A funny thing happens whenever we show Cloud Concinnity® to sophisticated board members.
They fall in love with the freedom it gives them to have earlier and unrestricted access to board material, to message other board members on particular topics, and to better track the thread of conversations since they are grouped around the work being performed.
But if those board members have ever been on a board that has been sued they ask - in horrified tones – "Doesn’t documentation of what we’ve done and said create additional discoverable documentation?”
The short and of course lawyerly answer is, “It depends.”
A better question is, “If technology does create more discoverable documentation, how might we organize our work so that it’s a good thing?”
The digital transformation is upon us, and it ultimately creates more documentation of words and actions. In this climate, boards need to be leaders in taking advantage of newer, disruptive (in a good way) technologies as part of adjusting to the atmosphere of increasing change.
Counsel’s thinking must adjust to the new normals created by technical advances. While respecting and encouraging communication as critical to the deliberative process, we should also recognize the advantages technology provides when the right processes are implemented and board decisions are effectively and appropriately documented.
Here’s how.
How Cloud Concinnity® Increases Board Communication & Minimizes Board Litigation Risk
1. Putting Risk in Context
Cloud Concinnity provides board members with a secure messaging channel to avoid the perils of using their own unencrypted email systems when discussing board business with the company or with other board members. A secure messaging channel’s benefits outweigh its risks. Messaging allows immediate reactions to fast-paced activities. It encourages board engagement; directors can interact with each other and with management in between meetings as they work together in the secure Cloud Concinnity workspace.
But veterans of litigation caution clients that very little good happens in casual communications like emails and texts; they often contain “smoking guns” that inevitably lead to defensible cases being settled. Often comments taken out of context appear extremely damaging. The defense has to work hard to neutralize such “sound bites”.
An example perhaps silly, but illustrative, is an email that says, “the chair is uncomfortable”. While potentially devastating in litigation about the board's approval of a transaction, that same comment is entirely innocuous in the context of ordering furniture for the boardroom.
Because Cloud Concinnity provides a single board communication hub, discovery risk is contained within the context of relevant conversations; all of the messaging from board members that would otherwise occur on insecure email systems now happens, instead, in a single, secure workspace. Because conversations are focused on the work at hand, context is provided, and participants are less likely to dash off unthoughtful comments.
Cloud Concinnity’s enhanced ability to document the board’s activities protects board members from personal liability. Cloud Concinnity both facilitates and documents that the board has carried out its legally required duties; all of the facts, relevant documents and actions are on Cloud Concinnity. Extraneous emails, texts, or other non-board-related communications that could be open to discovery in litigation that explores individual member conduct are less likely to be required if a board uses Cloud Concinnity properly, as the secure repository for all activity related to board member performance.
2. Clarifying Litigation Discovery
Board member conduct becomes a topic of “discovery” in 2 main contexts. The most common is in derivative shareholder litigation, where the company’s stock has lost value and the shareholders sue on behalf of the company’s interest to hold board members personally liable for breaching their fiduciary duties of loyalty or of due care to the company. The less common, but more concerning, is where the board’s conduct is being investigated as part of a governmental inquiry into company conduct. In either of those situations, the best course is to keep the inquiry focused on the most relevant, primary source of company and board information - Cloud Concinnity.
In the first instance, if the issue at hand is the extent of board oversight or whether the board exercised appropriate business judgment when it decided something material, the best record of what the board knew, what documents directors reviewed, what meetings were held and what conversations took place, those are best evidenced by the complete record, available on Cloud Concinnity.
The wider afield discovery goes the more chance of finding some comment that doesn’t have an obvious explanation, and the greater the chance of opening doors that should stay closed. In those situations where a plaintiff or a government agency would seek discovery of relevant communications, the company and board members have a very strong argument that there is no reason to turn over board members’ private emails or texts, thereby avoiding the exposure of private conversations and minimizing the expense of legal review.
Cloud Concinnity corrals all board-related documents and conversation into one place, which should help on two fronts; it’s more secure from data breaches, and it could prevent additional, non-relevant discovery of extraneous emails that directors sent from their own separate email accounts. Boards that use Cloud Concinnity will be safer overall in litigation. They will gain a strong defensive position that, barring exceptional circumstances, discovery of the board’s communications with each other and with the company should be limited to company emails and Cloud Concinnity. Such limitation will significantly lower risk and the legal expense of reviewing reams of non-relevant emails and documents.
3. Wrapping Day to Day Work in Best Practices
Cloud Concinnity functions as both a sword and a shield. It is a sword, because Cloud Concinnity provides board processes (workflows) that build in best governance practices. It is a shield because Cloud Concinnity can provide the company with the proof those best practices were done. This makes any lititgation brought more easily dismissed or summary judgment more easily obtained. The proof is in the documented activities accomplished in the workflows; these easily establish that the board met its legal responsibilities, i.e., it appropriately exercised its business judgment in making material decisions, it carried out oversight responsibilities, and that it complied with SEC governance and other legal requirements. The proof is easily available, accessible and easily produced with Cloud Concinnity - saving effort and resources.
4. Managing The New Era of Messaging
To go back to the first topic discussed, does Cloud Concinnity create more risk because more conversations are documented there than now would otherwise occur? More messaging does not necessarily carry any more or less risk than any other form of communication. If a board messages something indiscrete, whether in a chat or in personal email, or even just said out loud, it may be discovered. There is very little that stays secret these days, and technology can’t cure stupid (although we are working on it!).
We currently advise our clients to train Cloud Concinnity users, particularly board members, to be aware that what they message could be saved, what they do on the Cloud Concinnity work platform is presumed to be board and company related, so thoughtful behavior is always best. Cloud Concinnity integrates the way directors work with management and with each other; integrated access, process and outcome management are maximized using messaging and other innovative technologies. The result? a more engaged, more effective and safer board experience.
Heidi Allen is Co-founder and Chief Development + Legal Officer of The Concinnity Company. Former Assistant US Attorney. 25+ years experience advising executive teams & boards of directors about managing risk. Former GC and Corporate Secretary of public healthcare company. Graduate of the University of Pennsylvania and Rutgers School of Law.