice, and one with too much unlawful influence.
An advisory firm named ISS recommended the company to withhold its votes to re-elect the committee tasked with handing out compensations citing unacceptable and unhealthy levels and methods of rewarding the directors. Green Lewis and CO. also on investigating the affairs found the design as portraying a ‘performance disconnect’ and gave the Resort and F for two consecutive years. If the board members were loyal to the company, then at least one of them would feel the urge to table the issue in one of their many meetings for further deliberation. This move would then push the other members to provide a solution for the matter. However, all members were silent on the issue, demonstrating either fear or, disinterest in the shortcomings of the business, as this failure benefitted their bank accounts.
Consistent with the reports presented by the Wall Street Journal (WSJ), many individuals stepped up to describe their horrifying sexual assault incidences at the hands of the CEO. One particular woman, who worked at a beauty shop decided to come forth and shame the influential man but eventually got compensated with 7.5 million dollars and became silent. However, Elaine Synn found the documents with records of the suit and brought the issue to the attention of the board. It was shocking that most individuals knew of his persistent and uncouth sexual behaviors, which scared most employees into hiding when they got wind that Synn was passing by the salon. The misconducts by the CEO were apparent indications of a violation of the law involving the company, where evidence is most likely to place him at the scene with the women. Allegedly, the board was also aware that Mr. Synn used company finances to settle his issues, and they chose not to raise the alarm. At this particular point, it is undeniable that the relationship between the board of directors and the chairman was not professional in the least. This association is an overt display of individuals conspiring to mismanage corporate property at their convenience.
The release of the WSJ should have been a good starting point for the investigation against Mr. Synn. Unfortunately, the likes of Dufus, Nimrod, and other independent directors, who are Synn’s personal friends, were serving at the committee. It was a clear sign that all other investigations launched with the name of digging into the affairs of the CEO to uncover his many acts of misconducts never matured into anything concrete. All the independent directors were present to return the cover the chairman’s back to ensure that he learns of every move the committee takes.
In light of all the evidence brought forward by the plaintiff, it becomes challenging for the business judgment rule to continue serving as protection as most of their actions were not in agreement with requirements of the law. Firstly, it is without a doubt that the defendant, Synn, breached his pledge to be loyal to the company when he began confusing his interests with that of the company. It raises all eyebrows that a single individual can enjoy a million dollars’ worth of personal travel on a company’s jet. It is however not possible that an individual can enjoy such privileges without exerting too much pressure and power on members of a company.
The board failed on many accounts to fulfill its mandate as an oversight arm of the company when they agreed to do the bidding of the CEO, as all evidence point to the existence of a deal between the two parties who vowed to protect each other in maintaining their seats at the executive table. Therefore, the Business Judgment Rule cannot hold if they all had a personal investment in the issues in question, which, as a matter of fact, negatively affected the performance of the company. The corporation lost billions of dollars financing the personal lives of individuals, especially the chairman. Professional firms like Vanguard and Blackrock Inc. also found out that most individuals in the board lacked experience in corporate matters, especially Defendant Careless who has never been in service for any business in his lifetime.
Therefore, it remains least likely that the Business Judgment rule of California will protect Synn and his directors from taking full responsibility for their actions that repeatedly put the interests of the company at jeopardy. It is highly probable that the governing law will grant most of the requests made by the plaintiff as a considerable number of them prove that the directors never made the choices in good faith, neither were they indifferent to the matter and it is impossible to posit that they believed their actions only satisfied the needs of the corporation (Stimmel, Stimmel & Smith, 2019).
Sharfman, B. (2019). The Importance of the Business Judgment Rule. Retrieved from https://corpgov.law.harvard.edu/2017/01/19/the-importance-of-the-business-judgment-rule/
Stimmel, Stimmel, & Smith. (2019). BUsiness & Corporate -The Business Judgment Rule: Protection from Honest Mistakes and for Good Faith Decisions. Retrieved from https://www.sdcba.org/index.cfm?pg=BusinessandCorporateArtice7142014