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RoReynoldsFirstPaper 6 - 22 Apr 2022 - Main.RoReynolds
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| | | Directors today would do well to remember Melvin Gross v. Biogen Inc., which limited the plaintiff to inspecting "board-level materials" on the grounds that "[t]hese documents and communications will enable Plaintiff to assess the extent to which Board members were made aware of the alleged wrongdoing and to evaluate how the Board members responded to the investigation." In essence, Section 220 claims are subject to some restraints and will not guarantee access to corporate records, emails, and texts if the formal board-level materials exists, are available, and would satisfy a plaintiff's "proper purpose" demand. So, if directors can refrain from conducting business over email, text, and other informal channels, their electronic communications will not be subject to inspection. | |
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< | "Just don't do it" is of course easier said than done in today's hyper-connected world. Business is conducted through texts and emails, imprudent as it may be. And, while directors may sacrifice practicality for the sake of privacy and avoid emails discussing sensitive matters, they will be hard pressed to avoid keyboards altogether. Even if someone were to delete an improper comment, sentence, or entire document typed on a laptop for example, those words will still be recoverable and thus theoretically subject to a Section 220 claim. | >
> | More realistic solutions that companies can implement include having a designated notetaker in meetings who complies with a particular format to ensure favorable documentation of why certain board decisions were approved. Alternatively, boards can revert to only allowing handwritten meeting notes. More broadly, companies can create their own narratives by purposefully designing email trails that explain their thought process. For instance, if a company wants to work with a particular investor but has a previous relationship with the individual that could cause the transaction to be questioned, compliance professionals could preemptively form an email thread that explains the rationale of the decision and why that investor provided the best outcome for shareholders. Thus, if the transaction were questioned, the Section 220 claims would end up benefitting the potential defendant.
"Just don't do it" is of course easier said than done in today's hyper-connected world. Business is conducted through texts and emails, imprudent as it may be. And, while directors may sacrifice practicality for the sake of privacy and avoid emails discussing sensitive matters, they will be hard pressed to avoid keyboards altogether. Even if someone were to delete an improper comment, sentence, or entire document typed on a laptop for example, those words will still be recoverable and thus theoretically subject to a Section 220 claim. For those directors set on keeping their phones and laptops, they should transition to dedicated devices for personal versus work use. | | | As noted by David Katz, in order for a board to function properly and fulfill its role, directors must be able to express their thoughts and opinions freely without fear that they will be made public. If they cannot (and indeed they cannot for Section 220 provides the legal hook with which to access materials computers prevent from being completely private), then either boards will cease to function effectively, people will be less likely to serve as directors, or those who do will be subject to increased liability. |
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