It is often stated that the efficiency and effectiveness of directors at board meetings are largely dependent on the quality of information received at such meetings.
It is also important to note that across different jurisdictions, one of the rights of a director of a company is the right to information about that company, a right which usually grants the director access to information that is ordinarily not known to others outside of the company.
In this regard, it is important for directors to keep information discussed at the board level confidential to protect the sanctity of board deliberations.
Overview of Law
Directors have a general duty of loyalty to the companies that they serve. This duty encompasses a fiduciary duty to keep information discussed at board-level confidential and to maintain confidentiality of information supplied to them by the company. The essence of this duty is to ensure confidentiality in respect of the company and its performance as well as to protect deliberations in the boardroom.
In Ghana, the Companies Act provides that a director who has information by reason of being a director of the company shall not disclose that information to any person or make use of or act on the information except for the purposes of the company or as required by law.
The Companies Act 71 of 2008 in South Africa provides that a director must not use information obtained while acting in the capacity of a director to personally gain advantage for the director or any other person, or to cause harm to the company or its subsidiary even if it is simply a case of dereliction of duty.
Measures to Ensure Boardroom Confidentiality
It is imperative for companies to put in place measures to protect boardroom confidentiality despite legislation to this effect.
Directors should be made to sign non-disclosure or confidentiality agreements upon appointment or election as a director. These agreements should also set out the scope of what is regarded as confidential information as well as penalties for disclosure thereof.
Company-wide confidentiality policies should be implemented for all employees and directors of a company. The policy should indicate the processes required for disclosure of information about the company or persons designated to speak about or speak to regarding issues surrounding company information. The policy should further cover punitive measures for illegal disclosures as well as any exceptions with regards to disclosing company information. It is also important to ensure that the duty of confidentiality of the directors is still applicable even after the end of their tenure as board members
There should also be training for directors, company secretaries and management with regards to potential cybersecurity risks or risks affiliated with the sharing of board information through technological means. Further education should also be provided on the risks associated with doing work-related activities on personal devices. More secure means of distributing board materials and board packs should also be considered.
Importance of Boardroom Confidentiality
Maintaining boardroom confidentiality ensures that the company’s competitors are not allowed access to its trade secrets. It further ensures that the company’s competitors do not gain an unfair advantage over it. This duty of confidentiality is also important in preventing insider trading or preventing directors from using information obtained from the boardroom to enrich themselves.
Further to the above, it is also crucial to safeguard the integrity of the boardroom process. Directors should be able to have candid conversations without the fear of any leaks or being scapegoated for expressing a view contrary to the majority position. This is even more important with respect to boards where there are a number of conflicting interests. Leaking of boardroom information jeopardises the ability of boards to function effectively.
In essence, loose lips sink ships!