IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

The board of Vihaan Pharma Ltd is deciding on a major plant expansion. Director Ms Shah believes the expansion will raise short-term share price, but she also knows it will cause serious pollution harming the local community and risk long-run losses. She votes in favour solely to please a large shareholder who is her friend. Which analysis is most accurate?

Ms Shah may have breached her duty to act in good faith for the company's benefit and to exercise independent judgment. Directors must consider wider interests such as community and environment, and cannot simply follow a favoured shareholder. Collective board decisions do not excuse an individual's breach.

1. AShe acted properly because directors must always follow the largest shareholder
2. BShe acted properly because directors consider only short-term share price
3. CShe may have breached her duty to act in good faith in the company's interests, having regard to wider stakeholders and not acting for an outside party's wishesCorrect
4. DShe has breached no duty because the board decides collectively
5. She is liable only if the plant is later shut down by the government