Page 37 - Spring 2025

FROM THE BOARD ROOM

PROTECTING CONFIDENTIAL BANK INFORMATION

BY PHILIP SMITH and CHARLES PLUNKETT

for a target organiza�on, is what confiden�al
Banking institutions have many du�es and informa�on is to be provided to a poten�al
responsibili�es when it comes to protec�ng confiden�al informa�on, acquirer and when.
whether it is in the form of customer informa�on or organiza�onal
proprietary informa�on. There are two primary events we o�en advise At the beginning of a poten�al transac�on, it is
related to disclosing certain informa�on. The first is upon request by typical for each of the par�es to sign a
directors or shareholders for certain corporate records. The second is Confiden�ality Agreement, which is ongoing
related to strategic transac�ons where an acquisi�on or dives�ture may and covers the exchange of confiden�al
occur. Each of these situa�ons requires certain considera�ons that will informa�on throughout the process. It is
be discussed below. advisable to have a Confiden�ality Agreement
reviewed by legal counsel to ensure each
Any �me a director, or any shareholder for that ma�er, requests access organiza�on is adequately protected while s�ll
to corporate records, including the shareholder list, it is typically working towards the common goal of
incorrect to simply follow what is believed to be past prac�ce or rely on comple�ng a transac�on. As the transac�on
what the Bank has always done when such a request is made. Instead, begins to come together, a target organiza�on
the individual receiving the request, typically the President or other should not generally overshare confiden�al
officer, should refer to the corporate statutes for the state in which the informa�on. At this point in the process, the
holding company is incorporated. Those corporate statutes have poten�al acquirer does not need to know
specific provisions that answer the ques�on of whether and how a everything about the poten�al target,
director or any other shareholder are able to access corporate records. par�cularly as it relates to specific customer
Strictly following the applicable corporate statutes will provide iden��es and terms. That comes later in the
protec�on for the organiza�on so that protected material is not process and poten�ally under more robust
inadvertently disclosed.
protec�ons.
Generally, there are two different ways the corporate statutes handle As the transac�on unfolds, the more sensi�ve
this ma�er. Some states make no differen�a�on between a director and confiden�al informa�on is typically “rolled out”
other shareholders. In these states, assuming the director is a to the poten�al acquirer. Following the
shareholder, the director is treated the same as any other shareholder
execu�on of a defini�ve transac�on agreement,
and typically has a right to access the corporate records by making a
there are generally no longer any secrets. At
wri�en demand of the corpora�on for such access. Most of these
that point, everything is fair game, and the
states say there are certain corporate records which the shareholder
poten�al acquirer usually has unfe�ered access
has an absolute right, o�en�mes including the shareholder list. For
to the target’s confiden�al informa�on.
other corporate records, the statutes typically require the demand
include an explana�on of the shareholder’s “proper purpose” for the If you are considering being involved in the
request. M&A game, keep these issues in mind,
par�cularly if you are the target. It is important
Other states differen�ate between directors and shareholders. These
to take a measured approach to rolling out your
states generally provide a director more liberal access to corporate
sensi�ve confiden�al informa�on. As the deal
records, and allows the director the right to access corporate records
progresses, so too does the level of detail and
for any purpose reasonably related to their posi�on as a director. This is
disclosure that is provided.
a li�le different than the right of access for shareholders, which
typically requires the demand be made in wri�ng and state a proper With current hot bu�on concerns centered around cybersecurity and
purpose. other types of fraud, many of these tradi�onal issues centered around
the protec�on of confiden�al informa�on go overlooked. However, it
If you receive a request from any shareholder, director or otherwise, to
remains crucial to protect all the informa�on of the organiza�on,
access corporate records, keep these statutes in mind. While most
whether digital or in hard copies.
directors and shareholders do not make this type of request in a
threatening manner, failing to strictly follow the statutes could establish
a precedent that could ul�mately prove problema�c as it relates to a
future request.
The other type of typical disclosure made in the ordinary course of
business is during the due diligence stage of a poten�al transac�on,
such as a merger. The main concern with these disclosures, par�cularly

Arkansas Community Banker | 37 | Spring 2025