课题：Latest Development in Corporate Governance and Law，
时间：2013年，Professor：Cindy Schipani 小荷作文网 www.zww.cn
转载案例材料请注明出处学这课的时候我也是经济、法律知识零基础，所以写的案例分析也是比较简单（老师没给标准答案），专业学这个的看了笑过就可以，高中生若想选相关专业可以通过这个略微了解一下。
Problem A:
PainFree Corporation is a publicly traded company that manufactures and sells over the counter pain relief products, including aspirin. Over the past two years, it has been developing a product combining its aspirin product with calcium. The board of directors of PainFree has approved a major project to develop this product.
1. Mary, a shareholder of PainFree, learns about the combined aspirin and calcium product and thinks it’s a huge business mistake. Mary sues to stop the company from pursuing this project. What would Mary likely argue in her lawsuit? Please explain.
The board didn’t collect abundant information of producing this product and they didn’t measure the value the product either. Without SFDA’s approval, the products that combine the drugs and dietary supplements can’t be marketed. So the resolution of the board of directors to develop the product is illegal and their behavior is a huge business mistake. And it may lead to a loss of the company if they insist on pursuing this project and ignoring the regulation of SFDA. The directors was not acting in the best interest of the shareholders，and it is not in good faith. The rights of the shareholders may be violated somehow.
Without SFDA’s approval, the products that combine the drugs and dietary supplements can’t be marketed. So the resolution of the board of directors to develop the product is illegal and their behavior is a huge business mistake. And it may lead to a loss of the company if they insist on pursuing this project and ignoring the regulation of SFDA. The rights of the shareholders may also be violated somehow.
The State Food and Drug Administration (SFDA) claims that products that combine drugs and dietary supplements require SFDA approval before they can be marketed, even if the drug has already been approved. The SFDA is an administrative agency which must approve the marketing and sale of drugs. Aspirin is a drug and calcium is a supplement.
PainFree's attorney believes that there is a good chance that he SFDA sues to prevent the marketing of the new aspirin and calcium product, a court will rule that this product does not need to be approved by the SFDA claim because aspirin has already been approved and calcium is a supplement. Supplements do not require approval.
PainFree test markets the product without SFDA approval. Test marketing involves sales of the product in limited markets.
2. The SFDA obtains a court order against test marketing of aspirin with calcium and the court imposes substantial fines against PainFree for selling a drug without SFDA approval. Are the PainFree directors liable to the corporation for approving illegal conduct? Please explain.
The PainFree directors are liable to the corporation. One of the directors’ fiduciary duties is the duty of care. Though the decision that they approved was made to get interest of the firm, it violated the law because they didn’t get the approval of SFDA, so it cannot be protected by the business judgment law. The directors should be responsible for the resolution because their behavior is illegal and it caused a substantial loss for the company. Reasonable directors wouldn’t make such an illegal decision.
The PainFree directors are liable to the corporation. Though the decision that they approved was made to get best interest of the firm, it violated the law because they didn’t get the approval of SFDA, so it cannot be protected by the business judgment law. The directors should be responsible for the resolution because their behavior is illegal and it caused a substantial loss for the company.
3. It turns out that PainFree's test marketing was more extensive than authorized by the board. The board, however, had never instituted a reporting system to keep track of this project. Are the PainFree directors liable for not monitoring PainFree? Please explain.
The directors of PainFree are liable for not monitoring PainFree. The directors should direct the company and be responsible for the plan of the company’s production and management. After making the decision and the policy, they also need to monitor and supervise the activities of executive management and then report to shareholders. It is a neglect of duty for the board of PainFree who had never instituted a reporting system to keep track of this project.
The directors of PainFree are liable for not monitoring PainFree. The directors should direct the company and be responsible for the plan of the company’s production and management. After making the decision and the policy, they also need to monitor and supervise the activities of executive management and then report to shareholders. It is a neglect of duty for the board of PainFree who had never instituted a reporting system to keep track of this project.
