Cleveland Browns Case Study Analysis

Mr. Arthur Modell ownership at Cleveland Stadium Corporation stood at 80 % and owned 53 % of the Cleveland Browns Football Company having him as a majority shareholder in both entities (Brown, and Sukys, 706). On the other hand, Mr. Gries owned 43 % of the Cleveland Browns Football Company thereby becoming part of the minority shareholding in the Browns. The purchase of the Cleveland Stadium for $ 6 million as proposed by Arthur Model, the director and chief executive of Cleveland Browns Football is the source of disagreement between the majority and minority stockholders. Arthur Modell and other directors of the Cleveland Browns Football Company should take cognizance of the expectation by other shareholders that they should ensure the interests of the company are at all times protected from erosion (Brown, and Sukys, 706).

The management has a fiduciary duty to the company and shareholders to enhance the competitiveness and growth of the business but the action perpetrated by Arthur Modell adversely negates such an important responsibility (Block, Radin, & Maimone, 785). Mr. Robert Gries as a minority shareholder in both companies will suffer due to the failure of the management to undertake due diligence to ensure the purchase of the stadium asserts the benefit of yielding value for money. A business transaction should be transparent and conflict of interest among the directors declared to determine the impact of their interest on the transactions. The business judgment rule is an important principle in the corporate governance circles anchored in common law for a long time influencing the jurisprudence of tackling business transactional conflicts.

The business judgment rule has in many instances come in handy when it comes to shielding directors from liability due to the decisions they make in the course of their duty. The courts put the burden of proof to the complainant to demonstrate a rebuttal on the presumption that the actions of the directors are not in any way free from the influence of personal interest or bordering on illegalities depending on the jurisdiction of operations. On the other end, the fairness rule is an undertaking that raises the standard for a director to invoke the business judgment rule as it develops a fairness doctrine that evaluates the majority of the directors committed to a decision are conflicted or evidence to prove they stand on both sides of the business transaction.

The fairness rule protects the directors from misusing their influence and authority in disenfranchising the minority stakeholders on manners that suit the personal interests. Sinclair Oil Corp.  v.  Levien, Del. Supr. , 280 A. Finally, a director is expected to ensure they avail themselves with necessary materials and facts on an issue before making the decision to determine whether to the best of their judgment it would be a reasonable thing to undertake such an engagement. Kaplan v.  Centex Corp. , Del. Ch. The business judgment rule grants directors immunity that makes some abuse it for personal gain as opposed to the business interests of all stakeholders. Response to Question Three The purchase of the stadium transaction raises a lot of misunderstanding on whether the Browns will gain substantively economically and on the business angle upon completion of the transaction.

The transaction grants a significant benefit to majority stockholders of Cleveland Stadium Corporation due to the capital gain on the sale of the property to Browns at an overvalued price of $ 6 million (Brown, and Sukys, 706). The gain will improve the stock value of the majority stockholders as it provides them with an incremental gain on their earnings based on the improved net worth upon sale of their asset at price above the market price. Nonetheless, Cleveland Browns would have on the other side lost a significant value through the transaction since it would not be on a fair basis and does not offer value for money to the stockholders. The allegations are valid since Arthur Modell is an interested director in the transactions and holds the majority stake in both entities.

It is imperative to underscore the fact that common directorship raises the risk of conflict of interest and the chances of Arthur influencing the transactions to pay the outstanding debts of Cleveland Stadium Corporation weighs in substantive impetus on the motivation to purchase the stadium. The business process deprives the minority shareholders of the confidence in the process since it does not demonstrate due diligence and objectivity at any level. The Ohio Supreme Court made an informed decision that reigns on impunity that is advanced on the basis of a situation where directors misuse the provisions of the business judgment rule. The presumptions of the business judgment rule should be evaluated based on the nature of directorship to determine whether any transaction passes the test of validity to demonstrate fairness for all stakeholders (Manning, 615).