How To Manage Conflicts Of Interest In Private Equity?

Managing Conflicts of Interest for Private Equity-Nominated Directors

Directors nominated by private equity (PE) sponsors have a unique position—but it’s important to note that their legal duties extend beyond serving the interests of the sponsor alone.
Under UK law, particularly the Companies Act 2006, these directors owe their duties to the company as a whole, including all shareholders—not just the nominating PE firm.

Situational Conflicts

A key legal requirement is to avoid “situational conflicts”, where a director’s interests may conflict (or appear to conflict) with the interests of the company they serve.
For example, a situational conflict could arise if a director also sits on the board of another portfolio company that operates in the same sector, or has interests that are potentially adverse to the first company.

In such cases, these conflicts can be managed and authorised by the non-conflicted directors of the company. It is standard practice—and legally advisable—for nominated directors to seek this type of authorisation where relevant.

Transactional Conflicts

Directors may also face “transactional conflicts”, which occur when they have an interest in a specific deal or arrangement the company is considering.
When this happens, directors are generally required to declare their interest in the transaction. This declaration ensures transparency and allows the board to take appropriate steps.

Once an interest has been disclosed, whether or not a director can participate in decision-making will depend on the company’s articles of association.
In many cases, these articles allow directors to continue participating in decisions, even where a conflict exists—as long as proper disclosure has been made.

Key Takeaway

Nominated directors can navigate both actual and potential conflicts effectively by:
• Understanding their broader fiduciary duties
• Seeking authorisation for situational conflicts
• Disclosing transactional conflicts clearly and promptly
• Following the company’s governing documents, such as its articles of association

By taking these steps, PE-nominated directors can fulfill their responsibilities both to the companies they serve and to the PE firms that appointed them—while remaining compliant with UK corporate governance standards.