Actions That Private Equity Fund Representatives on Corporate Boards Can Take to Help Avoid Liability

Abstract

This article summarizes some common situations in which private equity professionals who serve on the boards of their funds' portfolio companies can incur liability and provides specific action items they can take to help minimize or avoid that liability. The current economic climate and its increased risk of litigation against corporate board members makes this issue particularly timely. Outside board members of WorldCom, Enron and, most recently, Just For Feet, Inc. (which included representatives of Thomas H. Lee Partners and Weston Presidio Capital Management) have been required to personally pay tens of millions of dollars in settling lawsuits, highlighting the potential magnitude of the risk.

TOPICS: Private equity, legal/regulatory/public policy, financial crises and financial market history, manager selection