Investors who make substantial investments often demand a seat on their company’s board of directors. That is a reasonable request as it permits the investor to have a representative on the board of directors with a voice in management of the company. It is well-settled that directors elected by stockholders of a Delaware corporation owe fiduciary duties to the company and all its stockholders once they serve on the board. Thus, they may make decisions in the exercise of their fiduciary duty that are different than what is in the best interest of designating investor. The Court of Chancery’s recent decision in Air Products and Chemicals, Inc. v. Airgas, Inc., 2011 WL 519735 (Del. Ch. Feb. 15, 2011) reflects this issue.
Conflicts also are likely to arise over the use of confidential information supplied to the designated directors. Designating directors who owe their livelihood or materially benefit from relationships with the designating investor sharpens the likelihood of conflicts of interest. Companies, investors and directors and their counsel should consider carefully the implications of directors designated by particular stockholders serving on boards of Delaware corporations.
http://www.delawarebusinesslitigation.com/2011/03/articles/case-summaries/directors/directors-designated-by-investors-owe-fiduciary-duties-to-the-company-as-a-whole-and-not-to-the-designating-investor/
