Corporate law fiduciary duties arise from trust law concepts – a party who manages an asset for the benefit of another party is held to standards of care and loyalty in managing the asset for the beneficiary. The imposition of fiduciary duties on board observers would be largely inconsistent with the corporate law underpinnings of fiduciary duties. General – Fiduciary DutiesĪ board observer should not be considered a fiduciary of the corporation whose board he or she observes solely by virtue of his or her role as observer. This article sets forth some of the key issues that parties documenting board observer arrangements should consider. To function as all parties intend, a board observer arrangement should be carefully documented. The arrangement might also represent a compromise by which the corporation grants greater access and information to the investor in exchange for assurances that the investor will not be able to exert undue influence over corporate decisions or, in the event of intra-corporate disputes, gain access to privileged information. From the corporation’s standpoint, the arrangement may give the corporation access to an investor designee who has knowledge of the corporation’s business, and it may serve to promote a relationship with a potential strategic partner. At the same time, the arrangement helps to avoid subjecting the investor’s designee to traditional fiduciary duties. From the investor’s standpoint, the arrangement may provide insight into a corporation that operates in a business line in which the investor is currently active or in which it is seeking to expand. These arrangements may offer several advantages over a traditional designated board seat. Reference to basic principles of corporate law, however, should provide corporations and investors sufficient guidance in structuring board observer arrangements. In contrast, the use of board advisors is increasingly becoming a feature of board of directors meetings across the spectrum, including closely-held family-controlled businesses, venture capital or private equity-backed companies, and public companies.Īlthough board observer arrangements are not uncommon, there is little case law squarely addressing the rights, duties, and potential liabilities of board observers. Board observers are typically a phenomenon of venture capital backed companies and represent the interests of such investors. These individuals do not have the fiduciary duties of elected board members. This article and the companion article on board advisors both address a corporate governance arrangement under which the skill set of the formal board of directors is supplemented by individuals who are appointed to serve in an observational or advisory capacity.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |