Governance Insights 2024 Nominee Directors: Fiduciary Obligations and the Limits of Information Sharing
Key Takeaways
A Primer on Nominee Director Duties Canadian law has not recognized any distinction in responsibilities between a director nominated by a shareholder and a director nominated by management – a nominee director owes the same duties to the corporation as all other directors. These duties include the fiduciary obligation to act in the best interests of the corporation, together with the attendant responsibilities of a director to, among other things, manage conflicts of interest; disclose information affecting vital aspects of the corporation's business (even where such information is confidential information of the nominating shareholder); not misappropriate corporate opportunities; and maintain the confidentiality of corporate information acquired as a director. Canadian courts have also unambiguously held that a nominee director is, in all circumstances, expected to exercise independent judgment and subordinate the interests of their nominating shareholder to those of the corporation. To be sure, a nominee is permitted to bring the perspective of a nominating shareholder into the boardroom and to have regard to that shareholder’s interests, but not to the exclusion of other relevant stakeholders. Courts have warned nominees who consult with their nominating shareholder that “[t]he line between taking advice and taking direction is a fine one.”2 A nominee should not be a mouthpiece for the concerns of their nominating shareholder.
In this Governance Insights article, we discuss the fundamental fiduciary considerations that nominee directors, nominating shareholders and companies should bear in mind when negotiating and implementing a director nominee arrangement: – A nominee is subject to the same fiduciary obligations as other directors.
– A nominee may share confidential information with their nominating
shareholder only if the company, whether impliedly or expressly, consents; however, a nominee cannot contractually override their fiduciary obligations to act in the best interests of the corporation. – A nominee should actively manage conflicts of interest that may arise due to their relationship with their nominating shareholder. – E ven where information-sharing has been sanctioned by the board, a nominee should be mindful of securities laws that prohibit selective disclosure of material non-public information. – A nominating shareholder who misuses information improperly shared by a nominee may be liable for breaches by the nominee. We revisit and expand on these considerations under Practical Takeaways in the final section of this article.
2 Wood v C.F.N. Precision Inc., 2008 CanLii 19797 (ON SC)
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