Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

August 5, 2022

Once an institutional shareholder has nominated a director, there is a natural expectation for the shareholder to receive information about the target company so that their collective interests are protected by the nominee director.

But is such information flow protected under law, and can nominee directors legitimately share insider information, known as unpublished price sensitive information (UPSI), with their nominating shareholder?

In this edition of Decoding Boardroom Dilemmas, we explore the legal and practical nuances surrounding a frequented, yet rather ambiguous part of the law. More foundationally, we ask: if nominee directors are completely constrained from prioritising their nominators’ interests, why recognise rights to nominate directors in the first place?

Key Takeaways:

No express framework exists for nominee directors to share UPSI with nominating shareholders
Natural expectation that nominee directors should represent their nominators’ interests – not permitted under law
Since nominee directors’ fiduciary duty remains towards the company and stakeholders, nominee directors are paradoxically placed and exposed to significant liabilities
Judicial precedents have implicitly endorsed a more practical view, where the nominee director protects the nominating shareholder’s interests

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