Confidentiality, conflict, and the duties of the shareholder-appointed director
Every experienced director knows the moment. You are sitting at the board table hearing something genuinely confidential, a takeover approach, a covenant breached, the price at which a capital raising will be struck. Then your phone buzzes. It is the shareholder who put you on that board. The message is friendly, and in substance it asks one thing, “So how did the meeting go, anything we should know?”
That single question sits at the intersection of two of the most misunderstood areas of Australian corporate governance: confidentiality in the boardroom, and the duties of a director who is, in truth, someone’s representative. Answer it carelessly and you are not merely being indiscreet. You may be breaching the Corporations Act 2001 (Cth) and, unlike the shareholder on the other end of the phone, it is you who carries the liability.
There are no “representative” directors
Australian company law has no special category of “representative director” or “shareholder’s director” that comes with a lighter set of obligations. The Act imposes the same core duties on every director, however they arrived in the seat: to act in good faith in the best interests of the company and for a proper purpose (s181), to exercise reasonable care and diligence (s180), not to improperly use their position (s182), and not to improperly use information gained through the role (s183).
The decisive words are “the company.” Not “the shareholder who nominated me,” and not “the fund whose name is on my appointment letter.” A nominee (representative) director owes their duties to the company as a whole. Australian and English courts have said so for decades. In Levin v Clark and Re Broadcasting Station 2GB, the courts accepted that a director may be appointed to reflect a particular interest and may legitimately keep that interest in mind, but only so far as the company’s own interests allow. Where a nominee crosses the line and prefers the appointor, the consequences follow. In Scottish Co-operative Wholesale Society v Meyer, nominee directors who put their parent company first were found to have acted oppressively, and in Bennetts v Board of Fire Commissioners the court confirmed a nominee cannot subordinate the company to the body that appointed them. In Australia, ASIC v Adler showed how quickly ss 180–183 bite when a director treats a company’s resources and information as an extension of an associated interest.
A director who treats the boardroom as an outpost of their appointor has misunderstood the job.
What boardroom confidentiality actually protects
Confidentiality in the boardroom is not corporate etiquette, it is a legal and functional necessity. The information exchanged around the table - strategy, financial position, litigation, personnel, live M&A - belongs to the company, not to the individuals at the table. Section 183 prohibits a director from improperly using information obtained because of their position to gain an advantage for themselves or someone else, or to cause detriment to the company. Handing confidential board information to the shareholder who appointed you is one of the clearest ways a well-meaning director can step over that line.
Many directors assume the opposite. Because they “represent” a shareholder, they feel entitled or even expected to keep that shareholder informed. Australian law does not start there. There is no automatic right for a nominee director to channel confidential company information back to their appointor. The information is the company’s and disclosing it outside the boardroom without authority may breach both s183 and the equitable duty of confidence.
The risk is not hypothetical. In a recent, closely watched matter, the Delaware courts found that a director nominated by an activist investor had improperly shared confidential and privileged company information with the funds that appointed him. Australian analysis would travel a slightly different road, but it arrives at the same destination: appointment by a shareholder confers no licence to leak.
When shareholders want different things
The hardest version of the problem appears when the directors around a single table answer to shareholders whose interests genuinely diverge. Picture a joint venture where two corporate parents each appoint directors and are, that very quarter, negotiating the price at which one will buy the other out. Picture a start-up board where a venture-fund director favours a fast, dilutive raise while a founder-aligned director wants to protect the existing register. Picture a consortium in which one member also competes with the company in an adjacent market.
In each case the director feels a gravitational pull toward the interest that appointed them. The law is unmoved by that pull. The duty to act in the interests of the company as a whole, does not reduce because your shareholder’s commercial position is uncomfortable, or because the person who can end your directorship wants a particular outcome. Where a director has a material personal interest in a matter, as they often will when their appointor sits on the other side of a transaction. s191 requires disclosure to the board, and in a public company s195 generally requires the conflicted director to leave the room and refrain from voting on it.
A conflicted vote that ignores those obligations does more than embarrass the director. It taints the decision, exposes the transaction to challenge, and can expose the director personally to compensation claims and, in insolvency, to the close attention of a liquidator.
Navigating it well
So, what does a conscientious director actually do?
Separate the roles, in your own mind and on the record. You can be fully alive to your appointor’s perspective and still decide as a company director. When the two point in different directions on a specific resolution, the company’s interests prevail, and the minutes should show that you understood the distinction and acted on it.
Treat information flow as something to be authorised, not assumed. If a shareholder genuinely needs a director to act as an information conduit, that arrangement should be built openly and lawfully, through the constitution, a shareholders’ or information-sharing agreement, or a specific board resolution with proper confidentiality undertakings on the receiving side.
Many well-run companies now ask nominee directors to sign a conflicts and confidentiality deed for exactly this reason, so everyone knows what may and may not leave the room.
Use the conflict process rather than working around it. Declaring a material personal interest, stepping out for part of a meeting, standing up an independent committee for a related-party transaction, and taking your own advice are not signs of weakness. They are the instruments that let a conflicted board reach decisions that survive scrutiny from other shareholders, from regulators, and from a court.
Get comfortable saying “I can’t tell you that.” It may be the most valuable sentence in a nominee director’s vocabulary. A shareholder who understands the law will respect it. When they ask you this, they are asking you to shoulder personal liability on their behalf.
The confidentiality spotlight
None of this is playing out quietly. Confidentiality, who holds sensitive information, what they may do with it, and whose interests it ends up serving has become one of the defining governance stories in Australia, and the conduct of the Big Four professional services firms has put it on the front page. The fallout has resulted in successive Senate inquiries, the exit of senior leaders, and a potential break up of the multi service model. Confidential information was treated as a shared commercial asset rather than something held in trust for the party it belonged to.
The parallel to the boardroom is the same. A director who quietly relays confidential board information to their appointing shareholder is making the same error as an adviser who repurposes a client’s confidential information for the firm’s gain. The intense scrutiny the Big Four have attracted over confidentiality, conflicts of interest, and the mixing of roles that should be kept apart is a preview of how boards will be judged. Regulators, the media, and increasingly the public now treat a confidentiality breach not as a minor lapse but as a signal of deeper governance failure.
