White Mountain Corporation (WMC) sells computer components.

It is a publicly traded corporation. William serves as WMC’s Chief Executive Officer (CEO). William owns 15 percent of WMC’s outstanding stock. Sarah owns 10 percent of WMC’s outstanding stock. WMC recently executed an employment contract with William for a three-year term with an automatic renewal provision each year thereafter for an indefinite period of time. WMC agreed to pay William \($1.2\) million per year. The contract also provides that upon William’s retirement, he will become a part-time consultant to WMC. His consultancy fee will be \($600,000\) per year for five years and \($300,000\) per year during the following five-year period. William agreed to devote much of his time to promoting WMC during the time he serves as CEO and subsequently as a consultant. William is 50 years old. Aronson v.

Discussion Questions

a. Sarah believes the employment contract that WMC has executed with William has “no business purpose.” Do you agree? Explain.

b. In support of Sarah’s argument about William’s contract lacking a business purpose, what facts do you consider relevant? Explain.

c. Assume you are the chair of WMC’s board of directors. What arguments would you make in support of its recently executed contract with William? Explain.