I had the opportunity to attend one of the sessions in the Interdisciplinary Workshop on Corporations, Private Ordering, and Corporate Law last week.  The program was co-hosted by Foundations of Law and Finance (Goethe University Frankfurt, Center for Advanced Studies) and Columbia Law School.  Luckily for me, the piece of the program I attended featured Nizan Geslevich Packin presenting a work-in-progress she is co-authoring with Anat Alon-Beck entitled Board Observers: Shadow Governance in the Era of Big Tech.

Although a draft of the paper is not yet posted, here is the SSRN abstract:

This Article examines the rise in corporate governance practice of appointing board observers, especially in the context of private equity, venture capital (VC), and corporate venture capital (CVC). Board observers are non-voting members attending board meetings to gain knowledge and insight. They arguably also provide valuable feedback, an outside perspective, and can even help ensure corporate operations. In recent years, board observer seats – a notion also existing in the nonprofit sector – have become increasingly popular in the for-profit business world, where investors have various market and business justifications for using board observers, including corporate governance considerations, minimizing litigation exposure, navigating antitrust issues, CFIUS regulation, and ERISA concerns. It was not until November 2023 that mainstream media started paying more attention to the concept of board observers, after OpenAI, the corporate entity that brought the world ChatGPT, gave Microsoft a board observer seat following the drama in OpenAI’s boardroom. But what the mainstream media did not explore in its coverage of the board observer concept was its seemingly less interesting nature as a non-voting board membership, which was an important element in the complex relationship between OpenAI and Microsoft. This signaled deepening ties between the two companies that also eventually got the attention of the DOJ and FTC, as well as the influential role of CVC in funding and governing the research and development of OpenAI.

This Article makes several contributions. First, it provides an account of the board observer phenomenon, which has significantly developed and become a common practice in recent years given antitrust and national security considerations and scrutiny. Second, it presents fresh insights, groundbreaking empirical findings, and data on the scope of this corporate governance vehicle. Third, it considers the theoretical circumstances and implications of these developments. It argues for a shift in contractual innovation in deal-making and regulatory reviews, necessitating the development of corporate culture norms emphasizing disclosure and prioritizing company interests, communication, and trust-building as crucial elements in service of board observers. Finally, the Article considers the practical implications of these developments and explains why more empirical data collection and further research are necessary to determine whether current corporate governance mechanisms require modification in connection with liability, accountability, and fiduciary duties for board observers.

As someone who had to deal with board observer requests and provisions in an earlier corporate finance era, I was fascinated by the work.  So much of what their research is revealing felt familiar (even though much also has changed): what is old can be new again.  I look forward to reading the draft and learning more.