Moelis Ruling Sharpens Focus on Private Equity Veto Agreements

A first-of-its-kind court decision involving investment bank Moelis & Co. threatens the growing corporate practice of giving a company’s financial backers significant authority, by contract, over core managerial decisions.

The ruling by a Delaware judge—invalidating most of an agreement between the company and billionaire founder Kenneth Moelis—was the first to grapple with a wave of shareholder pacts giving extensive veto rights to early investors. Other businesses that have faced similar legal challenges include Alignment Healthcare Inc., EngageSmart Inc., and Petco Health & Wellness Co.

Structural changes in the US economy have put the contracts in the ...