Article Script for Mock Board Meeting of Pure Play, Inc., 0218 UTBJ, Vol. 31, No. 1. 28

AuthorJames U. Jensen, J.
PositionVol. 31 1 Pg. 28

Article Script for Mock Board Meeting of Pure Play, Inc.

Vol. 31 No. 1 Pg. 28

Utah Bar Journal

February, 2018

January, 2017

James U. Jensen, J.


This meeting is for board training purposes. The Play illustrates legal, ethical, and governance issues encountered by private companies that have taken in outside capital. Embedded numbers lead to points of discussion by counsel during the “intermissions.” This is not legal advice. Attendees should seek separate legal advice on any matter discussed here.


Able Meister: Independent Director and Chair; holds common, Series A, and options

Betcher Pay: CEO Director; a founder; holds common and options

Carol Singer: Independent Director; holds Series A and options

Dag Namit: Independent Director/Investor; holds Series B shares

Esher B. Good: The Sr. VP & General Counsel (GC); holds common and options

Fran Tastic: The Sr. VP & CFO; holds common and options

Grinn N. Barrett: Independent Director; holds Series A and options


[The Meeting begins with Able, Carol, and Grinn seated at the table. Waiting nearby are Betcher, Dag, Fran, and Esher.]

ABLE: OK, let’s get started. Carol and Grinn, we comprise an Executive Session of the Board meeting. [1] Generally, we have not recorded minutes for these sessions, and I just give a summary report into the full meeting minutes. Let’s start with Board nominees. Carol?

CAROL: I know that our new investment contract gave us needed cash and gave Deep Pockets the right to name a Director, [2] but I was surprised that Deep’s long time CEO, Amazon Grace, was not named. I don’t know Dag Namit, although I hear good things about him. I just ask if we should go back to Deep and ask for Amazon himself.

ABLE: Well, I checked with Esher, our General Counsel, and the Agreement gives Deep the sole right to appoint. Grinn, what do you think?

GRINN: Well, as you requested earlier, I have not kept my notes from the previous board meeting [3] when we addressed the term sheet for the Deep deal. But I recall that it included a “Director Nominee” provision. I know both of these folks. Candidly, I think Dag will fit our board culture [4] better than Amazon, anyway. Amazon has a well-earned reputation of being occasionally wrong but never in doubt.

CAROL: Well, we also have pending the request from Betcher, our CEO, that we add to the board Betcher’s favorite consultant. What’s the name? Flatter Ing. I take the position that a nominee from the CEO is not an “independent Director” so appointment of Flatter would violate our policy of having only one Director from management. [6]

GRINN: I accept your point, Carol. But we already have a mix of a “working Board” and an “oversight Board” because each of the three of us is engaged to some degree, with assisting management. So our pure role of oversight is compromised in that regard. [7] Moreover, Deep Pockets is known to stay close to management in practice and to contract for control of various decisions by written agreement. [8] And I agree that adding Flatter wouldn’t add a new perspective to the Board.

ABLE: I agree, and I see no need to act now. I want us to do a self-assessment [9] to identify the talents and skills we have now so we’ll know what to add to our Board. We can just expand the Board by motion and get an election with the next shareholders’ meeting, and we need to be sure that Betcher and the other officers support this approach. Our early “Angel Investors” accepted the fact that none of them would be on our Board and that we would add people as the need arose. [10]

In building the agenda with Betcher for the full Board meeting, [11] I suggested to Betcher that I thought the Board would decline to add anyone else at this time. So I expect that Betcher is OK with that approach.

CAROL: OK. I will accept your suggestion.

GRINN: I’m fine, too.

ABLE: Great. Before we bring in the others, let’s discuss compensation for Dag. [12] I think it is fairly common that a contracted member is not compensated. If you will permit me, I will discuss it off-line with our GC. So we can keep moving, I will bring it back to a further Executive Session meeting if [13] it appears that compensation is expected. Will that be acceptable?

CAROL: That sounds find.

GRINN: Good.

[End of Act I – the lights go down.]

STATION BREAK: The Narrator, Players, and guests will discuss legal, ethical, and governance issues presented in Act One:

1. Executive Session and committee meetings frequently have no minutes. Their recommendations are summarized into the regular meeting minutes. Audit Committee minutes are common, however.

2. Investors frequently negotiate for the right to appoint a Director. Delaware cases have confirmed the full fiduciary Director duties for such Directors.

3. Private notes of Board meetings are discouraged and can be troublesome in litigation.

4. The writings address the advantages and disadvantages of Director Board terms, and the writers discuss productive Board culture vs. downside of imbedded attitudes.

5. Board diversity is much in the news. Some European countries have mandated minimum female representation as high as 20% to 40% for public companies.

6. SEC rules require a majority of outside Directors (and exclusively outside Directors on the Audit Committee). Many private companies have moved in that direction too.

7. Note the trade-off that exists between traditional views of Board oversight and activist views of a working Board. Note the challenge to independence where Directors create (and execute) corporate strategy.

8. Some professional investors contract to move some decisions from the Board to shareholders or to require super majority votes on some issues. This compromises the traditional view of Board oversight.

9. Board self-assessment (required by SEC rules for public companies) is commonly integrated with Director selection.

10. This discussion demonstrates that this Company lacks specific representation for minority shareholders.

11. An independent Board chair frequently helps to build the Board agenda.

12. Directors set their own compensation. But some litigation and “say-on-pay” developments have put a light on potential for self-serving activity. Recent Delaware cases reflect the challenge of “interested Director” issues when setting Director compensation.

13. An effective chair can manage some matters off-line when trusted by the other Directors.


[The lights come up. Betcher, Dag, Fran, and Esher have joined Able, Carol, and Grinn.]

ABLE: Welcome, Dag. And welcome Betcher, Fran, and Esher. Dag, I believe that you met everyone as part of your due diligence. Esher, will you take minutes of the meeting? We are now in full session. The minutes will reflect that all Board members are present and that they have received and reviewed the Board materials ahead of the meeting. [1]

Will you please reflect in the minutes, Esher, that the three Independent Directors held an...

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