Considerations on the Use of Electronic Board Portals: Portals Can Provide Increased Efficiency and Security, but Companies Should Be Mindful of Potential Practical and Legal Risks

Sullivan & Cromwell LLP - February 11, 2015

Board portals and other mechanisms for the electronic dissemination of information to directors of public companies, non-profits and other organizations are in widespread use.  Many companies have found that these portals can offer significant benefits, including improved document security, speed and ease of distribution and, for many directors, improved efficiency and ease of access to board materials.

Boards and management should be aware, however, that there is increasing discussion, including among Delaware jurists and practitioners on both the plaintiff and defense sides, concerning possible negatives associated with board portals and other electronic communications, if not properly managed.  There are two areas in particular that merit thoughtful attention. 

First, there is some concern, including among Delaware jurists, that the provision of important board information only by electronic delivery, without an option for receiving printed copies, can hinder the ability of some directors to effectively absorb, reflect upon and annotate or otherwise comment on complex documents.  This concern may emanate from the personal preferences of individuals who themselves prefer to review complex documents in paper, rather than electronically, but it nevertheless exists.

Second, there is increasing interest among plaintiff lawyers in seeking discovery of electronic information that might reflect upon the level of time and attention devoted to board materials and board meetings.  Plaintiffs may seek discovery of data concerning both director engagement (through seeking information demonstrating the amount of time spent reviewing electronic board materials) and director distraction (through evidence of director use of e-mail, text messages, phone calls and other activity during board meetings, especially telephonic board meetings).  A danger exists that such evidence could receive excessive attention in litigation and obscure other evidence of director engagement on board issues.