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Is a by-law provision of "X" Corporation "rendering ineligible a director if he is also a director in a corporation whose business in a competition with or is antagonistic to said corporation" valid and legal?
9 ANSWERS
Bankruptcy Attorney serving Federal Way, WA
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Freeborn Law Offices P.S.
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Yes.
Answered on May 28th, 2013 at 12:27 AM
Michael J. Breczinski
Yes because that person would have a conflict of interest being on both corporations board of directors.
Answered on Jan 18th, 2013 at 1:50 AM
Civil Litigation Attorney serving New York, NY
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Havens & Lichtenberg PLLC
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Yes, it is valid. Directors are fiduciaries of the corporation, meaning that they bear the duty of utmost fidelity to the corporation's interests. If a conflict of interests arises, a director can recuse her/himself from discussing the issue and voting on it; but, sitting on the boards of 2 directly competing corporations, a director would have to recuse herself from all (or nearly all) decisions - in both corporations. Therefore, that person would not be able to serve either corporation as a director; and a by-law provision preventing such a situation is perfectly logical.
Answered on Jan 18th, 2013 at 1:49 AM
Chapter 7 Bankruptcy Attorney serving Syracuse, NY
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Andrew T. Velonis, P.C.
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Most definitely. It is quite logical as well: if you were an investor in a corporation, you would not want a member of the Board of Directors to also be a member of a Board of a corporation that had adverse interests.
Answered on Jan 16th, 2013 at 4:44 PM
Criminal Defense Attorney serving Anderson, SC
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The David F. Stoddard Law Firm
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Yes, I think such a provision is legal and probably a good idea. I cannot imagine a director agreeing to be a director of a competitor. It would be a conflict of interest and could cause the director to be liable for any decision he/she makes that turns out to be bad.
Answered on Jan 16th, 2013 at 4:42 PM
This is a general response to a general question and does not constitute legal advice. No attorney-client relationship is created by virtue of this general response. This is a difficult question to address since a proper answer would require a review of the by-laws and other formative documents for the corporation, as well as to know the circumstances surrounding the question. Generally, a corporation can exclude as potential directors persons with interests adverse to those of the corporation. Such a director could inherently have conflicting loyalties and obligations to each corporation, which would make it impossible for him/her to fully give his/her loyalty and/or fully discharge his/her duties to either.
Answered on Jan 16th, 2013 at 4:41 PM
Thomas Edward Gates
Yes it is legal. The director owes a fiduciary responsibility to the company that he is a director for. There is a conflict of interest here.
Answered on Jan 16th, 2013 at 4:41 PM
Commercial Contracts Attorney serving Boise, ID
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Peters Law, PLLC
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Sure. You don't want somebody on your board that may have an ulterior motive by helping a competitor. Also, in the right circumstances, it might prevent an antitrust claim.
Answered on Jan 16th, 2013 at 4:41 PM
James Edward Smith
Yes, if it was adopted by the board of directors.
Answered on Jan 16th, 2013 at 4:40 PM