Category: Board minutes

Corporate Secretary Guidelines: Taking Notes and Preparing Official Minutes

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FriedmanBondi

Bart Friedman and Bradley J. Bondi

Meeting minutes of the board of directors, which usually are prepared by the corporate secretary, can play a crucial role in a government investigation or civil litigation relating to a decision or indecision of the board of directors or the knowledge of an individual director. In some instances, the minutes could establish an important defense for directors, while in other instances the minutes may subject directors to unnecessary criticism or worse. Directors should ensure that the corporate secretary follows these guidelines.

Unlike the meeting secretary, directors neither are obligated nor are advised to take individual notes during board and committee meetings. Individual director notes are unnecessary because the secretary’s official minutes will contain a record of the meeting. Additionally, director note-taking is risky. Directors’ notes likely would be discoverable in litigation, and notes that seemed clear in the days after a meeting may not be clear several years later after memories have faded. Absent a clear interpretation, adversaries will attempt to impose their own meanings on the notes. Furthermore, if multiple directors take notes, discrepancies may exist with other notes or the official meeting minutes.

Although individual circumstances may vary, below are some general guidelines that corporate secretaries of U.S. companies should follow when they take official notes and prepare meeting minutes for the board of directors. If a company is incorporated outside the United States, different guidance might apply.

  1. Record the essential information. The corporate secretary should record essential information such as the date, starting and ending times, location, attendees (e.g., directors, management, experts, and legal counsel), presence and maintenance of a quorum, meeting chair, materials distributed in advance of the meeting, topics discussed, and decisions made in a formal meeting of the board. In some cases, the secretary should note the length of particular discussions and deliberations, especially if a particular discussion is an important part of the meeting. Directors also should ensure that the notes taken by the corporate secretary do not editorialize, as commentary could be misconstrued by an adversary if discovered in litigation.
  1. Clearly identify separate meetings and tasks. Because notes and minutes are incomplete by nature, the more organization and structure they contain, the easier they will be to understand and interpret in the event that they are scrutinized. Secretaries should use the meeting’s agenda as a guide for organizing and labeling their notes and the minutes, and should indicate transitions from one topic to the next, including presentations by management, counsel, or advisory firms and executive sessions.
  1. Identify in notes when an attorney is present during a conversation. Directors’ interactions with lawyers usually are protected by the attorney-client privilege or work-product protection, which may shield the content of those discussions from being turned over to an adversary. Boards also should consider including the general counsel in meetings that could involve a discussion of legal issues. If a lawyer is present during any portion of a meeting, the minutes should indicate the lawyer’s name and law firm, and the portions of the meeting for which the lawyer was present. Generally, the minutes for these interactions should indicate only that such discussions occurred and the general topics discussed.
  1. Identify and describe the board’s deliberative process. Recording the general fact that the directors discussed or deliberated about an issue is critically important. However, what a particular director said about a particular issue is usually less important. For that reason, and to avoid errors in attribution, the secretary’s notes and official minutes generally should use collective or passive-voice descriptions (e.g., “the directors discussed the matter” or “a discussion ensued”) as opposed to attempting to record individual viewpoints and the directors who expressed them. Because directors may express passionate views about an issue, the secretary should exercise good judgment in determining what to record.
  1. If notes are taken by hand, they should be clearly, legibly recorded, and should not include shorthand. Illegible meeting notes and notes taken in shorthand can be difficult to interpret when the secretary refers to them while drafting the official minutes. Provided typing is not disruptive to the directors in the meeting, directors should ask corporate secretaries to consider taking notes on a secure computer. Clarity and accuracy are crucial because a difference of opinion between directors regarding the events that occurred at a meeting ultimately may be resolved by reference to the secretary’s notes. In the litigation or regulatory enforcement context, unclear notes may result in meeting minutes that lack an obvious, objective interpretation and are susceptible to being misinterpreted by an adversary.
  1. Encourage the secretary to maintain a standard practice of note taking. Secretaries generally should establish and maintain a standard practice for taking notes, retaining meeting materials and individual notes, and preparing meeting minutes. Deviating from a standard practice could raise negative inferences from a regulator or court.
  1. The secretary should distribute the draft minutes for directors to review as soon as practicable. During their review, directors and secretaries should be mindful of any important events that occur between the meeting date and the finalization of the minutes. If a director believes the minutes omit important information, then the director should discuss orally the matter with the secretary. E-mails regarding the minutes between the secretary and directors, or among directors, should be strictly discouraged.
  1. Discuss with counsel whether to retain notes and draft minutes. There may or may not be a legal or corporate requirement for the secretary to retain his or her meeting notes or draft minutes. After the official minutes are approved, the secretary should discuss with company counsel whether there is a requirement to maintain these materials and ascertain the length and nature of the requirement. If there is no requirement to maintain the materials, the secretary should discuss with counsel whether and how to discard them.

