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An article from


PRIVACY AND CORPORATE DISCLOSURE LAWS ARE ON COLLISION COURSE, PAPER SAYS

States have created a patchwork of consumer privacy laws that will likely
conflict with corporate disclosure mandates, according to a law professor.

Published Nov. 21, 2024
Justin Bachman Senior Reporter
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Companies will find increasing conflict between consumer data privacy laws and
their corporate disclosure obligations, a legal paper finds. Cristian Storto
Fotografia via Getty Images

Amid an absence of federal legislation, nearly half of U.S. states have enacted
consumer data privacy laws that will inevitably conflict with longstanding
corporate disclosure requirements, a law professor writes in a recent paper.

The welter of state laws aiming to give people more control over their personal
information can trigger compliance conflicts for corporations, which are
obligated to disclose certain shareholder data under state incorporation laws. 

Notably, books-and-records requests by investors seeking information on a
company and annual shareholder meetings are the most likely areas of statutory
conflict, writes Megan W. Shaner, a professor at the University of Oklahoma
College of Law in Norman. 




“It is only a matter of time before the courts will have to wrestle with the
impact of U.S. state privacy statutes on corporations’ activities,” she predicts
as additional states consider privacy legislation, further pressuring Congress
to offer a national framework.

Shaner analyzed these potential conflicts in a recent paper, “Growing Tensions:
Consumer Privacy and Corporate Disclosures,” published in the Southern Methodist
University Law Review. Shaner’s research areas focus on business
associations, corporate governance, mergers and acquisitions and transactional
law.

“The most fraught area of corporate disclosure is books and records demands,”
she writes, as “most state corporate codes provide shareholders with a statutory
right to inspect a corporation’s books and records.”

Inspection claims in Delaware have experienced a “dramatic increase” in recent
years as shareholders avail themselves of these rights to seek private data,
according to the paper.

Shaner notes these inspections allow access to “traditional corporate
information” such as financial statements, accounting records, written
communications and meeting minutes, but also to “a newer and growing category of
information — the digital data collected by companies.”

“Given that books-and-records demands have been found to lead to the disclosure
of valuable corporate data, it is an area of corporate law poised to come into
conflict with consumer privacy statutes,” writes Shaner, a former practicing
attorney in Delaware who focused on transactions and corporate governance
matters.

“In sum, books-and-records inspection rights are an area rife for conflict
between a corporation’s disclosure of data and privacy statutes’ requirements.”



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DATA PROTECTIONS

To date, federal data privacy legislation has been thwarted due to partisan
disagreements about whether state laws should be preempted, whether consumers
should have a right of action in a U.S. law and which federal agency should be
empowered to enforce companies’ compliance, she writes.

Europe’s General Data Protection Regulation took effect in May 2018 with broad
definitions of personal data for all EU citizens, Shaner writes, and served as a
guidepost for several other countries and U.S. states seeking to protect
consumers’ data. 

The California Consumer Privacy Act of 2018 was in the vanguard among state
privacy efforts, signed into law only a month after the GDPR was effective. As
of July 2024, 20 states have enacted data privacy legislation, according to the
paper. A half dozen others are considering such legislation.

State legislation passed in 2024 “continues the trend of individual state
tailoring in crafting privacy laws, with no two statutes being the same,” Shaner
wrote.

All states’ data privacy measures currently exempt merger and acquisition
activities where consumers’ data are sold as part of the transaction, not
triggering disclosure requirements under the privacy laws. The same exemption
applies to incorporation laws’ disclosure of stockholder lists in connection
with annual shareholder meetings, Shaner wrote.


POTENTIAL REMEDIES

Most of the conflict between consumer data and corporate laws arises from how
states have defined consumer, according to the paper.

“Drafted with broad strokes, most of the current state privacy statutes would
apply to shareholders, and California’s statute also captures employees,
directors, and officers within its terms,” she wrote. “Careful statutory
drafting can, however, avoid the inclusion of these internal corporate
participants.”




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States have taken two approaches to narrow the definition of consumer, she
wrote. Most exclude people acting in a “commercial or employment context,” which
does not exclude shareholders. A few states, however, offer a narrower
definition of consumer, “which lends itself to excluding shareholders.”

Most companies cannot address conflicts with consumer privacy statutes through a
contract with shareholders or a provision in the entity’s organizational
documents, Shaner wrote. 

“This is because consumer privacy statutes typically provide that contracts or
agreements purporting to waive or limit the rights or remedies thereunder are
deemed void and unenforceable as a matter of public policy,” she wrote,
mandating a statutory fix.

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   become all-hands-on-deck to get the job done. Sometimes external help is
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