Navigating the Multiple Roles of “Constituency Directors” on Public Company Boards -
“Constituency” directors are becoming an ever increasing presence in U.S. public corporations’ (“Corporation”) board rooms. The term “constituency” director refers to public company directors whose board membership is tied to one or more specific voting constituency or sponsor (i.e., a significant stockholder). This article focuses on potential challenges arising when hedge fund or private equity representatives serve as constituency directors.
Oftentimes constituency directors nominated by hedge funds or private equity firms are employees or principals (the “Designated Director”) of nominating firms (“Nominating Firms”). The Designated Director may be a principal of the Nominating Firm, with overall responsibility for the firm’s financial performance, or a portfolio manager or analyst with industry or company-specific expertise. In practice, Designated Directors would be expected to, and oftentimes do, have substantial ongoing interaction with their Nominating Firm.
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