Bradley J. Bondi and Bart Friedman are partners with Cahill Gordon & Reindel LLP. They advise financial institutions and global corporations, boards of directors, audit committees, and officers and directors of publicly-held companies in significant corporate and securities matters, with particular emphasis on internal investigations and enforcement challenges. Michael D. Wheatley, a litigation associate at Cahill, assisted with this article.

Effective Board Minutes

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Even the most conscientious and reasonable directors serve with the possibility of facing a lawsuit in state or federal court. In the decade after Sarbanes-Oxley, board minutes have emerged as an important litigation tool for both the prosecution and the defense. While minutes continue to be essential to internal recordkeeping, they must also be crafted to stand up to judicial scrutiny if needed.

Incomplete or inadequate minutes can serve as the basis for prosecution for obstruction of justice, and some have expressed concerns that minutes may act as road maps for litigants. Minutes that fail to show due diligence in a board’s decision-making process reflect either poor minutes or poor process—both can be detrimental to directors defending themselves from liability. On the other hand, minutes capable of demonstrating the process behind well-informed board decisions, may be key evidence in any board’s defense. Directors should not fear “beefing up” minutes with details from meetings if they are doing their jobs competently.

With few formal rules surrounding the drafting of board minutes, directors may receive conflicting guidance on how to best represent board meetings. The National Association of Corporate Directors, with input from the Society of Corporate Secretaries and Governance Professionals, has put together a white paper outlining five board minute fundamentals. These fundamentals, based on a study of various recommendations, should serve as a framework for directors to review, interpret, and eventually approve the minutes. This white paper gives directors a firsthand look at full board and committee meeting minutes. A complimentary copy of Corporate Board Minutes: A Director’s Guide is available to all members.

Board Minutes Must Be Clear, Artful

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Gerard F. Hurley, CAE, is president of Association Executive Resources Group, Gaithersburg, MD. AERG employs a spectrum of board governance guidelines and policy instruments in a “Foundation First Governance” publication series designed to assist nonprofit organizations.

Board minutes, by definition, can loom large after the fact, to which defendant organizations in discovery will attest. Unfortunately, it is all too easy for directors—fiduciaries all—to skip over the board minutes each received weeks or months earlier and, when asked at the next meeting if they “accept the minutes of the last meeting,” to suffer a brain cramp. “Okay, let’s move on,” the chair usually intones.

The precision of one’s board and committee minutes is critical to recording what actually took place, the decisions made, budgets authorized, and who has been charged to do what, when and where. That assumes there was action to report. Minutes are not to intimate otherwise, or gloss over issues considered delicate, leaving unaddressed matters which can haunt for years.

Board Minutes--rarely plain sailing

The “academy,” so to speak, is not exempt. In his book, Known and Unknown, former Defense Secretary Donald Rumsfeld observed that some (obviously secure) minutes of the National Security Council failed to state what had been decided, or even discussed, leaving participants with differing views on what had been decided and the next steps to take. Such imprecision, though possibly intended for other reasons, seems unconceivable at that assumed level of sophistication. It happens regularly in middle America.

Another NSC practice regarding minutes, according to former Secretary Rumsfeld, was to assume that a matter had been decided, simply because “no objections were voiced.” He insisted that nothing be deemed “decided” unless and until the meeting participants agreed to decide.  Was silence simply a matter of “after you, Alphonse,” or was the “minutes technique” an attempt to move an agenda? The “unless we hear from you” practice employed anywhere is wide open for abuse and misunderstanding.

 It can be risky to offer too little for the record, as well. I recall the comments of the Hon. William B. Chandler, III, chancellor of the Delaware Court of Chancery, to NACD’s 2004 Corporate Governance Conference, on the Disney Corporation/Michael Ovitz separation decision just rendered. It was his observation that Disney records did not support the level of due diligence it claimed when contemplating the Ovitz separation. Was it three hours, or one hour, or 15 minutes, he shrugged, rhetorically. In his September 10, 2004, decision, on page 21, he said “It is unclear from the record whether a majority of any group of [Disney] disinterested directors ever authorized the payment of Ovitz’s severance payments.”

 The quality of the minutes reflects the meeting. The document is to show only the topics discussed and the actions taken, if any. It is not a verbatim record. Was the consensus agenda properly constructed to point toward known objectives so as to focus directors on a needed a decision? Were the discussions crisp and pointed, the decisions clear and repeated for all to take note? Were the draft minutes then reviewed for accuracy by the chair and other principals before distribution?

Are we not to insist on the specificity in our minutes necessary to support the record and defend our decisions. . . and no more than that?