Habitat recently put a spotlight on one of my biggest fears: that some of our board directors might be disclosing confidential information. I’ve gotten wind of some disclosures that seemed to be deliberate. But more often it looks as if directors are sharing this information inadvertently. Regardless of the reason, this needs to stop. I know our best bet is to update our bylaws, and I’ve started discussions with our attorney. But the thought of having to censure, suspend or remove directors fills me with utter dread. Is there a way to stop things from ever getting to that point?
— Nonconfrontational in NoHo
It would be nice if you could get total cooperation without ever having to confront. However, disclosing confidential information is a very common problem. And it’s one that presents a potentially serious risk to the board and shareholders. So you need to be prepared to confront it, if necessary. Working with your attorney to update bylaws will give you a process you can invoke if all else fails. Establishing a Code of Conduct (with consequences for violating it) can also help.
But you’ve asked for preventive (vs. responsive) measures. The threat of censure and escalating consequences can certainly be preventive. That’s particularly the case for disclosures that are deliberate. However, there are other steps you can take to reduce the frequency of inadvertent disclosures. Note that all require an assist from your attorney.
1. Clarify ‘confidential information.’ Don’t assume that directors already know this. Put together a list of items the board is typically privy to. Work with your attorney to identify which ones are or aren’t confidential. Put this topic on your next monthly meeting agenda. Share the list and have your attorney make a brief presentation, with a question-and-answer session. That way, everyone hears it at the same time, from an expert source. No “I didn’t know” excuses!
2. Clarify ‘disclosure.’ Is it disclosure only if you share a physical or electronic document with someone outside the board? What if you discuss something with another board member in a public place? Or share information verbally with the resident manager? Or discuss board business with your spouse? Again, you can press your attorney into service here. There will probably be some gray areas, but try to be as concrete and specific as possible.
3. Explain the nature and severity of the consequences. Of course it’s important for directors to know possible consequences to them, personally. But I suggest you focus here on consequences to both the shareholders and the board as a governing body. There are legal risks; your attorney can explain them. The building may face higher insurance premiums — or not be able to get needed coverage. There can be reputational risk to the building, which can adversely affect sales. The board can lose shareholder trust, making it harder to govern. Get everyone on the same page about what’s at stake.
4. Reinforce in real time. Regularly reinforce proper handling of confidential info. During meetings, remind directors by saying, “The information we’re reviewing is confidential.” Make sure you mark key documents as “board confidential” where appropriate. Your attorney can guide you on how and when to do this. And don’t hesitate to repeat yourself. You’re trying to create awareness and new habits here. That takes time and focus.
Follow these steps with guidance from your attorney. You should be able to cut down on inadvertent disclosures of confidential information. Of course you may still have deliberate disclosures. So do go ahead with that bylaw update!
Mary Federico serves on the board of her 240-unit Upper West Side condominium. Through her consultancy, Organizational Behavior Strategies, she helps leaders use behavioral science to improve their organizations.