Book 1 - Chapter 28

2,	continued
	Disadvantages: A significant disadvantage is the double taxation of corporate income. However, careful tax planning can reduce the impact of this, especially for small, closely held corporations. Also, corporations are subject to greater federal and state regulation than other entities. In large corporations, management can be excessively independent and unresponsive to stockholder interests. Finally, when there are multiple owners, a corporation does not have the flexibility to allocate income or loss in the same way as a partnership.
3.	The stockholders are the highest authority; this authority is exercised when stockholders are able to act as a coordinated voting group. The next highest authority is the board of directors, which is elected by the stockholders. The duty of the board of directors is to safeguard stockholders by actively supervising management, creating good corporate policy, and evaluating the effectiveness of business strategies.
	The next authority level in the chain of command is corporate management. The top authority in corporate management is usually the company president, who creates short- and long-term company strategies, makes sure they are implemented, and evaluates the outcomes. Under the president are various vice presidents, the secretary, treasurer, and controller. The vice president of finance is the chief financial officer and is responsible for creating and implementing financial strategies (such as obtaining investment capital). The treasurer works with the vice president of finance to implement financial strategies and is responsible for managing corporate cash and investments. The controller is the chief accountant and is responsible for all accounting functions. Under the 2002 federal Sarbanes-Oxley law, the president and the chief financial officer of a publicly traded corporation are personally responsible for the accuracy of financial statements and subject to civil and criminal penalties for non-compliance.
4.	In general, fiduciary duty means acting in ways that, first and foremost, place the financial condition of the corporation and the value of the stockholders’ investments as top priority. This is primarily a financial duty. It requires honest behavior, competence, and genuine concern for the financial interests of the corporation and for safeguarding and improving the value of the stockholders’ investments.
	Social responsibility, in the end, always supersedes financial interests. Although social responsibility and fiduciary duty are sometimes interrelated, an ethical duty to society, community, and the environment must be first priority. History demonstrates that in the absence of this attitude, social conditions eventually deteriorate to a destructive contest between the powerful few and powerless many. Regardless of individual outcomes, total quality of life, long-term productivity, and environmental conditions all worsen.
	Examples of failing to meet corporate fiduciary duty:

		Any corporate fraud
		Careless or uninformed planning
		Excessive executive compensation or expense accounts
		Using company funds for personal purposes
		Well-known companies where this occurred: Enron, WorldCom, Adelphia, Health South, Global Crossing

Learning Goal 28, continued

SOLUTIONS

Section VI · Corporations

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