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Many times boards need to deal with sensitive topics that, appropriately, call for the advice of seasoned legal counsel. These communications have long been held to be privileged, in that courts and investigators do not have the authority to access these communications. This privilege exists so that clients and attorneys can have a full and frank exchange of views so that the attorney can best advise the client on the proper course of action to take.

There are important exceptions to the attorney-client privilege, however. These exceptions permit courts to compel the disclosure of communications between attorneys and their clients. One such well recognized exception is that if the attorney and the client have not made efforts to keep the communication confidential, then a court may examine the communication that would otherwise be privileged.

Given the way communication among and between board members and attorneys happens today, many communications that boards and board members assume will be privileged, may in fact not be. To take a fictional example, say that the board of Wayne Enterprises is conducting an investigation into whether someone has been misappropriating company resources on a large scale and also fraudulently doctoring the financial statements of the company so as to make it appear that these resources are being spent on defense related research and development.

This activity, if known, would likely attract the attention of the SEC, Department of Defense and local law enforcement not to mention spur widespread media interest. The Wayne Enterprises board, upon having suspicions that something was amiss, would prudently get advice about the issue from its general counsel and likely also outside counsel. The board would presume that the advice they receive from their attorneys on the matter is protected by attorney-client privilege.

However, one of the members of the Wayne Enterprises board, let's call him Bob, is also a managing director at the Gotham National Bank (GNB). Like many directors, Bob uses his main business email account (in his case at GNB) for most business related matters - including matters related to the Wayne Enterprises board. GNB, as a registered broker dealer, uses standard monitoring tools on its email system to ensure that employees are complying with FINRA guidelines and other relevant regulations. Once Bob receives an email from Wayne Enterprises general counsel, GNB's automatic monitoring flags it as having several keywords that require review.

At that point, GNB's general counsel calls Bob demanding to know why he is getting an email with such potentially explosive content, and why wasn't he told about it in advance? While GNB can quickly be assured that this matter has nothing to do with them, Wayne Enterprises now has to wonder whether their communications are still confidential. And if they are not confidential, can they rely on attorney-client privilege to keep them out of the gaze of an inquiry?

If you are a CEO, a member of a board, are the general counsel of a company, or otherwise involved in a board's functioning, this issue is something you should be thinking hard about. And the leakiness of email communication isn't limited only to the scenario above. Email providers routinely monitor the content of email in order to serve advertising to their customers and for many other purposes. For all these reasons, boards should not trust email for their confidential or privileged communications. Instead, use a dedicated board portal like iBoardrooms that keeps of the board communication confidential and off of outside email systems. Give us a try free for thirty days.

Apr 12, 2016 5:22 am EDT
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