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Delaware Chancery Reiterates Directors’ Right to Access Corporation Information

In a recently issued letter decision, the Delaware Court of Chancery reiterated the general rule that directors have an unencumbered right to access corporate information (with certain exceptions). The case involves a dispute between two groups of directors—those affiliated with a controlling stockholder, and those that are not. An affiliated director filed a motion to compel the production of information, including corporate communications between (1) unaffiliated directors and officers of the corporation and company counsel; and (2) members of a special committee formed specifically to negotiate with the controlling stockholder and that committee’s own independent counsel. The court largely granted the affiliated director’s request, with the exception of communications between the special committee and its counsel.

The letter decision provides a useful reminder of directors’ broad rights to information. Directors of Delaware corporations may access corporate information except: (1) where there is an agreement among the parties to the contrary; (2) information subject to attorney-client privilege between a committee that excludes a particular director and such committee’s counsel; and (3) when there is sufficient adversity between a director and the corporation that such director could not have a reasonable expectation that such director is a client of the board’s counsel.

This right to access can lead to significant tension in numerous scenarios, such as family businesses with directors nominated by antagonistic branches of the family, venture-stage companies with board designees from venture capital firms with potentially competing investments, and private equity-backed companies with former (and disgruntled) owners or executives that have retained their board seats. Investors that are stockholders in corporations should carefully consider board designees’ rights to information and the dynamics among the various stockholders, and whether it is appropriate to mandate director access agreements before seating any directors, or to utilize a more flexible entity form, such as a limited liability company, to address potential risks arising from directors’ relatively unlimited rights to corporate information.

The In re CBS Corporate Litigation letter decision is available here.

©2018 Katten Muchin Rosenman LLP

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About this Author

Shannon Traylor, Corporate Attorney, Katten Law Firm
Associate

Shannon Traylor concentrates her practice in general corporate matters.

While attending law school, Shannon was a member of the Virginia Journal of International Law and its submission review board. Prior to law school, Shannon worked in the Washington, DC area for a nonprofit devoted to nuclear nonproliferation.

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Brooks Giles, Katten Law, Mergers, Attorney, Finance
Partner

Brooks T. Giles is co-head of Katten’s Mergers and Acquisitions practice and concentrates his practice in corporate matters with a focus on private company mergers and acquisitions, venture financing and joint ventures. He handles transactions covering the life cycle of start-up ventures, from angel round financings through Series A-F rounds and beyond, up to and including, IPOs.

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