Problem B:
Wolverine Medical Supply Co. (WMS), a major supplier of medical products, agreed to provide products at preferred prices to the Government Hospital (GH). Beginning in 2000, employees at WMS began to overcharge the GH by providing fraudulent price lists.
In 2009, government authorities notified WMS that it was investigating allegations that WMS sales representatives were providing false price lists to the purchasing agents of the GH. The WMS board met to discuss these charges. The board included two inside directors and ten outside directors. The WMS CEO and chairman of the board, Jack Smith, reported to the board that he had suspected that there may have been “isolated instances” of fraud, but that the problems were not widespread. The board directed Smith to require all key management personnel to take all reasonable steps to detect and prevent any such fraudulent practices and to inform the GH that corrective measures were being taken. Smith did as directed.
In 2011, the government officials discovered that the practices were continuing and turned the matter over to the prosecutors. In the course of the investigation, it was discovered that the regional sales managers, although receiving the instructions from Smith to take steps to detect and prevent the fraudulent practices, did not take the instructions seriously. In the words of one sales manager: “We could not possibly meet the sales targets without adjusting the invoices.”
The board of directors then directed all officers and employees to cooperate fully with the prosecutors in the investigation. The board hired independent counsel to conduct an internal investigation and provided the prosecutors with all the evidence uncovered. This evidence implicated the CEO and other high level executives as well as mid-level managers in the fraud.
4. What are the board’s likely reasons for turning over all evidence to the prosecutors? Please explain.
WMS’ behavior of providing fraudulent price is a financial fraud. Oversight is the one of the boards’ duties, if they know or have reason to know a violation of law is occurring, they must make attempts to prevent or rectify the wrongdoing. CEOs and CFOs are responsible for establishing, designing, maintaining and evaluating internal controls and procedures. Besides, it can show a positive attitude towards the prosecutors. It is a need of the internal control and it may lead to substantial reduction of penalty when wrongdoing occurs. So it is their responsibility to turn over all evidence to the prosecutors.
After launching its investigation, the prosecutors charged WMS and several executives with fraud. The company ultimately settled the case against it, agreeing to pay fines and reimbursements totaling US$ 200,000,000. It is uncontroverted that prior to the government’s investigation, the board had no actual knowledge of the fraudulent billing practices and further that they had no actual knowledge that the fraud continued after instructing the CEO to take steps to detect and prevent further fraud. There is, however, evidence that the board knew, as early as 1990, that similar fraudulent schemes were prevalent in firms dealing with the GH and that a major competitor in the medical supply business had, in 1995, been found guilty of falsifying its billing to the GH.
5. A shareholder derivative suit has been filed against the WMS’s directors because of the negative effect the US$200,000,000 settlement had on stock price. What are the arguments the shareholders are likely to make in support of their suit? Please explain.
The lack of supervision leads to a substantial loss, it is the boards’ negligence and they should take the responsibility. Though they have made the decision to detect and prevent any such fraudulent practices, the boards of directors are liable to this result because they didn’t fulfill the liability to watch it over. The US$200,000,000 settlement had a negative effect on stock price, and it will violate shareholders’ legal interest. According to the regulations which protect the shareholder rights, shareholders have the right to ask the directors to protect their interests.
6. The board of WMS has hired you as a consultant for advice on changes it should make to its corporate governance practices. What advice would you give the board to help prevent a problem like this in the future? Please explain.
·Strengthen the supervision system and the internal control of the directors to guarantee the legality of the operation.
·Establish the mechanism that punishes the behavior of perfidy and set the standard of reward and punishment.
·Formulate practicable sales target according to the characteristic of the market.
·Perfect the feedback mechanism, especially help the department to reflect the information to the board in time.
·Withdraw the rights of the sales manager properly; keep a balance between their rights.
·Set an elimination system to guarantee the quality of the staff.
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