The Private Equity Paradox: When Is Too Much Control a Bad Thing?

Boards of directors have increasingly come under fire by stockholders and watchdog agencies. It is more important than ever for aprivate equity investor (PEI) to fully comprehend the complex nature of his own fiduciary duties. As a PEI, he owes a duty to his fund and its investors to maximize their...

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Bibliographic Details
Published in:The journal of private equity 2003-07, Vol.6 (3), p.37-40
Main Authors: Hill, James M., Gambaccini, John S.
Format: Article
Language:English
Subjects:
Boards of directors
Business structures
Corporations
Fairness
Fiduciary responsibility
Financial transactions
Investors
Private equity
Self interest
Shareholders
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Summary:Boards of directors have increasingly come under fire by stockholders and watchdog agencies. It is more important than ever for aprivate equity investor (PEI) to fully comprehend the complex nature of his own fiduciary duties. As a PEI, he owes a duty to his fund and its investors to maximize their return. However, as a director of the portfolio company, he owes a duty to act in the best interests of the company. When financial troubles arise, these duties are often in conflict. How well the PEI understands the nature and extent of his duties will go a long way in determining whether he will emerge unscathed or be mired in a web of lawsuits. The authors define the director duties to stockholders, the level of risk to the PEI, and how to navigate the fiduciary duty minefield in a down round.
ISSN:1096-5572
2168-8508
DOI:10.3905/jpe.2003.320048