Recently my partner Kenneth J. Najder wrote an excellent article on well-crafted corporate minutes. In this article, we add nuances peculiar to banking organizations in keeping such minutes, particularly in respect of the proposed guidelines establishing standards for Corporate Governance and Risk proposed by the FDIC for institutions with assets of $10 billion or more. And, of course, everyone knows guidance flows downhill.

Corporate minutes normally document, as Ken notes, (i) requisite corporate approvals, (ii) delegations of authority, (iii) adherence to corporate formalities or applicable law, (iv) rationales for board action or inaction, (v) dissenting views or votes, (vi) discussions of conflicts of interest, including how such conflicts were addressed, and (vii) which directors attended which portions of meetings, each of which could be important if testimony is later necessary in shareholder actions or governmental investigations. Bank minutes, while including the foregoing, also contain significant information related to bank customers that is considered personal and confidential information and must be protected, as well as documentation of the relationship between the bank and its primary regulators, much of which is considered the property of the regulator and must be protected.

Because minutes reflect significant aspects of corporate governance as outlined in the proposed guidance, minutes can be an important protection for the board and the bank during the regulatory process. Many banks now place board agendas and related documents on a confidential portal for board members to review prior to the meeting and use during the meeting. Such materials include significant detail related to customer loans, corporate policies and procedures, and other financial matters. Generally, there is an in-depth review of the documents on the portal, and the related discussion in the minutes may demand more detail than in other instances. As Ken noted, an inadequate record of corporate decision-making may contribute to a finding that directors have violated their fiduciary duties. In other words, if the minutes do not reflect adequate consideration of an issue or a decision, the board may receive no credit, even though it extensively discussed the issue. Regulators basically take the same position that if a subject discussion is not reflected in the minutes, it did not happen. As an example, many bank boards review extensive financials that include a liquidity analysis, both liquid assets as a percentage of assets and secondary liquidity as a percentage of assets. Following the Silicon Valley Bank failure, many banks received criticism that the board was not adequately informed of the liquidity position of the bank because it was not adequately reflected in the minutes as opposed to the board materials that were discussed. Thus, on major risk matters, such as liquidity, it is important to adequately cross-reference the discussion to the materials reviewed in order to document what the board considered. Similarly, minutes are important to banks operating under a regulatory order, either a consent order or memorandum of understanding (MOU). Such orders or MOUs frequently contain requirements to adopt certain policies and procedures and specifically require the board to approve the policies and procedures or other actions taken, noting any dissenting directors and the reasons for such dissent.

With the trend toward more complete discussions, a statement that “a full and complete discussion was held and upon motion duly made and seconded, the policy or action was approved” is probably inadequate on important corporate matters. Although the particular comments of each director on each subject are not necessary unless there is a dissent, any discussion of an issue should be fleshed out as to what the discussion covered. For instance, in the liquidity situation above, the board could note the liquid assets to assets ratios were below the desired target ratios, followed by a discussion of why the ratios were below target and what mitigating or corrective factors had been taken by management to bring the ratios back in line. This lets an examiner know the matter was considered, which will avoid a write-up of lack of board involvement where the examiner does not take the time to review board materials outside the minutes. Such an approach should be taken with any item that may be high on the examination staff’s radar, which includes most risk items.