Mind the hat

In retrospect, it seems like an easy question – would you, as a board member, approve a pay package for a top executive of your company if said package guaranteed the executive a payout of $140 million for getting fired a year into his job?

Your answer might be ?no, given what you know about the shareholder suit against Walt Disney, which in 1996 fired president Michael Ovitz after just 14 months and then paid him $140 million as part of a no-fault termination package.

The lawsuit sought to hold the corporation's board accountable for breach of fiduciary duty in the matter, arguing that no reasonable board member would have approved such a lavish package.

Last month, a Delaware judge ruled in favor of the Disney board, but noted that had the incident taken place in today's environment, the courts may have taken ?a tougher stance.?

That the case against the Disney board made it as far as it did is evidence that the old ?hear no evil, see no evil attitude toward corporate governance is gradually being replaced with an expectation that the board members of public companies spend more time and energy looking for and battling corporate malfeasance.

This trend should be taken seriously by private equity general partners who serve on public boards. As we report beginning on p.16, GP board members must wear two hats, one when acting as a fiduciary of their private equity fund and one when acting as a fiduciary of a public portfolio company. And they must always be careful about which hat they are wearing, because in today's environment the failure to do so can draw lawsuits claiming the GP was putting the interests of his or her fund against those of the corporation.

Working at a public company has its downside and, increasingly, working at a private company is seen by these executives as having potentially a huge upside. This month, PEM presents a guest article from Fran Minogue of executive search firm Heidrick & Struggles which examines the conditions that affect a corporate executive's decision to go the private equity route. Minogue also gives some surprising advice – if you hire a headhunter, take an interest in the initial search, but don't get too interested or you'll just muck things up.

Finally, this month Art Janik explores the ways private equity firms can recruit and retain finance-function talent in this go-go age of hedge funds. Sure, hedge funds are hot, you say, but do you really want to spend your time doing the daily P&L?

Enjoy the issue,

David Snowdavid.s@us.investoraccess.com