New Zealand: The wisdom of mass destruction of board papers

Many companies require directors to leave their board papers behind for destruction after the meeting, so that the only record which remains is the company's copy of the original papers and the board minutes.

The arguments for a destruction policy are finely balanced.

Yes, it can reduce litigation risk because the directors' annotations and questions, or lack thereof, are not available for discovery, to be picked over by the other side for use against the company or the director in court. But the same benefit can be obtained from appropriately drafted minutes.

If the minutes record not only decisions but the key reasons and material elements of the discussion, the backside-covering utility of directors' personal notes should reduce significantly. If minutes are well crafted, retention of directors' own notes is, in general, more likely to raise than lower overall litigation risk.

Yes, destruction can reduce the risk of a breach of confidentiality. However there are steps that can, and should, be taken to safeguard documents, such as requiring directors to take appropriate security and confidentiality steps - both physically and electronically.

And, yes, it can reduce the risk of directors re-opening closed issues by reinforcing that what is important is what was decided at the meeting, as reflected in the minutes. But the better way to prevent relitigation of old issues is by strong chairing of meetings and ensuring that minutes are well written.

The arguments against a destruction policy are also finely balanced.

Yes, it enables directors to review the minutes to ensure that they are an accurate record of the meeting. But this is not an argument for never destroying notes. It is simply an argument for deferring destruction until the minutes are finalized. (This is particularly simple if directors' annotated notes are not physical but electronic, on a central facility under the control of the company.)

Yes, it ensures that directors have access to their board papers at all times, including after they leave the company, in the event of litigation or investigation. But a better way to achieve this is for the director and the company to agree, as is often the case in directors' deeds of indemnity, that the director will have access to board papers and minutes on request – including after he or she ceases to be a director, to the extent relevant to any litigation involving him or her.

And, yes, it might enable some directors to do a better job, by referring not merely to the minutes but also to their own notes to better refresh their memories. But, again, if good minutes are prepared, directors should feel less need to refer to their own notes.

Increasingly companies appear to be adopting a pro-destruction policy. And, as a general rule, that is a good place to start. But there is no one-size-fits-all answer. While some companies - for example, those regularly subject to litigation or in regulated industries - may prefer destruction, others may not.

Whatever approach is taken, here are some things to bear in mind:

  • agree on an approach, record it and stick to it. It is not optimal for some directors to comply and destroy while others retain. It is particularly unhelpful (in any subsequent litigation) if the only papers destroyed were those which were considered to constitute a risk. If destruction is favoured, minimize the risk of adverse inference by articulating why in a policy and then sticking to that policy
  • good minutes are always important. If a destruction policy is adopted, all the more so. Directors will not be enthusiastic about destroying their own records if the minutes are pro forma or brief to the point of uselessness
  • timely minutes are important. Accuracy is enhanced by getting them into circulation as soon as possible after the meeting. If papers are destroyed immediately after the meeting, timely circulation is even more important
  • if a destruction policy is adopted, consider the feasibility of only requiring destruction once the minutes are finalised
  • if there is no destruction policy, consider whether to give directors some guidance on how to treat board papers in a way which minimises the risk of them becoming an unfortunate gift to a litigation opponent
  • ensure there is an appropriate deed of access (or equivalent) under which directors have a right to access company documents
  • ensure directors are given appropriate guidance on security, and adopt an appropriate documents security/confidentiality policy. This is useful even if papers are destroyed immediately after the meeting. It is even more important if they are not.

Two final observations:

  • a destruction policy must be subject to applicable legal requirements. In particular, documents which might be relevant to contemplated or actual litigation should not be destroyed, and
  • the detail will obviously differ if board papers are emailed or in the cloud. But the key considerations remain. If they can be annotated, then questions of whether or not (and if so when) they should be destroyed should be addressed.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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