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The Role of Minutes in Protecting Companies and Their Directors
Wednesday, September 16, 2020

A prominent Delaware judge once said, “Writing good minutes is like flossing; nobody likes to do it, but it is essential ….” As noted below, well-prepared minutes can substantially benefit your company and its directors, while poorly prepared minutes can be perilous.

Below are the most common questions we field from clients about minutes, together with related responses.[1] Although the danger posed by poorly prepared minutes is greatest for large, complex, public companies, we believe that many of the recommendations below will be helpful to any business entity that has multiple owners and is governed by fiduciaries.[2]

1. Are board minutes really necessary?

Yes, for several reasons. First, records of corporate proceedings are required by the corporate laws of most states[3] and can help confirm the corporation’s separate existence for liability-shielding purposes.[4] Second, minutes, when coupled with other steps—discussed below in response to Questions 8 to 10—allow a company and its directors to speak with a “single voice” regarding matters that the directors approved or discussed, which can be especially valuable if the company’s actions are challenged. Third, minutes can help document the exercise of the directors’ fiduciary duties. When done well, minutes can be instrumental in defeating shareholder challenges, as in the CaremarkRojas, and Dollar Thrifty cases. Conversely, minutes that document inadequate decision-making processes can be used as a weapon by plaintiff attorneys, as in the Van GorkomDisney, and Marchand cases.[5] Finally, various commentators have suggested that well-governed companies that furnish quality governance documents to their transactional counterparties are more likely to attract capital on favorable terms or extract above-average acquisition premiums.

2. Should our minutes be long-form, short-form, or in-between?

Generally, we believe you should strive to summarize significant matters discussed at a directors meeting with a moderate amount of detail, which we refer to below as the “Goldilocks” approach. Over the past several decades, commentators have vacillated between advocating for a short- or long-form approach. Current litigation trends, however, suggest both of these approaches can be problematic, as explained further below.

Providing too much stenographic detail regarding board deliberations can unduly tie the hands of a litigator charged with defending the board’s actions. But too little detail can undercut a litigator’s ability to demonstrate that the directors discussed a particular matter or discharged their fiduciary duties. Insufficient detail or silence regarding particular matters has led several Delaware judges to infer that no deliberations occurred.

Using a Goldilocks approach, on the other hand, will permit:

  • Litigators to point to a strong, but not preclusive, record of a comprehensive deliberative process.
  • Directors to reconstruct their recollections prior to depositions without unduly restricting their ability to amplify the breadth of the board’s deliberations.

3. Is the Goldilocks approach always the best choice?

No. Although the Goldilocks approach is generally the most advantageous approach for documenting discussion of any significant matter, there are several circumstances where a short-form or long-form approach will work better.

We recommend using a more detailed, long-form approach to document a thorough review of (i) mergers or other actions governed by a higher level of scrutiny than the traditional “business judgment rule”[6] or (ii) other transactions that could invite litigation or other third-party scrutiny, such as dividend cuts or internal investigations. Frequently, these types of corporate events lead class-action litigants to make “books and records” requests prior to actually filing suit. When confronted with comprehensive minutes documenting thorough board deliberations, class-action litigants will frequently decide that their case is too weak to pursue. Long-form minute presentations are often employed in various other situations as well. For instance, many public companies will document in detail their approval of complex compensation arrangements; doing so helps support their subsequent proxy disclosure of their decision-making processes. In addition, many companies record in detail advice provided to directors by experts, which can help shield directors from liability.[7]

On the other hand, you can use a short-form drafting approach when documenting the discussion or approval of simple, noncontroversial matters clearly within the purview of the business judgment rule. Highly sensitive matters, such as personnel issues and strategy discussions, are typically drafted in a manner designed to protect confidential data in the event the minutes are discovered. Finally, it is often in the company’s interest to use short descriptions of routine, recurring management reports. In particular, public companies will frequently use brief summaries to document routine CFO reports to ensure that descriptions of the company’s financial performance in the minutes do not conflict with the company’s public statements.

