Question

Doug is the vice president of product development for a corporation that makes flavored honey. Doug proposes to the board that they approve three new products: chili-flavored honey, seaweed-flavored honey, and black-licorice honey. Doug and his team have market tested the flavors, and they received positive reviews from focus groups. The board approves the flavors, which then fails miserably and cost the company thousands of dollars. If some shareholders sue the board for its decision to market the flavors, the board most likely will _____

Answer 1

Answer:

The board most likely will not be held responsible.

Explanation:

The board of directors can legally defend themselves based on the Business Judgement Rule. This rule in contained in the Corporations Act of 2001 - Section 180. It states that any decision made in regards to the business operations should be:

• In good faith and not based on personal gain
• In the best interest of the corporation
• Based on information that supports the decision

For this particular case, the board based their decision on previous market research that received positive feedback.