What to do when in a minority on a board where you have invested most of the money? (LinkedIn Q&A)

On January 27, 2009, in Common Sense, Corporate Governance, Corporation and Entity Law, Law and Lawyers, LinkedIn Q&A, by David C. Winton

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.

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 www.mclellan.com.au/newsletter.html. 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?

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