4. Can a single set of minutes use short-form, long-form, and Goldilocks approaches?

Yes. This practice is quite common when certain matters dictate the use of more detail than other matters. However, judgment should be applied to ensure that the length of each item in the minutes generally corresponds to its relative significance. In one notable case, a court expressed skepticism that a board had exercised sufficient attention to a business combination transaction when the minutes included significantly more detail about the directors’ discussion of an unrelated routine tax issue.

5. Are there techniques for implementing a Goldilocks approach?

Yes, there are several ways to avoid the traps of excessive brevity or detail.

First and foremost, we recommend that you memorialize discussion of important matters by referring to non-exhaustive lists of factors considered or questions raised. For instance, rather than attempting to capture every point raised or ignoring all of them, we suggest using sentences such as:

  • “The Board evaluated a wide range of considerations, including X, Y, and Z.”
  • “The directors asked a series of questions covering a range of factors, including questions relating to X, Y, and Z.”

This technique will enable you to summarize extended brainstorming discussions efficiently yet comprehensively. Absent unusual circumstances (which are discussed further in response to Question 17), there is generally no need to ascribe specific views to specific directors during these types of wide-ranging discussions. Instead, it will typically be sufficient to summarize them using sentences such as:

  • “An extensive and lengthy discussion ensued, during which the directors shared their perspectives regarding X, Y, and Z.”
  • “The directors and officers engaged in a lengthy discussion of the matter, and reviewed in detail a wide range of issues, including X, Y, and Z.”

Finally, if minutes are summarizing an oral presentation that was accompanied by written presentation materials, we recommend referring to those accompanying materials but avoiding the pitfalls of excessive detail. In many cases, you can strike the optimal balance by including in the minutes a statement such as:

  • “Using his previously distributed presentation materials as a guide, Officer ABC reviewed XYZ.”

In connection with applying these general techniques, you will need to make specific judgments as to how much detail to include regarding the scope of the discussion. As noted in response to Question 3, considerably more detail will be warranted in summarizing the discussion of high-risk matters.

6. Should minutes always use formal resolutions to document affirmative board authorizations?

No. Formal resolutions are not necessary to document (i) the authorization of minor or uncontroversial matters (such as approving a search to hire an additional sales agent when business is rapidly expanding) or (ii) discrete, well-defined matters that are easy for the directors to understand (such as authorizing management to continue pursuit of a corporate project on the terms discussed at the meeting). In addition, it is frequently sufficient to record in the minutes the directors’ approval of a management proposal that was clearly and unambiguously defined in separate meeting materials circulated prior to the meeting. Occasionally, directors will comment favorably upon management’s proposed course of action, but the chair will not present the matter to a vote. These types of informal approvals can be reflected by stating that the “directors indicated their support” for such course of action, or something similar.

On the other hand, formal resolutions generally are necessary to document:

  • More complex matters, such as acquisitions or executive compensation.
  • Actions where board authorization is required under applicable statutory law or the company’s organizational documents, such as share issuances or charter amendments.
  • Actions subject to review by third parties, including regulators.
  • Authorizations of matters exceeding management’s previously granted authority or new delegations of authority.
  • Other cases where it is necessary or appropriate to ensure that the directors have acted in unison.

To the greatest extent possible, we recommend circulating draft resolutions to the directors prior to the meeting to help build a record of a strong deliberative process.

7. Should we be worried about note-taking by directors?

Yes. The discovery by plaintiffs of directors’ notes complicates the ability of minutes to act as the sole record of a board’s deliberations. The presence of extensive notes could permit the plaintiffs to “shop” for the narrative they prefer.

Directors’ notes can also potentially:

  • Be misinterpreted.
  • Create adversity between directors.
  • Highlight a concern but not record that the concern was adequately addressed.
  • Create evidence of distraction.

Once created, notes are difficult to discard, especially (i) for digital records and (ii) in connection with matters such as mergers that result in prompt litigation and attendant “litigation hold” orders that prevent directors from modifying or discarding their notes.

