Emerging Enterprise Center Blog - Fiduciary Duties of Directors and Rights of Preferred Stockholders - Comments http://www.emergingenterprisecenterblog.com/ Boston Startup Lawyers & Attorneys for Venture Capital & Financing Entrepreneurs en Copyright 2012 Fri, 30 Mar 2012 11:32:40 -0500 Fri, 30 Mar 2012 11:32:40 -0500 http://www.sixapart.com/movabletype/?v=4.32-en http://blogs.law.harvard.edu/tech/rss Mike Feinstein Unfortunately, preferred directors still have a conflict even if the courts say that they should represent the interest of the common shareholders. VC partners are investors in their venture funds and are compensated with a portion of the profits (carried interest). Therefore, a preferred director has a personal financial incentive to protect the interests of the preferred stock where their compensation is tied.

You could argue that it might be in a company's interest to give each preferred director some common options to keep them focused on the common shareholder's interests. But, most venture firms are required to share this compensation with their investors, so it wouldn't have as strong of an effect.

This issue of a preferred director's split loyalties between the preferred and common is very significant, particularly if a company hits tough times, needs to get a difficult financing done, etc. I don't have a recommended solution, but I don't think that some court decisions will make a difference when personal motivation comes into play.

]]> http://www.emergingenterprisecenterblog.com/startup-issues/fiduciary-duties-of-directors-and-rights-of-preferred-stockholders/#18793 http://www.emergingenterprisecenterblog.com/startup-issues/fiduciary-duties-of-directors-and-rights-of-preferred-stockholders/#18793 NVCAStartup IssuesVC Community Wed, 17 Mar 2010 07:00:00 -0500 Dave Broadwin