It is common for shareholders of both public and private companies to nominate directors to sit on the companies’ boards on their behalf. This commonly occurs when an investor is an institution, when it has the contractual rights to control one or more board seats, or when an investor wishes to appoint an employee or an individual with particular experience to the board.

These “nominee directors”, however, often find themselves conflicted. While the nominating shareholder will naturally expect its nominee director to demonstrate loyalty and advocate on the shareholder’s behalf, the nominee director owes specific legal duties to the corporation that are founded upon good faith, candor, confidentiality and the best interests of the corporation.