Corporate directors have a near-absolute right of access to company information, which ordinarily extends to privileged communications with company counsel. It is widely accepted, however, that limitations on directors’ right of access are appropriate in certain circumstances. When the interests of one or more directors (or the stockholder for whom the director serves as board designee) have clearly diverged from the company’s interests, the company may seek to withhold corporate books and records from the adverse director. Recent Delaware Court of Chancery decisions have offered fine-grained guidance on the governance procedures a company must follow to invoke the adversity exception to directors’ access, and the scope of permissible restrictions on access to company information.

Background

Directors’ general right of unfettered access to company books and records arises from recognition that the individuals responsible for managing the company should have access to all information (including communications with company counsel) that a reasonable director needs for informed decision-making. In Delaware, directors are “joint clients” with the company for purposes of privileged communications with company counsel. A joint client ordinarily is entitled to obtain any advice or other communications shared between counsel and any other joint client. But what if the legal or financial interests of one of the joint-client directors diverge from those of the company—for example, if certain directors or the stockholder who appointed them announce an intention to pursue a transaction a majority of the board believes not in the company’s best interest?