Board Observer Rights – Is It A Good Idea?

A professional director for a hedge fund might take an instinctive view that board observer rights are not desirable given the traditional view of separation of capital ownership and those responsible for fund governance. Professional directors confident in their abilities would, however, welcome the opportunity to show how seriously they take their fiduciary responsibilities and demonstrate their skills and knowledge of good governance under the scrutiny of a board observer.

A board observer can take different forms but the general idea is that an investor would have the right to attend formal meetings held in the context of a fund's governance structure and be able to review sensitive board documents and reports. This poses both opportunities and challenges for those charged with governance.