Talking Points: Addressing Boardroom Confidentiality

from Corporate Board Member

While trends like cyber security and increased activism from investors compete for attention with the usual board concerns, like compensation and compliance, Akin Gump listed its top ten concerns for boards in 2014 and boardroom confidentiality made the list. Laura J. Finn, web editor,, asked Kerry Berchem, head of Akin Gump’s corporate practice, why she sees boardroom confidentiality as one of the top issues for boards in 2014.  Berchem’s view? “Confidentially is never an issue until it is an issue,” but when that kind of issue arises, there’s much at risk for a board.

Corporate Board Member: With all the issues, topics, subject matters that a board needs to address why do you see this as a top 10 issue for the boardroom this year?
Kerry Berchem:
 There is a reason that gossip magazines are placed at the cashier’s register at the supermarket.  People buy them.  People like gossip. Members of boards are people and they are not immune from gossip. Given all of the various ways to address the general public – traditional media, Twitter, Facebook or otherwise – it is easier than ever to spread gossip, whether true, not true or somewhere in between— intentionally or not.  Once a word is spoken, tweeted, posted, whatever, it is out there, and putting a genie back in the bottle is close to impossible.  More and more often we are seeing public commentary by directors, or former directors, talking about each other or company management, and while directors have fiduciary duties of care and loyalty, there is a question as to whether opining on the functionality, or perhaps disfunctionality, of a board of directors or management is covered by those duties.  Further, gossip is not grounds for removal of a director, so making sure that directors understand the need for confidentiality  – and making them accountable for breaches – should be important to companies and their boards now more than ever.
CBM: Are board members legally required to maintain confidentiality or is it more of an ethical consideration where directors respect the confidentiality of conversations?
 Without privity of contract, leaving a Reg. FD violation aside, it is very difficult to prove whether a breach of confidentiality rises to the level of a breach of fiduciary duty.

CBM: Have there been situations where board members have broken confidentiality without realizing they were doing so?
Sure.  I am confident that every member of every board is aware of Reg. FD.  That doesn’t mean that they are prepared to not respond to questions that by definition may breach FD.  For example, a press release goes in December identifying an expected closing date in the first quarter.  A director is asked in February if they are on track to close and he says yes.  It seems innocuous, but it is not.  Confirming a projection may be an FD issue.

CBM: How can a board deal with a director-leaker?
: Without a written agreement that prohibits leaks and requires a board member to tender a resignation if his mouth or thumbs get the best of him, it is not clear how to deal with a “director-leaker” other than perhaps that the nominating and governance committee refuses to renominate him or her to the next slate.  If a company requires the members of its board to execute a confidentiality agreement, however, the agreement may require that the director-leaker tender his resignation in the event of a breach.

CBM: How big of an issue is this with public company boards?
 A board breach of confidentially – or confidence – is never an issue until it is an issue, and that issue may be an embarrassment, a distraction or a real problem.  In any event, measures should be taken to avoid it.   Education and fair warning via a confidentiality agreement should not be viewed as punitive to directors but rather as preemptive measures in their own best interests, as well as the company’s.