Governance Insights 2024 Protecting Information to Protect Process – When is it Appropriate to Restrict a Director’s Access to Board Records?
Director Access to Board Records in Canada Directors have a duty to manage (or supervise the management of) the business and affairs of the corporation, and they are required to exercise care, diligence and skill in doing so. To effectively discharge these responsibilities, directors require access to company records. For this reason, most Canadian corporate statutes grant directors an unconditional right to inspect board minutes. In contrast, board minutes are generally regarded as confidential against the rest of the world (subject to the reach of document discovery in litigation). Courts have recognized that a director’s unfettered right of access to information includes access to legal advice provided to the corporation. Indeed, control over a corporation’s privilege in respect of such legal advice resides with the board. As a result, board resolutions purporting to generally restrict a director’s access to a company’s privileged communications have been struck down as unenforceable. Yet there are clearly circumstances in which a director’s unrestricted access to board materials will not be in the corporation’s best interests. Indeed, notwithstanding the blanket inspection right granted to directors under the corporate statutes, courts have denied a director’s access to information where it was sought for a purpose collateral to their fiduciary obligations, or where the materials were generated in connection with litigation between the director and the corporation or at a time of sufficient adversity between the two sides. Given the unconditional statutory inspection right granted to directors, courts have set a high bar for corporations attempting to restrict a director’s access to records. This leaves open the question of whether, and how, a board may structure its affairs to limit a conflicted director’s access to information in circumstances that do not fit clearly into the collateral purpose and litigation exemptions mentioned above. We provide two hypothetical scenarios to illustrate the issue.
Key Takeaways
I n this Governance Insights article, we discuss the following
practices that can assist a board in protecting the
confidentiality of, and privilege attaching to, materials prepared in connection with situations that engage director conflicts: – E stablish a special committee of the board that engages and consults confidentially with its own independent legal counsel. – T he committee’s mandate should address confidentiality and privilege vis-à-vis the other members of the board. – T he committee should keep its information confidential during the course of its mandate. – W here possible, the committee should be formed
with the knowledge and approval of the full board.
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Davies | dwpv.com
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