4 ms·

Usually, you would have the transaction approved (or rejected) by the disinterested members of the board (i.e. the directors with no conflicts of interest).

acchow 10y ago
Suppose the conflicted interest on the board has majority share - would they still sit out on the vote?
- Retric 10y ago
  Not sitting out opens you up to lawsuits. But, a lot of sketchy crap goes on.
- andrewfong 10y ago
  Yes, what they're looking for is a majority (or 2/3 or whatever threshold is called for in the bylaws) of the disinterested directors. If there are no disinterested directors, or it's something like 5 out of 6 directors are conflicted and the 1 director isn't comfortable going it alone, then the company might ask for approval of a majority of the non-conflicted shareholders. This isn't strictly required I think, but it's considered the safe thing to do.
dyim 10y ago
Yup, something similar happened with the Tesla/SolarCity acquisition: "Mr. Musk said Monday he wasn’t involved in the decision making about the valuation of the purchase." [1] [1] http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6-billion-merger-deal-1470050724 http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6...
galtwho 10y ago
How does it work when Person A,B & C equally owns Company X which has cash reserves of 10m and liabilities of 10m Person A & B also own Company Y. Company X buys out Company Y for 5m which later leads to bankruptcy of Company X with creditors left holding the can. How is conflict of interest treated here? What if Person C also has equal shares in Company Y. Is Company X debarred from buying Company Y. Can creditors sue Company X directors ?
- gregpilling 10y ago
  This case may be relevant https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. Henry Ford, in his 3rd attempt at starting a car company, began what we know as Ford Motor today. His previous two ventures had failed; the first was run by the Leland team and renamed Cadillac; the second dissolved; the third made cars using Dodge Brothers engines, transmissions and differentials. According to "Wheels for the World" by Brinkley, the 3rd company of Ford's had run up quite a debt to the Dodge Brothers while getting the Model T going. Henry cut them in as shareholders in order to pay off his parts bill. Once it was a sales hit, Henry Ford resented giving the Dodge Brothers such a high percentage of the profits and did not want to purchase the drivetrain from them anymore. He started manufacturing his own drivetrains to cut them out of the picture. So there is a lot of case history built upon Dodge V Ford, and the actual story is a fascinating thing to compare to modern day Silicon Valley. My main takeaway from reading "Wheels for the World" by Brinkley was the similarity between the tech boom and the auto boom in the early 1900s. Many startups, a few succeed, and then consolidation as the industry matures - Microsoft acquires LinkedIn, Facebook buys WhatsApp, etc. https://www.amazon.com/Wheels-World-Company-Century-Progress/dp/0142004391 https://www.amazon.com/Wheels-World-Company-Century-Progress...

acchow 10y ago

Suppose the conflicted interest on the board has majority share - would they still sit out on the vote?

Retric 10y ago
Not sitting out opens you up to lawsuits. But, a lot of sketchy crap goes on.
andrewfong 10y ago
Yes, what they're looking for is a majority (or 2/3 or whatever threshold is called for in the bylaws) of the disinterested directors. If there are no disinterested directors, or it's something like 5 out of 6 directors are conflicted and the 1 director isn't comfortable going it alone, then the company might ask for approval of a majority of the non-conflicted shareholders. This isn't strictly required I think, but it's considered the safe thing to do.

dyim 10y ago

Yup, something similar happened with the Tesla/SolarCity acquisition: "Mr. Musk said Monday he wasn’t involved in the decision making about the valuation of the purchase." [1] [1] http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6-billion-merger-deal-1470050724 http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6...

galtwho 10y ago

How does it work when Person A,B & C equally owns Company X which has cash reserves of 10m and liabilities of 10m Person A & B also own Company Y. Company X buys out Company Y for 5m which later leads to bankruptcy of Company X with creditors left holding the can. How is conflict of interest treated here? What if Person C also has equal shares in Company Y. Is Company X debarred from buying Company Y. Can creditors sue Company X directors ?

gregpilling 10y ago
This case may be relevant https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. Henry Ford, in his 3rd attempt at starting a car company, began what we know as Ford Motor today. His previous two ventures had failed; the first was run by the Leland team and renamed Cadillac; the second dissolved; the third made cars using Dodge Brothers engines, transmissions and differentials. According to "Wheels for the World" by Brinkley, the 3rd company of Ford's had run up quite a debt to the Dodge Brothers while getting the Model T going. Henry cut them in as shareholders in order to pay off his parts bill. Once it was a sales hit, Henry Ford resented giving the Dodge Brothers such a high percentage of the profits and did not want to purchase the drivetrain from them anymore. He started manufacturing his own drivetrains to cut them out of the picture. So there is a lot of case history built upon Dodge V Ford, and the actual story is a fascinating thing to compare to modern day Silicon Valley. My main takeaway from reading "Wheels for the World" by Brinkley was the similarity between the tech boom and the auto boom in the early 1900s. Many startups, a few succeed, and then consolidation as the industry matures - Microsoft acquires LinkedIn, Facebook buys WhatsApp, etc. https://www.amazon.com/Wheels-World-Company-Century-Progress/dp/0142004391 https://www.amazon.com/Wheels-World-Company-Century-Progress...