A recent decision of the Delaware Supreme Court approved granting shareholders the right to inspect privileged and confidential internal investigation materials upon showing “good cause.” Directors and general counsels should be aware of the Wal-Mart decision because it reflects continued heightened scrutiny of the board’s role in compliance oversight and subjects sensitive internal investigation documents protected by “the oldest privilege recognized by Anglo-American jurisprudence” to inspection by shareholders seeking to substantiate claims that directors breached their fiduciary duties. The Wal-Mart decision could also trigger an increase in shareholder requests to inspect corporate books and records related to potential regulatory/legal violations.

The Delaware Supreme Court’s Holding -

Wal-Mart addressed a books and records inspection demand under Delaware law by shareholder Electrical Workers Pension Trust Fund IBEW (“IBEW”) seeking to inspect documents pertaining to an alleged bribery scheme involving a Mexican subsidiary of Wal-Mart between 2002 and 2005. The inspection demand followed an April 2012 New York Times article reporting that Wal-Mart executives disregarded an initial investigation revealing significant problems, instead turning the investigation over to the general counsel of the Mexican subsidiary, who was himself implicated in the initial review. According to IBEW’s demand letter, its purpose for the inspection demand was to investigate possible mismanagement and/or breaches of fiduciary duty in connection with the alleged bribery scheme and the Company’s response, and to determine whether pre-suit demand on the Board would be futile as part of a derivative lawsuit to recover damages on behalf of Wal-Mart. Wal-Mart produced hundreds of thousands of pages of documents in response to the demand, but redacted or otherwise declined to provide documents that it determined were not “necessary and essential” to the purposes of IBEW’s demand or that were protected by the attorney-client privilege and/or the work product doctrine...