Governance Insights: Nominee Directors – Fiduciary Obligations and the Limits of Information Sharing

The corporate life of a nominee director has been characterized as having the potential to be “neither happy nor long.”

In this Governance Insights article, we discuss the fundamental fiduciary considerations that nominee directors, nominating shareholders and companies should bear in mind when negotiating and implementing a director nominee arrangement. Our key takeaways are:

• A nominee is subject to the same fiduciary obligations as other directors.
• A nominee may share confidential information with their nominating shareholder only if the company, whether impliedly or expressly, consents; however, a nominee cannot contractually override their fiduciary obligations to act in the best interests of the corporation.
• A nominee should actively manage conflicts of interest that may arise due to their relationship with their nominating shareholder.
• Even where information sharing has been sanctioned by the board, a nominee should be mindful of securities laws that prohibit selective disclosure of material non-public information.
• A nominating shareholder who misuses information improperly shared by a nominee may be liable for breaches by the nominee.