8. How should we address the problem of director’ notes?

This is a difficult issue for many companies to address.

Many directors will insist on taking notes, frequently for laudable reasons. These directors often believe that they cannot adequately discharge their oversight duties without being able to record their observations and questions for future use.

Nonetheless, an increasing number of companies have adopted policies regarding director note-taking. These policies typically govern handwritten and digital notes, including electronic portal notes and, potentially, emails between directors. These policies may provide for:

  • Automatic deletion of all portal notes upon completion of meetings.
  • Destruction of all sensitive paper handouts upon completion of meetings (subject to the corporate secretary’s retaining an archived copy).
  • Director mandates to destroy written notes as soon as possible but no later than the date draft minutes are furnished or approved.

In preparing policies on director note-taking, companies need to assess many trade-offs between tight policies (favored by the company’s litigators) and looser policies (often favored by one or more company directors). Regardless of how these policies are drafted, we recommend that they be applied consistently and monitored periodically to assess their continued effectiveness.

9. How should we handle Zoom recordings of board meetings?

Many companies are holding board meetings through use of Zoom or other digital platforms. We recommend against recording these meetings. If for any reason a company believes recordings are necessary, we recommend adopting a written policy to destroy the recording (and any other digital records generated by the service provider) once the meeting minutes are prepared or approved.

10. How should the recording secretary’s notes and draft minutes be handled?

If the recording secretary is an attorney, the company may be able to assert that these materials are privileged and non-discoverable. But we recommend assuming that a court will not recognize this privilege argument and will permit discovery. This raises the risk that the recording secretary’s extensive (or incomplete) notes or preliminary drafts could endanger the ability of the company’s litigators to defend the board’s actions. For these reasons, we recommend that companies adopt a written policy authorizing the prompt destruction of the recording secretary’s notes and preliminary drafts.[8] Although we realize that many recording secretaries prefer to record their notes digitally, we believe that paper notes are easier to destroy promptly and definitively.

11. How quickly should the recording secretary distribute draft minutes?

If any matter discussed at a meeting raises substantial near-term litigation risk, we recommend that companies prepare and approve draft minutes as soon as possible. As illustrated in our responses to Questions 8 to 10, the sooner minutes are prepared or approved, the sooner companies can implement their policies to destroy notes and drafts. This will assist the company in fulfilling one of the principal goals of minutes listed in response to Question 1 — permitting the company to speak with a single voice about the matters approved or discussed at its meetings, without the potential complications raised by conflicting narratives. In addition, at least one court has expressed skepticism over the veracity of minutes prepared well after the meeting but during pending litigation.

But even if a meeting involves more routine matters, prompt preparation of minutes still has many advantages. It avoids the problems of recall by the recording secretary and the meeting participants. Plus, directors generally appreciate, and often expect, prompt distribution of minutes.

12. How should executive sessions be recorded?

Frequently, during executive sessions, directors discuss sensitive matters but defer taking formal action until they reconvene in regular session. For these reasons, a bare-bones summary of matters discussed in executive session is usually sufficient. However, we recommend that the summary include enough information to (i) prove that a matter requiring the exercise of the directors’ business judgment was adequately reviewed, (ii) enable directors to reconstruct their memories if deposed, and (iii) record definitive actions taken, if any.[9]

A small minority of companies routinely prepare separate executive session minutes that are circulated only to the executive session participants. Although this approach can be useful in documenting privileged communications (as discussed in response to Question 13), most companies conclude the cost of this approach exceeds the benefits.

13. How should the conveyance of privileged communications at a board meeting be summarized?

When the protection of privileged information is the paramount goal, the privilege can be preserved through (i) drafting a short-form summary of the topic discussed or (ii) using separate “privileged” minutes for that portion of the meeting.

On the other hand, if documenting the directors’ adherence to privileged third-party advice is the paramount goal, the directors might prefer outlining in the minutes the privileged advice received, even if this risks destroying the privilege.

