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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?

NACD Insight & Analysis: Boardroom Confidentiality Policies

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On Wednesday, it was revealed that one of the largest insider-trading cases seen in decades stemmed from a violation of boardroom policy. In the insider-trading trial of Raj Rajaratnam, Goldman Sachs CEO Lloyd Blankfein testified that former director Rajat Gupta violated the firm’s code of conduct in disclosing confidential information from 2008 board meetings. According to Blankfein’s testimony, Gupta allegedly revealed to Rajaratnam via telephone strategic discussions regarding the possibility of Goldman Sachs acquiring a commercial bank or insurance company, as well as advance notice of Berkshire Hathaway’s vitalizing five billion dollar investment in Goldman.

This is not the first instance of leaked high-profile boardroom discussions. After a thorough investigation, it was discovered in 2006 that Hewlett-Packard Director George Keyworth divulged confidential strategy points to CNET. With more potential channels of communication than ever, directors may choose to revisit and clarify boardroom confidentiality policies.

Often companies do not articulate boardroom confidentiality agreements, as confidentiality is implied in a director’s duty of loyalty. According to this fiduciary duty, a director cannot use confidential information for his or her own benefit, or to the benefit of a person or entity outside the company. However, a lack of clear policy would prove a weak defense for Gupta, as Goldman Sachs clearly defines a boardroom confidentiality policy in its corporate governance principles:

Confidentiality. The proceedings and deliberations of the board and its committees shall be confidential. Each director shall maintain the confidentiality of information received in connection with his or her service as a director.*

While confidentiality policies are not explicitly required, in 2000 the SEC enacted a policy to enhance fairness and transparency: Regulation Fair Disclosure, commonly referred to as “Reg FD.”  With the intent to eliminate “selective disclosure,” Reg FD mandates that publicly traded companies must disclose material information to all investors at the same time. While this mandate does not necessarily extend to nonpublic boardroom discussions, the gray area created can be easily solved by including a code of conduct or other confidentiality agreement in the company’s corporate governance principles.

 

*Source: Goldman Sachs Corporate Governance Guidelines

 

 

 

Call for Nominations

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NACD has opened nominations for Director of the Year and the B. Kenneth West Lifetime Achievement Award. These two honors recognize outstanding corporate directors who have made a meaningful impact in the boardroom.

An exemplary director acts with integrity and courage in complex, often risky situations. Honored directors have demonstrated dedication to the improvement of corporate governance practices, and have cultivated a reputation as a leader among peers in the business community. By recognizing those directors who are dedicated to the success of the companies, boards, and shareholders they serve, NACD hopes to raise the bar for all directors.

Nominees are evaluated on four key attributes based on the principles of director professionalism:  integrity, mature confidence, informed judgment and high performance standards. Winners have demonstrated these principles in a variety of ways, including:

  • Showing the highest personal and professional ethical standards;
  • Valuing board and team performance over individual performance;
  • Acting in ways that have guided their company in maintaining consistent long-term profitability,
  • Improving shareholder returns, and/or dealing effectively with a crisis or other major change;
  • And fostering an environment of constant improvement of strategic goals, performance and innovation.

In 2010, the following directors were honored:

Curtis J. Crawford, PhD, director of ON Semiconductor, E.I. duPont de Nemours, and ITT Corporation received the B. Kenneth West Lifetime Achievement Award.

Public Company Director of the Year was awarded to Richard Keyser, director of Zebra Technologies and Principal Financial Group, chairman emeritus of W.W. Grainger.

Nonprofit Director of the Year was awarded to Josh Bekenstein, managing director Bain Capital, co-chair of New Profit, director of Dana Farber Cancer Institute, City Year, Horizons for Homeless Children and New Leaders for New Schools.

From L to R: Ken Daly, Mary Pat McCarthy, Richard Keyser, Curtis J. Crawford, Josh Bekenstein, Barbara Hackman Franklin

To learn more about nomination criteria or to nominate a director, visit www.NACDonline.org/DOY or email D100@NACDonline.org. Nominees will be accepted from NACD constituents—including previous award recipients, NACD chapter leaders, advisors and members. Winners will be publicly recognized at the NACD Directorship100 Forum Awards Gala on November 8, 2011 at the Waldorf Astoria Hotel in New York City. The deadline for nominations is May 31.