Question

In 2007, Makber, Inc., began a music video entertainment company specializing in personalized modifications of existing music videos at the individual user level. Since that time, the corporation has diversified into the development of clothing lines and manufacturing of electronics. The percentage of the corporation's music video division has decreased from 100 percent of its total assets, net worth, total revenues, and earnings to 29 percent of its total assets, 22 percent of its net worth, and 15 percent of Makber's revenue and earnings. After careful review of its current business model and growth projections, Makber has decided to sell off its music video division without the consent of the shareholders. A large contingent of shareholders that bought stock at the inception of Makber have an emotional connection to the music video products and are up in arms. If you were on the Board of Directors for Makber, how would you justify your decision to the sell the division without consent of the shareholders?

Answer 1

Makber Inc. sold its music division as it was clearly falling down, and was not adding up to the company’s business. The case states that the shareholders were not informed about this decision. Looking into the matter legally, the company cannot sell any division without the consent of the shareholders as they are the ones investing their money in the business. But also, the company needs to think in best favour of the shareholders so that their investment does not go into loss and in this case selling the music division is the best decision even for the shareholders. Even though the shareholders have a emotional connect with the music division, businesses don’t run on emotions but on money so Makber made the right decision but the company should have taken shareholder’s consent first.