Fannie Mae is a federally chartered, private corporation with shareholders, directors, and officers like other nongovernmental corporations.

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Fannie Mae is a federally chartered, private corporation with shareholders, directors, and officers like other nongovernmental corporations. A governmental review of Fannie Mae’s books uncovered deficiencies in accounting policies, internal controls, and financial reporting. Ultimately, the corporation was compelled by the Securities and Exchange Commission (SEC) to draft a $9 billion earnings restatement. Six days later, two Fannie Mae officers (CEO Franklin D. Raines and CFO Timothy Howard) resigned. The corporate board did not fire Raines or Howard for cause and, as a result, they were able to leave the company with $31 billion in severance benefits. 


Several corporate shareholders filed a derivative lawsuit against the corporation’s directors, claiming that the board should have terminated Raines and Howard for cause. Fannie Mae asked the court to dismiss the lawsuit because the shareholders failed to first ask the board to have the corporation pursue the claim itself. Are the shareholders excused from asking the board to have the corporation pursue the claim? Explain.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Law for Business

ISBN: 978-1259722325

13th edition

Authors: A. James Barnes, Terry M. Dworkin, Eric L. Richards

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