Case Study- Vector Aeromotive Corporation

Topics: Board of directors, Fiduciary, Stock Pages: 5 (1674 words) Published: October 17, 2010
No 3. The Extended Case Study- Vector Aeromotive Corporation Zhenhua Rui 09/20/2010
Vector Aeromotive Corporation was a company which designed, manufactured and sold exotic sports cars. Vector was the only U.S.-based manufacture of exotic sports cars, and his major competitors were Ferrari and Lamborghini. Gerry Wiegert is the President and founder of this company. In 1987, the board of directors was formed with three directors. This case shows events happening between the board and President Gerry. In March 1993, the company’s financial position was critical, and Vector’s board decided to ask President Gerry to resign from the company due to his bad performance. But Gerry declined to resign and declare a war against board of directors. There was a significant conflict between the board of directors and President Gerry. In general, the board of directors is a group of elected or appointed members to oversee activities of a company or organization. The board of directors has a fiduciary duty to grow the long-term success of the corporation for the benefit of shareholder, and sometimes for debt holders. The basic fiduciary duty includes: 1) duty of care -duty to make/delegate decision in an informed way; 2) duty of loyalty -duty to advance corporate over personal interests; 3) duty of good faith-duty to be faithful and devoted to the interest of the corporation and its shareholders; 4) duty not to “waste” -duty to avoid deliberate destruction of shareholder value. Generally, the board of directors performs major detail functions as below: 1) provide continuity for the organization; 2) select and appoint a chief executive; 3) govern the organization by broad policies and objectives; 4) acquire sufficient resources for the organization’s operations and to finance the products and services adequately; 5) account to the public for the products and services of the organization and expenditures. The board is corporate governance of the company, which is significant for the company. In order to ensure that they perform well, members of boards of directors should meet several important qualifications and specific obligations: they should 1) have the time to attend meeting and represent the agency to its various constituencies; 2) believe in the mission of the agency; 3) understand and agrees to accept legal liability for the actions and activities of the agency; 4) agree to give the agency a certain predetermined annual monetary contribution or to get an equal contribution from another source; 5) have some skill, talent, or access to resources that can be of benefit to the agency; 6) commit to meet the needs of the people that agency intends to serve; 7) understand basic financial reports; additionally, some board members should be independent of managers and accountable to shareholders. From the above general introduction to the board of directors, Functions of Vector’s Board were special in these aspects: First, The board was not involved in the formation of company’s strategy, but ratified major financial and policy decisions. Second, the board did not identify or train possible successors due to size of company and president’s opposition. Third, Vector management rarely provides information to board members before meeting. In addition, all of board members were associated with the company or president Gerry. As mentioned below, there was a conflict between the board and president. Many events caused conflict between the board and President Gerry. Major causes of them were:1) Gerry just provided the information to the Board to support his needs, and never gave all of the relevant information; 2) Gerry used company funds for personal home improvements and also involved other forms of self-dealing at the company’s expense; 3) Gerry lied to the board about the board’s size; 4) Gerry reneged on a transferring stocking option agreement with major investor and shareholder Mr.Djody; 5) debate over payroll tax and disclosures...
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