Board minutes often contain information that is subject to the attorney-client privilege and that directors may prefer to keep confidential. However, most jurisdictions allow stockholders to inspect corporate books and records, including board minutes. When disclosure is required, either in response to a books-and-records demand or in litigation, minutes can be redacted to protect attorney-client privilege. It is therefore crucial for boards to understand when their communications are — and are not — privileged and to conduct board meetings and draft minutes in a manner to best preserve privilege.
When Is Information Privileged?
Information is considered privileged when it involves a communication between the attorney and the client in confidence for the purpose of providing legal advice. Each element of this definition must be satisfied for attorney-client privilege to apply.
Communication. Board minutes typically will be considered a communication if the attorney is present or is involved in the discussion, even if not physically present. This may include instances where the board discusses previously rendered legal advice or takes steps pursuant to such advice, such as gathering information pursuant to an attorney's instructions. In such situations, the attorney may not be present, but the legal advice is being followed. Thus, a corporation does not waive its privilege by communicating the legal advice to employees who need the information or gathering information from employees to facilitate legal advice. However, the communication should reflect clearly the privileged nature of the communication — merely labeling the document “privileged” may be insufficient.
Between the attorney and the client. The role of each party in the communication is important to determine whether the information is privileged. The mere presence of an attorney is not sufficient; instead, an attorney-client relationship must exist. In the context of a board meeting attended by inside or outside counsel for the company, the company is the client. However, since board members act as agents of the company, communications between the attorney and board members still can be privileged if the communication concerns the interests of the company — as opposed to the personal interests of individual board members.
In confidence. The presence of third parties at a board meeting may vitiate a claim of attorney-client privilege. Therefore, the company, the directors and counsel should consider carefully who is present before legal advice is rendered or discussed. Conducting this analysis in advance is not always an easy task as this area of the law is complicated.
For example, most jurisdictions find that disclosing information to auditors performing traditional audit functions waives the attorney-client privilege. Conversely, some courts have held that third parties who are “friendly” or share a “common interest” with the client do not waive privilege if their presence is necessary to aid the lawyer in providing legal advice. Thus, the presence of an accountant hired by the board would not destroy an attorney-client privilege if that accountant is relaying tax information to aid the lawyer's legal analysis. Similarly, privilege generally is not waived when otherwise privileged advice is disclosed to a retained financial advisor acting as the functional equivalent of an employee. Similar issues arise in the context of committee meetings, particularly those involving special committees of the board. Because special committees are empaneled to conduct independent analysis of a certain issue, the presence of company representatives, such as the general counsel, could waive that privilege in certain circumstances. Boards should be cautious regarding all nonparties who attend board and committee meetings because this analysis is highly fact-dependent. If the objective is to preserve a claim of privilege, it typically is best to build a record, including in the board and committee minutes, reflecting that the retained third party is involved in facilitating legal advice.
Additionally, communications with counterparties in a transaction might not waive privilege if the parties have a common legal interest. However, there is some uncertainty regarding what constitutes a common interest. For example, in the transaction context, Delaware courts have held that a nonbinding letter of intent was not sufficient to establish a common interest, but mutual execution of a binding agreement (including a term sheet) is usually sufficient. In a merger agreement, the default rule in Delaware is that an acquiror also acquires the seller's pre-closing privileged communications. In contrast, in asset sales, the default is that the seller retains its privileged communications unless the seller agrees otherwise.
For the purpose of giving legal advice. In analyzing whether discussions in board meetings are privileged, it is important to consider who is speaking and whether the communications reflect or aid in providing legal advice. If a lawyer is present while an accountant gives accounting advice to the board, this information would not be privileged because it does not reflect communications between the attorney and his or her client and it is not for the purpose of giving legal advice. Just because a lawyer speaks or participates in a meeting does not mean that the conversation is necessarily privileged.
Additionally, it is important for counsel to be acting in his or her legal capacity in addition to his or her business capacity. Lawyers often wear many hats, but only information exchanged for the purpose of obtaining legal advice, or reflecting counsel's legal insights, will be protected by the attorney-client privilege. And while lawyers may sit on a board, this does not mean that everything they hear or say is privileged.
Board minutes should delineate clearly when counsel is providing legal advice as opposed to business advice. A good practice is to address the lawyer by name and identify them as in-house or outside counsel in the minutes. In addition, verb choice and context in the minutes can help signal that information is privileged. For example:
- “Counsel next provided the following legal advice…” = Privileged (if in confidence)
- “Counsel advised on . . .” = Likely privileged
- “Counsel described . . .” = May be privileged; additional information would be helpful
- “Counsel reported . . .” = More difficult to argue privileged without additional signals
Taking steps to ensure that the board minutes accurately reflect when legal advice is given (as compared to business discussions or advice)will aid greatly in a subsequent effort to protect the attorney-client privilege in response to books-and-records demands or litigation.
However, there may be times when communications are mixed: They contain both legal and business advice. In these cases, courts are split. Most courts follow the “primary purpose test,” which requires courts to look at the communication as a whole and evaluate the single primary purpose. If that purpose is legal advice, then the communication will be privileged even if business advice is embedded within the conversation. Delaware, for example, will find the communication privileged “only if the legal aspects predominate.” Other courts follow the “significant purpose test,” under which the attorney-client privilege applies when “solicitation of legal advice was one of the material purposes of the communication.”
A best practice for navigating these waters is to separate the discussion on nonlegal issues from legal issues in the meeting and in the board minutes. For example, the board may discuss the business issues first and then turn to the legal analysis of such issues. In Delaware proceedings, responses to inspection demands or production of documents often require redaction of legal advice and production of nonlegal portions of a document. Separating the nonlegal and legal discussions can make this process easier and prevent privileged information from getting mixed into non-redacted portions of the minutes. Courts will not always allow for extraneous evidence, so the legal nature of a discussion should be apparent from the document itself. Moreover, the Delaware Court of Chancery has found that heavily and improperly redacted board minutes may warrant an adverse inference against the company.
Well-drafted board minutes can make a significant difference if a company faces litigation or must produce minutes in response to a books-and-records demand. When conducting meetings and drafting and approving minutes, it is crucial to keep in mind the four elements of attorney-client privilege to ensure that attorney-client privileged communications between counsel and the board remains protected.
The authors would like to thank Deanna Palma, a 2024 summer associate, for her assistance with the article.