A struggling “unicorn,” a telecommunications giant, one of the world’s largest venture funds and 89 contested emails: When these elements collided in court in December 2020, there were big implications for corporate directors, general counsel, how they communicate with one another, and how they communicate with outside counsel. In particular, outside directors using their external company email addresses for communications with counsel are at risk of sacrificing attorney-client privilege.
An overview of WeWork v. SoftBank follows, with valuable takeaways for anyone involved in board communications on legal matters.
A Tangled Web of Corporate Roles
Through its $100 billion Vision Fund, Japanese conglomerate SoftBank had invested $9 billion in coworking startup WeWork. Yet a failed IPO and challenges related to the COVID-19 pandemic had caused the startup to lose some luster in the eyes of its largest investor.
When SoftBank failed to close a tender offer for WeWork shares, the coworking unicorn, led by CEO and cofounder Adam Neumann, filed a lawsuit in Delaware. SoftBank employees who also worked at Sprint had sought and received legal advice via email using their Sprint email addresses for communications concerning WeWork, and WeWork filed a motion for SoftBank to produce these communications.
SoftBank had withheld or redacted 89 emails, claiming attorney-client privilege. WeWork, however, maintained that the emails were not confidential, as they had been transmitted via Sprint email accounts. Sprint, a private telecommunications company, maintains the right to monitor communications on its systems, including Sprint email accounts.
And that’s where complications arose for SoftBank. Sprint had been 84% owned by Softbank until April 1, 2020. While Sprint itself was not involved in the WeWork/SoftBank dispute, several individuals affiliated with Sprint were, including Sprint’s chairman and COO, who served on the WeWork board on Softbank’s behalf, and others wearing multiple hats at both companies.
Should the Softbank employees who used their Sprint email accounts have any reasonable expectation of privacy regarding their communications with Softbank’s lawyers?
According to the Delaware Chancery Court, the answer is no.
A Pivotal Decision for Discoverability and Legal Privilege
Among its findings, the Chancery Court decided the following:
- While the Sprint Code of Conduct does not specifically ban personal email use, it did clearly state that Sprint had a right to review workplace communications at any time, including emails.
- The Sprint Code of Conduct also clearly states that employees should not have an expectation of privacy when sending, receiving, accessing or storing communications using their Sprint email addresses.
- Given their positions within Sprint, the employees in question were — or should have been — aware of Sprint’s policy.
Another factor against SoftBank: There was no evidence that the employees took “significant and meaningful steps to defeat access” by encrypting their communications or switching to a different webmail account.
Furthermore, some of the communications cited in the court’s decision indicated awareness of potential legal privilege issues. For example, one email suggested that “[w]e flag any hot items and forward as needed but are attempting to mitigate any potential legal privilege issues which could arise from pending litigations by limiting what content we forward to SoftBank email accounts.”
The decision goes on to report that multiple SoftBank employees raised concerns about protecting SoftBank’s information and its legal privileges and that the employees in question had alternative email accounts at their disposal for conducting SoftBank business.
Based on these facts, Chancellor Andre G. Bouchard granted WeWork’s motion to compel and concluded that these emails were not privileged.
Takeaways for Boards and General Counsels
What are the implications of this decision in 2021 — and beyond? Law firm Fenwick & West LLP writes:
“Perhaps the broadest and most immediate impact of the WeWork decision is for companies to carefully examine the communication practices of their outside directors (and other employees also holding roles at outside companies), particularly in cases where they provide or receive corporate communications through a non-private third-party account.”
-Fenwick & West LLP
To mitigate boards’ risk, Fenwick suggests that organizations:
- Avoid commingling board communications with personal communications.
- Provide directors with company email addresses they can use for board matters.
- Instruct directors to communicate and collaborate using confidential mechanisms not subject to third-party monitoring.
- Send substantive communications through board portals and use email only to notify directors that new information is available in the portal.
The Value of Closing the Loop
The WeWork v. SoftBank case casts a critical eye not just on emails but on overall board communications — both those related to legal advice and communications in general.
The use of email from a different company’s server creates a risk for boardroom communication because it allows for messages to remain in an environment that is likely monitored by a third party. Consequently, it is worth examining your own board communication practices. How is a director receiving board books and other confidential information? What are the protections – and where are the vulnerabilities – related to discoverability and legal privilege?
With increased awareness, oversight and enforcement around board communications, boards can address these questions and “close the loop.” Digitally transformative technologies, such as secure board management software and messaging tools, can also help.
Board management software, including board portals, puts meeting minutes, agendas, voting tools and more in one secure, dedicated place. Additionally, secure messaging applications that integrate with board management software can help boards mitigate the risk of breaches and leaks.
By moving confidential communications with outside counsel out of third party corporate email systems, boards can ensure they’re communicating with the right people at the right time, with lower risk and greater peace of mind — especially as the legal privilege rules evolve.
Learn more about Diligent’s Board & Leadership Collaboration solutions.