14. Should minutes record when directors or guests enter and exit a meeting?

Yes. This practice will enable the company to:

  • Create a record of potential witnesses to testify on specific deliberations.
  • Negate the unintended implication that a guest invited to limited portions of the meeting attended other portions where the guest’s participation would have been inappropriate.

A director’s tardy entrance into or early exit from a meeting generally is not significant enough to record. But if the director misses a vote or a material portion of an important discussion, this should be noted.

15. Should negative votes or abstentions by a director be recorded?

Yes, with a particular emphasis on documenting the existence of any conflicts of interest that led to abstentions.[10] Generally speaking, the failure to do so not only would create a potentially misleading record but also would enable plaintiff attorneys aware of the deficiency to subsequently attack the company’s credibility and integrity.

16. Can director discussions at prior meetings or between meetings be referenced in minutes?

Yes. Brief references to such conversations in minutes (or accompanying resolutions) can bolster documentation of a strong deliberative process.

17. Should minutes specifically identify which director provided input or raised questions?

Generally, we do not believe this is necessary or appropriate. But there are several circumstances where identifying the director would be necessary or appropriate, including when documenting:

  • The role of the chair in running the meeting and framing the discussions.
  • Dissenting votes or views.
  • Input that had a fundamental impact on a material decision-making process.
  • Input from a director who (i) has specialized expertise pertaining to the applicable matter or (ii) specifically requests that his or her comments be attributed to him or her in the minutes.

18. If we produce quality minutes, are we “home free”?

Not necessarily. We urge you to view minutes as the end point of a process designed to document the board’s careful deliberations in connection with each of its meetings. Other parts of this process include:

  • Soliciting director input on agenda items.
  • Providing detailed agendas that clearly outline the scope of action required and permit directors to adequately prepare for the meeting.
  • Distributing prior to the meeting presentation materials regarding topics to be discussed at the meeting.

Please note that these presentation materials will be subject to potential discovery, so companies should scrutinize their contents with a level of care similar to that applied in drafting minutes. We recommend that to the greatest extent possible, companies strive to ensure that these presentation materials operate in tandem with the minutes to create a single coherent record of matters discussed. Minutes should specifically refer to the distribution and review of any significant presentation materials. Certain courts have drawn the inference that presentation materials not specifically referenced in an agenda or minutes were not utilized by the directors, notwithstanding management’s claims to the contrary.

Please note that preparing minutes is heavily dependent on the facts and circumstances that apply to the specific meeting held. If you are unsure how to proceed, please consult with counsel regarding your individual circumstances.

[1]The responses included herein are generalized replies of the author only. Specific questions involving different facts and circumstances may be addressed differently by other attorneys.

[2] Although most of the discussion herein is directed to board minutes for business corporations, references to “directors” herein will generally apply with equal force to managers or general partners who owe fiduciary duties to their respective entities and those entities’ owners. Much of the discussion will also apply to trustees or other fiduciaries of various other types of business or charitable organizations.

[3] Including Delaware, Louisiana, Texas, Alabama, and Mississippi.

[4] The Securities Exchange Act of 1934, as amended, and other federal laws also require certain recordkeeping.

[5] Unless otherwise noted herein, we have assumed that plaintiff attorneys will be able to discover a company’s minutes.

[6] This would include actions governed by an intermediate or enhanced level of scrutiny or the entire fairness doctrine.

[7] See the response to Question 13 for more information.

[8] These policies could be (i) part of the company’s policy governing directors’ notes, (ii) a separate complementary policy, or (iii) part of the company’s general document retention policy.

[9] If the recording secretary does not attend the executive session, he or she will need to make alternative arrangements to ensure the production of an accurate summary.

[10] The amount of information recorded in the minutes will depend on several factors, including the applicability of state corporate laws governing conflict of interest transactions and the input of directors on the appropriate level of detail under the circumstances.

[11] The author thanks his partner Alexandra Clark Layfield for her assistance with this Client Alert.

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