Boards are the formal corporate authority of a company. PE and VC investors buy board seats because the board — not the shareholder vote — controls every material decision a private company makes between exits.
Board composition
Early-stage VC: 3-person board, founder + investor + independent. Series B: 5-person, two founder, two investor, one independent. Series C+: 5–7-person boards with multiple investor seats and independents. PE buyout: GP-controlled boards, with 2–4 GP seats, 1 management seat, and 1–2 independents (often industry operators). Independents matter — they provide governance and Revlon-duty cover in a sale process.
Fiduciary duties
Duty of care: directors must inform themselves of material facts before deciding. Duty of loyalty: directors cannot self-deal or favour one constituency at the expense of another. Revlon duties: in a sale of control, directors' duty is to maximise short-term value for shareholders. Caremark: directors must establish reasonable systems to monitor risk; failure to do so is itself a breach.
These duties run to the corporation and its shareholders, not to the appointing investor. A VC partner sitting on a portfolio company board cannot favour their fund over other shareholders — including in the most contentious cases (a down round in which the fund leads, a sale at a price that pays the preferred but zeros common).
Governance failure modes
Three patterns recur. (1) Asleep boards — directors who don't read the pre-read, don't ask hard questions, ratify management. (2) Captured boards — too aligned with founders or with one investor, unable to resist a bad strategic call. (3) Conflicted boards — directors voting on transactions where their fund or their portfolio is on the other side of the table. Each is a specific Caremark or loyalty issue and each has been litigated.