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Management Cannot Preclude Directors’ Access to Privileged Communications

A Delaware court recently held that a corporation’s management could not preclude the corporation’s directors from accessing privileged communications between management and company counsel. In In re WeWork Litigation, 2020 Del. Ch. LEXIS 270 (Ch. Aug. 21, 2020), The We Company’s board of directors formed a special committee to evaluate a potential transaction with SoftBank. When the transaction fell through, the special committee filed a lawsuit against SoftBank. The board of directors then formed a new committee to determine whether the special committee had the authority to file the lawsuit, with the new committee concluding that it did not.

After the new committee instructed company counsel to dismiss the lawsuit, the special committee sought all privileged communications between management and company counsel relating to the establishment of the new committee and how it may have been influenced by management. The Delaware court granted the request by holding that directors “of a corporation are presumptively entitled to obtain the corporation’s privileged information as a joint client of the corporation and any curtailment of that right cannot be imposed unilaterally by corporate management untethered from the oversight and ultimate authority of the corporation’s board of directors.” This is because “it is a cardinal precept of Delaware law that the business and affairs of a corporation shall be managed by or under the direction of a board of directors.” In claiming the right to shield company privileged information from the entire board, management turned “these bedrock principles of Delaware law on their head.” The decision serves as a reminder of the relationship between management, directors, and company counsel.

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