Article by Michael Melanson & Jenny Chu Steinberg*
There is a perennial debate as to whether minutes of meetings of boards and their committees should be detailed or tend toward the perfunctory. There is natural apprehension that detailed minutes might provide fodder for opposing counsel in a legal dispute or might prove to be embarrassing to the company if read by others.
Months or years later, board minutes may become the primary record of what was discussed and decided. Moreover, in a civil legal dispute, minutes are prima facie evidence of what transpired at a board meeting. Consider that in the Disney1 litigation, the court permitted the plaintiffs to have access to the board’s minutes for the purpose of redrafting the claim. When Disney tried to have the claim struck, the court held that there were sufficient questions raised in the minutes about the board’s process that the matter should be sent to trial.
IN-HOUSE COUNSEL CHALLENGE
Good management of the minute-taking and minute-making process can assist in reducing litigation risk. In-house counsel has an important role to play in regularly reviewing drafts of board minutes to ensure that the minutes function as a useful record of the board’s deliberations and decisions both for the purpose of the good governance of the company and also as evidence in the event the company is involved in shareholder litigation.
Content. Use item 3.6 of the Institute of Chartered Secretaries and Administrators in Canada’s Good Governance Guide as a checklist for the contents of the minutes. The Guide can be found currently at www.icsacanada.org/news/goodgovernance/3.6.html.
Approval. Ensure minutes are approved by directors regularly and ideally at the next meeting. In the Netsmart2 litigation, the Court wrote: "tardy, omnibus consideration of meeting minutes is, to state the obvious, not confi dence-inspiring".
Personal Notes. It is probably unrealistic to expect that directors will regularly destroy their own notes; however, directors should be encouraged to do so after satisfying themselves that the minutes contain all of the information they may need at a later date.
Executive or In Camera Sessions. Executive sessions are playing an increasingly important role in corporate governance. Deliberations at these sessions may come under judicial scrutiny and should be documented carefully.
Privilege. If the minutes are generally available for inspection within the organization, then privilege is more likely to be lost than where the minutes are available only for inspection by the board. In situations of great sensitivity, the board should consider receiving a separate report from counsel, which can be referenced in the minutes but maintained as a separate secure document.
Minutes should contain sufficient narrative detail to provide context for the directors’ deliberations and decisions. This does not mean creating a verbatim transcript of what the directors discussed. Nor does it mean adding editorial comments to the minutes. The narrative detail should be a high level summary of the matters discussed, with a focus on recording the board’s process, including such elements as the length of time, extent of consultations, and information received by the directors during and prior to the board meeting.
Assess the sufficiency of detail by considering whether the minutes provide evidence of a prudent and diligent process. A court may later review the minutes to determine whether there was sufficient prudence and diligence in the board’s process to be able to determine that the decision of the board was reasonable at the time and under the circumstances in which it was made. If the court fi nds evidence of a prudent and diligent process, then it is more likely that the business judgment of the directors will be respected.
Regular review of minutes by in-house counsel will assist the board in obtaining early advice as to whether there may have been deficiencies in the board’s process that could be corrected by further deliberation at a subsequent meeting. The process of a board reviewing minutes of its previous meetings with counsel and evaluating whether they reflect the board’s prudence and diligence can be an important self-check on the board’s effectiveness as a steward of the corporation.
* Michael and Jenny wish to acknowledge the assistance of Timothy Banks of Fraser Milner Casgrain LLP in the preparation of this document.
1 In re Walt Disney Co. Derivative Litig., 825 A.2d 275 2003 Del. Ch. LEXIS 52., 907 A.2d 693; 2005 Del. Ch. LEXIS 113
2 In re Netsmart Technologies, Inc. Shareholders Litigation, Delaware Court of Chancery (Court File No. 2563-VCS), March 14, 2007.
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