Case 3.7 Exxon-XTO Merger
1. The lawsuit filed by the Shareholders Foundation alleged that the board of directors of XTO breached its fiduciary duties. What are the fiduciary duties of the board? Identify the duties allegedly violated in the XTO case. Do you think the board acted in accordance with a shareholder or stewardship perspective?
The fiduciary duties of the board are to act with loyalty in the best interests of the corporation and shareholders and make independent judgments. The duties that were allegedly violated in the XTO cases were the XTO board of directors agreed to sell XTO at an unfair price, did not act in the best interests of the XTO’s shareholders, and the company may not have adequately considered other companies that is interested in merging with XTO other than ExxonMobil before entering into the transaction. The board has acted in accordance with a stewardship perspective because during the merging, the board was only acting on their best interests and not the shareholders. The most essential part of the merger agreement was the payments made to officers and the members of the board of directors of XTO. However, ExxonMobil was underpaying for XTO, which was harming the shareholders.
2. Much has been said during the recent financial crisis about top executive salaries being way too large, especially in those companies receiving a government bailout. The Obama administration sought to rein them in through threats of taxation or other forms of moral suasion. Do you believe that the government has an ethical right to intervene in a company’s executive compensation program? Support your answer with reference to ethical reasoning. Review Exhibit 1. Do you believe that the agreement in the Form 8-K about payments to officers and board members raises any ethical issues? What is the role of the business judgment rule in such decisions?
Government