Meaning
Individuals appointed to a board to represent the interests of a specific shareholder or investor group. These persons are often employees of a private equity firm or a parent company who ensure that the board follows the strategy of the majority owner. While they have the same duties as other board members their primary focus is on the party that appointed them.
Fiduciary Conflict
Challenges arise when the interests of the shareholder and the interests of the company as a whole diverge. Nominee directors must balance their loyalty to their employer with their legal duty to act in the best interest of the firm. This conflict is a common feature in venture capital investments and joint ventures.
Appointment Right
Shareholders negotiate the power to name specific individuals to the board in the investment agreement. The right to seat nominee directors provides the investor with a direct voice in the management of the company. This power is usually tied to the size of the ownership stake held by the investor.
Board Independence
Independence requires that the other members of the board remain objective. The influence of nominee directors is limited by the fact that they are only a part of the total board of directors. This structure ensures that no single shareholder can completely control the decisions of the company without the support of the independent members.
