Could Members of a Corporation's Board of Directors Own Company Stock?
A corporation is a legal entity that is separate. It may behave in several ways, including doing business and entering into contracts. The board may include investors or non-stockholders. Stocks can be owned by directors, but it could be unlawful if the stock possession violates a duty owed by the manager to the corporation.
Corporations usually have many owners. Specific rights are granted by possessing stock to the investor. When someone possesses stocks in an organization, when the firm does good, she's invested because business, and gains.
Corporations act by means of a board of directors. The managers vote on issues which affect the business and transactions of the firm and usually shape the length of the corporation. Directors might or might not be stockholders in the corporation. Stock possession is an incentive for managers, yet. Generally, when the company does well, its success is reflected by the stock. Directors must abide by specific laws, controlled by the state. When discussing stock possession, the obligation of devotion is of special concern.
A duty of devotion binds directors. When a manager acts, he should act in the very best interests of the stockholders as well as the corporation (Lawrence, n.d.). Participating in self-dealing or other conflicts of interest really are a violation of the obligation of faithfulness. So long as the manager acts according to advice that is trustworthy and practical, and considers the activities will help the business, the obligation of faithfulness is complete. In the event the manager owns shares in a competitive company, stock possession may represent a violation of the obligation, yet.
The Case against Board of Directors Owning a Corporation's Stock
Many managers can, and sometimes do, own stock in the business that is particular in the place where they sit on the board. Owning stock in a competitor's company be a violation of the manager's duty of loyalty and could make up a conflict of interest.
Among the very noticeable is inside the zone of insolvency whose board must assess significant financial and strategic options, including whether to continue a bankruptcy filing in the instance of an organization (Stoller, 2009). There's at least an obvious, and quite probably, an actual, conflict of interest involved when managers, facing the total loss of the equity investment in the business, are necessary to act in the very best interests of the lenders of the firm.
This becomes especially difficult for managers having a close-term demand or want for, or an anticipation of, liquidity within the near term either since they are approaching the conclusion of an extended tenure on the board or have private fiscal constraints. This latter point is only going to be compounded as age or period limitations are adopted by corporations included in their entire corporate governance initiatives.
Lawrence, George. “Can Board of Directors Own Stocks by Law?” eHow. http://www.ehow.com/info_12062237_can-board-directors-own-stocks-law.html.
Stoller, Fran M. “The Case Against Stock Ownership Requirements for Directors.” June 2, 2009. http://www.loeb.com/articles-articles-20090602-thecaseagainststockownershiprequirementsfordirectors.