This is a post originally written in response to a question on LinkedIn.  The question poses a hypothetical arising out a situation involving issues of corporate governance.

What to do when in a minority on a board where you have invested most of the money?

I advise Boards and Directors on complex and challenging issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month my newsletter considers three experts’ responses to a real issue. This is your chance to be one of the experts published in the February issue.

Last issue Dean Cording from the LinkedIn community was featured after answering a question posted here. You can read his response (and subscribe to the free newsletter) at This month’s dilemma is below.

How would you advise Dave?

Dave was a successful senior executive at a large company. He retired early and wants to remain active helping small companies. He thought his experience of strategic planning, budgeting and investment appraisal would be useful to listed start-up companies.

His broker suggested he invest in a small company that had potentially excellent products but was undercapitalised and failing in the marketplace. Dave did due diligence on the finances and senior staff or directors.

There was resistance when he suggested that, as he was investing several million, he should join the board. When it was clear he was not interested in a passive investment, and would seek another company if he could not join the board, they relented. He was voted in at the next AGM.

Since then he has realised that much is discussed and decided without him at informal meetings, and has been outvoted on many issues. The CEO is a protégé of the Chairman and the other two directors are longstanding friends of both. They don’t even pretend to listen to or consider Dave’s contributions. They have doubled the CEO’s salary and the director’s fees. Dave’s funds are being spent but not on developing the products that interested him.

Now they are determined to use the remaining funds for an acquisition that Dave believes will destroy value.

What should Dave do?

DCW Responds:

This is a game with pieces on a board but no labels, definitions or rule book, and the question presented is “How does Player A win the game?” A request to offer legal advice based on this information is “malpractice bait.”

Where are the articles of incorporation, corporate by-laws, shareholder agreements, voting covenants, creditor agreements, VC docs, board resolutions, Operating Agreement (if an LLC) and other documents which govern the various players’ relationships? Who owns the IP? Who controls the entity’s assets? You say that the “company” is a “company.” What kind of “company?” C-corp? S-corp? LLC? Limited partnership? What is the jurisdiction? Where are the accounting records?

Your hypothetical says that Dave “did due diligence.” And? What did he find? Assuming he had counsel when he did this “due diligence,” what does that lawyer’s file reveal?

Your hypothetical suggests nothing more complicated than a minority shareholder and out-voted director who thinks very highly of himself but isn’t getting his way. So what? He made his bed when he bought in, but there is no information on what he–in fact–bought into. He’s enmeshed in a web of contractual relationships but there is no information on what those relationships are.

The hypothetical also says nothing about what Dave wants. It asks only what Dave should do? Do about what? I don’t know that what you’ve described is a “problem” or that the “problem” isn’t easily solved. The problem isn’t defined in any manner except that Dave isn’t getting his way on a particular isolated issue. Does he want to control the company? Get his money out? Get bought out at a premium to book value? Become King of the Forest? Get respect? Or just be listened to? So he disagrees with other board members. And? The hypo doesn’t suggest that his investment and role entitle him to either control or respect. It sounds like it bought him a seat a the table. But again, we have no clue.

The hypo also doesn’t say anything about who Dave is. He may be a control freak who got driven out of his former company and into early retirement because he was a thorn in the side of the last management team he was part of. Just because he “thought his experience of strategic planning, budgeting and investment appraisal would be useful to listed start-up companies” doesn’t mean that the world shares his exalted opinion of himself. Maybe the dynamic was such that Newco was eager for his $ but had no intention of giving him a hand on the helm at any point for any reason. There are many possible reasons why Dave “retired early,” but we aren’t privy to any of that. (Not to put too fine a point on it, nor to illustrate with absurdity, but Jeff Skilling and Michael Milken could be said to have “retired early.”)

How would I advise Dave? If Dave came into my office with this story, I’d make another appointment with him for a later date, give him a list of to-dos and documents to bring with him and block out the afternoon to find out what was going on. Then I’d ask for a retainer check to figure out just how serious he is. I would also ask for the phone number of the the lawyer who got him into this situation and why he was calling me and not that person.

At best, this hypothetical only glances off the possibility of a problem. I don’t know from its story line whether that is a “real” business problem merely the bruised ego of a guy who used to be a player but is having a hard time being taken seriously now that he’s out of the game.

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