Directors are fiduciaries and have the responsibility for overseeing the business and affairs of the company. In keeping with those responsibilities, directors generally have a right to see any corporate information they want, including information that’s subject to the attorney-client privilege. But this ArentFox Schiff memo says that right is subject to certain exceptions. This excerpt explains:
In many jurisdictions—including Delaware, Illinois, Virginia, D.C., and Massachusetts—a director cannot obtain privileged company records where the director seeks them for an improper purpose. Jurisdictions such as Delaware and Massachusetts also restrict a director’s access to privileged communications where the director is acting adversely to the company’s interests. Similarly, under California law, a director generally cannot obtain the company’s privileged communications relating to a lawsuit the director filed against the company.
Courts conduct a fact-intensive inquiry to determine whether a director has an improper purpose for Courts conduct a fact-intensive inquiry to determine whether a director has an improper purpose for inspection or is acting adversely to the company. That inquiry involves considering whether the company has specific evidence—beyond anticipating the director may sue the company—of an improper purpose or adversity. For example, evidence that a director seeks to access privileged company records to harass the company or to force a buyout of the director’s shares at a premium may be sufficient to prevent the director from accessing those records.
Further, it is not sufficient for the company to show that the director is acting adversely to other directors. Instead, the company must show that the director is acting adversely to the company.
The memo goes on to offer several proactive steps that companies might take to shield corporate records from directors in order to avoid the fact-intensive inquiry described above. These include appointing a special committee to deal with a dispute involving a director as soon as it arises and having that committee retain its own counsel.
On a related topic, be sure to check out Keith Bishop’s blog on the issue of whether directors of a corporation are “joint clients” of a lawyer for the company.
– John Jenkins