Much good can come from hiring a corporate secretary to effectively draw up minutes for meetings of the board of directors. Dangers lurk in doing the job poorly
Keeping minutes of board meetings may seem like tedious busywork, but there are good reasons (beyond statutory requirements) for directors to do so. Minutes, for instance, can provide proof of corporate authority that enables particular officers to conduct banking transactions. Or they can serve as a reminder or direction for action — for example, instructing an officer to sign a contract on approved terms.
Minutes may also help to defend against claims by unhappy shareholders or regulators and provide evidence that they have been sufficiently addressed. For instance, a "due diligence defence" may exculpate directors who can demonstrate that they took appropriate time and care in considering a matter.
Similarly, minutes can record how directors responded to a corporate opportunity, so as to provide the basis for a "business judgment defence." Anyone seeking to challenge factbased defences of this sort will have to produce facts that refute the minutes.
Minutes, however, are not always helpful. These documents are not privileged and may ultimately be viewed by litigators and regulators. Minutes may implicate directors in inappropriate conduct, or may strongly suggest that a due diligence or business judgment defence may not be available. Directors should always think about how opposing counsel or regulators might try to interpret minutes against them.
Minutes must be accurate, of course, but the law provides for considerable latitude in determining what should be included. Many have described the function of minute-keeping as an art, and so it is important that the role be assigned to someone with adequate expertise and experience — a true corporate secretary, as opposed to an untrained administrative assistant.
One significant question that boards must make concerns the degree of detail. Minutes should record that a decision was made and what the decision was. Minutes should provide whatever directions and authorities are required to implement the decision. Beyond this, it may be important to specify considerations that reflect the deliberations.
For example, in approving an expensive executive employment arrangement, it may be important to demonstrate that the board adverted to how the contract would pay out in a variety of circumstances, as part of its determination that the deal was a good one for the corporation. Noting that the directors discussed various scenarios and referring to presentations made in support of the arrangement may assist in preventing meaningful allegations that the directors were derelict.
While it may be useful to record specific comments that are directly relevant to a decision or a potentially available directors' defence, it is generally unhelpful to record all comments, with attribution. Many of these thoughts may be preliminary, ill-conceived or otherwise unhelpful. They can and should be omitted on the basis that minutes record decisions and the basis of decisions, but not discussions. However, specific comments must be included if directors insist on them.
Meeting notes should be taken on a contemporaneous basis, and minutes should be created promptly after a meeting. Minutes should then be cascaded for approval. Typically, I might send the minutes to the meeting chairman for initial vetting, then would circulate them to the entire board in time for review before formal approval will be sought. Formal approval should be recorded in subsequent minutes.
It is not uncommon for directors to keep personal notes as meetings proceed. Directors may want to ensure that they are able to assess draft minutes, when received. However, personal notes should be destroyed once minutes are approved.
As it is important that minutes be carefully crafted in the first instance, so it is also important that other possibly misleading (whether directly or in nuance) and potentially embarrassing notes not coexist. The benefit of formal minutes can be lost if one director has a doodle at the side of a notepad, suggesting (correctly or otherwise) distraction or superficial discussion.
It is, however, appropriate to record comments that a director feels are significant and not otherwise reflected in the minutes, and to record dissents, whether to particular corporate action or to the minutes themselves. Formal dissents can afford defences to the dissenting director.
It is up to you to make minutes your friend, and not your enemy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
