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Wednesday 05 February 2020
BUSINESS DAY
Corporate governance
Protecting confidential information Olayimika Phillips
W
e live in a world where keen competition pervades all activities of men. Visible to most if not all are competitions that play out in schools, work place, political associations, businesses and strangely within families. Undoubtedly, the most prized asset of any business are its intellectual property and trade secrets which must at all times be kept confidential if the business must maintain its competitive advantage. This means protecting business information, employees’ information, clients/customers information from getting to the wrong hands, especially market competitors. Market players would typically be inquisitive to have valuable confidential information such as trade secret, intellectual properties, marketing and business plans of their competitors. A leak of valuable information of this nature could trigger a adverse chain of events resulting in loss of market confidence, and ultimately the collapse of a corporate empire. Could we pause and imagine how economically disastrous it would be if Apples’ trade secret on the production of its software and devices were leaked to its competitors? The above underscores the importance of putting in place standards that are necessary to keep the business information confidential. As far as corporate governance is concerned, protecting the confidential information of companies is sacrosanct. Directors and employees are instrumental in protecting the confidential information of companies. Indeed, under the law, both directors and employees owe a duty of confidentiality to the company. By virtue of their position, directors are constantly exposed to myriads of confidential information on their company as they set strategic and business goals, approve business and marketing plans, market expansion, financial statements and when necessary, business restructuring. With this portfolio of mandates, directors hold a trove of information and are thus under the
duty to keep confidential, information received in the course of their activities as directors except otherwise authorized. A director’s duty not to disclose the information of the company also extends to his or her relationship with the shareholders, notwithstanding that the shareholders own the company. It is not uncommon for shareholders, especially those who own majority shares in the share capital of a company, to nominate directors into the company’s board. Typically, such nominee directors would want to carry out the bidding of these shareholders by reporting most if not all the activities of the board to them. However, such nominee directors, notwithstanding the fact that they are appointed to the board by these shareholders, owe duty of confidentiality to the company and must not divulge the company’s information to these shareholders. Often times, directors hold multiple directorships in different companies. Information received from one company must not be disclosed to the other company and neither must the information be taken advantaged of for the benefit of the individual director or other companies. Employees play crucial roles in the success of their employers regardless of the corporate structure. Employees have www.businessday.ng
access to a lot of confidential information, with varying degrees of limitation, due to their daily participations in almost all the activities of companies. Information such as customers/clients’ information, production or manufacturing secrets and others are mostly at the fingertips of employees. In order to maintain and advance corporate success, employees must be made to appreciate the significance and implication of keeping the information of the company confidential. For instance, the corporate reputation of a company may
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Indeed, according to the Codes of Corporate Governance for Public Companies, relevant companies should have a whistleblowing policy that are known to all stakeholders including the general public
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be irremediably besmirched where an employee knowingly or recklessly leaks the information of a customer or the financial position of the business or pipeline transactions. Damage control measures are typically ineffective in this age where news spread quicker than bushfires. In terms of regulating confidentiality, various Codes of Corporate Governance in Nigeria have also identified confidentiality of corporate information as one of the issues in governance of companies. The Nigerian Codes of Corporate Governance released by the Financial Reporting Council of Nigeria emphasizes director’s duty of confidentiality. The Code recommends companies to have a Code of Business Conduct and Ethics which would essentially contain, amongst other things, director and employees’ duty of confidentiality to the company. The recommended Code of Business Conduct and Ethics would be made available to the directors and employees for guidance on how to protect companies’ confidential information. Whilst the recommendation of the Code of Business Conduct and Ethics is in order, boards of directors should also ensure that employees are trained not only on the importance of protecting @Businessdayng
confidential information but fundamentally on seeing corporate information as valuable assets worthy of protection. Crucially, businesses must have in place structures which ensure that not all information is available to everyone. For example technology may be introduced which limits information access to only those who need to know and tracks the use to which information is put. However, we note technology is not 100% foolproof against theft of confidential information, it significantly limits the risk of accidental breaches. Whilst the issue of confidentiality of information is of great concern to the maintenance of corporate success, it does not however take away the freedom of stakeholders including employees to report unethical or illegal activities to the relevant authorities. Indeed, according to the Codes of Corporate Governance for Public Companies, relevant companies should have a whistle- blowing policy that are known to all stakeholders including the general public. In conclusion, information no matter how viewed or appreciated may make or mar a corporate. Companies’ confidential information should therefore be guarded and protected jealously to avoid falling into the wrong hands. The success or otherwise of this depends on the structures that are set up to protect the confidentiality of corporate information.
Olayimika is a Partner in the law firm of Olaniwun Ajayi LP and has over 34 years of professional experience. She specializes in corporate governance, providing pragmatic solutions to the diverse challenges which confront corporates at different growth stages and serves on the board of several companies (listed and privately held).”