FLK1 · Multiple-choice practice
FLK1 Business Law — Question 33
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Alice and Bob are both directors of a company that manufactures electronic gadgets. Alice proposes a new marketing strategy aimed at targeting a younger demographic, while Bob advocates for maintaining the company’s current marketing approach. During a heated board meeting, the disagreement between Alice and Bob escalates, with each director vehemently defending their position in front of the other directors. Ultimately, the board votes in favour of Alice’s proposal, and the new marketing strategy is implemented. However, Bob is dissatisfied with the decision and believes that Alice manipulated the other directors to secure the outcome in her favour as she has hired a marketing company to implement the new plan, in which she is a major shareholder. Bob thinks that the company should be taking legal action against Alice for breaching her duties as a director. Which of the following principles relevant to the duties of directors would be most suitable as a ground of challenge in this scenario?
Answer and explanation
Correct answer: D. The duty to avoid conflicts of interest
The duties of directors in a company include the duty to avoid conflicts of interest. Directors must act in the best interests of the company and avoid situations where their personal interests conflict with those of the company. In this scenario, Alice and Bob, as directors, are obligated to prioritize the company’s interests above their own and to act impartially in making decisions for the benefit of the company. If Bob believes that Alice manipulated the board to advance an agenda, because of a personal business relationship, he may argue that Alice breached her duty to avoid conflicts of interest by prioritizing her personal interests over those of the company. Therefore, the company may have grounds to challenge Alice’s actions if it can be demonstrated that she failed to fulfil her duty to avoid conflicts of interest in relation to this decision and any subsequent transaction with the marketing company.
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