Heightened stockholder engagement and influence, a proliferation in the availability of third-party information (including through social media) and a desire for greater corporate transparency and accountability have increased the pressure on corporate directors to share information with stockholders. In addition, the influence of activist investors and the increasing number of board members selected by activists and other investors has increased the likelihood of informational conflicts involving stockholder-designated directors. Case law and statutes are only of limited help in this area. While it is generally accepted under Delaware law that a director’s duty of confidentiality is within the scope of his or her duty of loyalty, the exact scope of the duty of confidentiality and what constitutes confidential information has not been clearly addressed. For example, there is no clear guidance in Delaware as to whether and to what extent a stockholder-designated director can share information with the stockholder designating such director. Until additional guidance is provided, a public corporation may decide to take a pragmatic approach to this subject and use policies, practices and contractual arrangements to fill the gaps in the legal framework. We have included below a few pieces of practical advice that a board can follow to address some of the principal issues relating to board confidentiality.
CONFIDENTIALITY POLICIES AND PRACTICES -
• A corporation should review periodically its confidentiality policy and tailor it to appropriately address what makes sense for the corporation (i.e., standard forms are often insufficient in this context) in light of the composition of its board of directors and special concerns arising from the presence of stockholder-designated directors on the board (discussed below)...
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