One way for a hedge fund manager to keep close watch on its investment in a public company is to arrange a board seat for a principal or other employee of the manager. The manager typically expects such a “constituency” director to be its eyes and ears on the portfolio company board and, perhaps, to help drive the manager’s strategic agenda for the company. This scenario raises a host of legal and practical issues relating to potentially competing loyalties and duties on the constituency director’s part.
In this client alert, RK&O partners Scott C. Budlong, Margaret W. Meyers, William Q. Orbe and James Q. Walker explore and provide guidance on mitigating the fiduciary duty tensions that exist when a hedge fund manager has an employee serving as a director of a public portfolio company. A second, companion client alert will look beyond fiduciary duty concerns to address a range of other legal and practical issues relevant to the hedge fund manager and its employee director.