Question

Riley is a board member of DockRUS, a company that manufactures and sells boat docks. She learns of a new development on Red Lake which a developer plans to build 17 luxury lake shore homes. She wants to personally work with the developer to build and install the decks on her own without any involvolment of DockRUS , can she legally do so?

a)yes, since she is not a shareholder or officer , she does not have a duty of loyalty to DockRUS

b)she can if president of the company approves the action

c)she can if she first fully discloses any potential conflicts and the majority of the disintrested board members approves the action

d)no, this would violate her duty of loyalty at DOCKRUS

Answer 1

‘Duty of loyalty’ is one of the two major fiduciary duties which are required to be discharged by the board members of an organization. The duty states that it is the responsibility of a board member to work in the best interest of the organization every time. The board member has to be loyal to the organization. It also imposes the responsibility of avoiding any possible conflicts of interest, thus preventing the board members from self-dealing or using a corporate opportunity for their own benefit. In the above-mentioned question, Riley is one of the board members at DockRUS and she must exercise the duty of loyalty. She should not use the opportunity for her own benefit. So, she is not legally allowed to work with the developer without involving DockRUS. If she does so, she would violate the duty of loyalty. Thus, the right option is (d).

All the other options are irrelevant. Riley is one of the board members so she has the duty of loyalty towards DockRus. Also, approval from the company’s president or disclosure of the potential conflicts and approval by most of the disinterested members will not legally allow her to work with the developer without involving the company. So, opting to work with the developer for personal gain will lead to a violation of the duty of loyalty.