Donatello is a director and officer of Enzio's Pizza Corporation. Donatello selects an ad campaign that consumers find offensive—a market¬ing decision that results in a dramatic decrease in profits for the firm and its shareholders. The shareholders

Question

accuse Donatello of breaching his fiduci¬ary duty to the corporation. What is Donatello's best defense against this ac¬cu¬sation? Later, a resolution comes before Enzio's board to expand its menu to compete with Fabio's Pasta Palace RestaurantsInc Donatello is a director and shareholder of Fabio's. What is Donatello's responsibility in this situation?

Answer 1

The best defense in this context is the business judgment rule. As long as a director or officer does what is necessary to be in¬formed, and acts in good faith, in what he or she considers to be the best interests of the corporation, and with the care that an ordinarily prudent person would use in similar circum¬stances, he or she is not liable simply because a decision has a negative re¬sult.
As for the resolution involving a different corporation, a director cannot support a busi¬ness that competes di¬rectly with a cor¬poration on the board of which the di¬rector sits. The di¬rector's fiduciary duty requires him to fully dis-close the conflict of inter¬est. Most likely, the di¬rector in these circum¬stances will have to resign from one of the boards.