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case study 2426

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Saudi Construction Case Study Part 2:

Asad decided to establish Saudi Construction Inc. as a corporation. He did so mainly to reduce his and his associates’ personal liability. After three years of operation, he and his partners took the company public to raise capital to support their aggressive growth plans.

Now, Asad is trying to understand the governance model in corporations and the roles and responsibilities of shareholders, directors, and officers. Saudi Construction Inc. has shareholders all over the world and the lawyers keep telling him that communication is critical to avoid trouble. Operations need to be much more formal and they need to have regular Board of Directors meetings.

Asad has heard the lawyers talk about proxies and proxy fights and he wants to understand what all that means. His operations team has identified a number of key strategic merger and acquisition candidates, yet this is all new to him and he wants to understand what the options are for handling mergers, who has to approve them, what happens after companies merge, and so forth. His operations team is screaming at him they need to buy a company in the next quarter to meet their growth objectives, so he needs to learn the basics fast.

He worries about lawsuits. The officers of the corporation are out making deals all the time and some suppliers questioning whether the officers have the authority to sign and bind contracts for the company. The directors want him to clarify what authority different officers have over the corporation.

Furthermore, a couple of difficult shareholders want to second guess and challenge every decision the officers and the Board make, and Asad thinks it’s only a matter of time before someone take legal action. He doesn’t understand what standards (or test) a judge would use to figure out whether the shareholders have a valid claim and whether they are entitled to damages.

Asad is feeling a lot of stress. Part of his frustration is because he thinks judges don’t know business and shouldn’t be in a position to tell him and his associates what to do. But he’s also frustrated because he has the feeling he should slow down and do things by the book … but slowing down means missing out on very good business deals. Plenty of the directors and officers have said they will make the deals themselves if Saudi Construction cannot.

Asad really likes the money he is making, but his frustration and the pressure he’s under to make his deadlines are becoming overwhelming. Meanwhile, his business associates are telling him to ignore all the shareholders and administrative issues.

(You may refer back to 10-2: Case Study Scenario #1 as needed.)

Action Items

  • In at least a one page paper, fully respond to the following:
    • Asad has once again hired you as his business consultant to help him make good decisions. He needs to understand the corporate model of governance and the roles and responsibilities of the shareholders, directors and officers in a publicly traded corporation. He wants to make sure he understands who has authority in his company.
    • He urgently needs to understand how to do mergers and acquisitions; the deals are coming together fast. Who must approve the deals, and what is the best way to do them in certain circumstances?
    • Since the shareholders never seem happy, Asad wants to understand what responsibilities the directors and officers have to shareholders so he can educate himself and the company leadership. What are all these fiduciary duties (duty of care, duty of loyalty, good faith) and how do judges test whether the directors are meeting them?
    • The deals the officers and directors are pursuing are fantastic and they are ready to do them on their own (or with other corporations they control) if Saudi Construction can’t follow through due to money, timing, or strategic reasons. The Board of Directors has an important meeting late next week. Asad is looking for your advice and report by the beginning of the week.
  • Cite your resources in APA format.
 
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