The governance practices of Australian boards have been thrown under the spotlight of late, due to enhanced regulatory scrutiny and heightened shareholder activism. Boards are now having to constantly adapt their practices to keep up with fast-paced developments in the increasingly prominent area of Australian corporate governance.
The Hayne Royal Commission has re-ignited debate and discussions in boardrooms across Australia about several corporate governance matters, including the topic of board meeting minutes.
Although the Corporations Act sets out certain legal requirements that apply to board minutes, there is a general lack of case law guidance available to help boards determine the appropriate level of detail that should be included in minutes. This can create challenges for directors, who are exposed to personal liability for breaches of their duties.
In this article, we examine the legal requirements that apply to board minutes, discuss various minute recording practices that we have seen boards adopt, and provide some tips to assist boards in ensuring their minutes are effective, compliant and appropriate for their circumstances.
Legal requirements that apply to board minutes
The legal requirement to record minutes is set out in section 251A of the Corporations Act. Under this section, a company must keep minute books in which it records, within one month, the proceedings and resolutions of board meetings. The company must also ensure that the board minutes are signed by the chairman within a reasonable time. It is a criminal offence to contravene this section.
Minutes that are recorded and signed in this manner will be "evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved" (section 251A(6)).
Directors are also obliged to ensure that minutes are not false or misleading under section 1308 of the Corporations Act. It is a criminal offence to contravene this section.
Detail and content of board minutes
Although section 251A of the Corporations Act imposes an obligation on boards to record minutes, it is ambiguous about the level and type of detail required to be included in the minutes. There is also little case law on the topic.
Due to this lack of guidance, board practices on minute-taking can vary quite significantly, from recording only resolutions passed during the meeting, to the other extreme of recording a transcript of the meeting.
As governance professionals, we are often asked by boards to advise on the 'best practice' approach to adopt in minute taking, and to provide other practical guidance on the content of minutes, such as how to deal with director dissent.
To assist boards in shaping their minute-recording practices, we have provided some general observations and practical tips below.
The purpose of minutes
To determine what should be included in board minutes, it is useful to first examine the purpose of keeping those minutes. Naturally, a key purpose is to comply with the law requiring a company to keep a record of board meetings. Statutory obligations aside, boards should consider that from a director liability standpoint, minutes may be the only evidence before a court that directors have complied with their duties, and exercised business judgment in making decisions.
From a practical perspective, board minutes can also provide a useful reminder to directors of board decisions they have previously made, and the process they followed in making them. In addition, minutes can also serve as a clear mandate of the board's instructions and authority given to executives, who are tasked with implementing decisions made by the board.
Boards are encouraged to take a balanced approach in deciding what level of detail to include in minutes, such that with the above purposes in mind:
- the minutes are not a meeting transcript or overly detailed – this practice could stifle healthy board debate and discussions, and discourage individual directors from voicing opinions
- the minutes are not too scant – they should contain enough detail such that a person who was not present at the meeting (for example, a director who was an apology for that meeting) can understand what decisions were made by the board, and the key reasons supporting those decisions. When important business decisions are involved, an effective set of minutes should succinctly establish that in making the decision, the board exercised its powers and discharged its duties to act with care and diligence and in good faith, for a proper purpose and in the best interests of the company – this can assist boards in relying on the 'business judgment rule'.
There is no 'one size fits all', cookie-cutter approach
There are some obvious information elements that should be included in minutes, such as the name of the company; the venue, date and time of the meeting; names of the chairman, board attendees and invitees; apologies (if any); declaration of quorum, resolutions passed; and meeting opening or closing times. Standard elements aside, the level of detail in minutes becomes a matter for the board in question to decide on its preferred approach, and can also be a matter of judgment for the person taking the minutes (typically the company secretary). As board compositions, company secretaries and governance practices change, minute-taking practices for companies may evolve accordingly.
Factors that may impact a board's minute recording practices include:
- the quality of and level of detail contained in board papers. For example, if a CEO's paper sets out a comprehensive business case supporting a decision made by the board, it may not be necessary for the minutes to reiterate the business case. Instead, it may be sufficient for the minutes to refer to the relevant board paper
- the materiality and type of decisions being made by the board. Decisions that are of a procedural nature usually warrant less detail, as compared with key business decisions which are likely to have a material impact on the company. In addition, certain board decisions (such as approval of financial reports) may need to be recorded in a specific manner, to comply with relevant laws
- whether any directors have conflicts of interest or material personal interests relating to the subject matter of board decisions. If so, the minutes should reflect the basis of those decisions, and establish that the board complied with relevant statutory requirements and any applicable board protocols in managing the conflict or interest.
Board dynamics and dissenting votes
Ideally, minutes should reflect that the board is acting as a collective, with key decisions being unanimously supported by directors. However, even for a well-functioning board, it may sometimes be necessary to record a dissenting vote or a particular comment made by an individual director. This should be drafted carefully, as it may have an impact on individual director liability. Any director abstention from voting on a decision, or votes by directors against the decision, should be recorded in the minutes. If applicable, the minutes should also record the reasons that a majority of directors voted in favour of the decision, notwithstanding the dissenting votes.
Approving board minutes
Whilst board practices surrounding the recording of minutes are important, board processes governing the approval of minutes are equally, if not more, significant.
As the Hayne Royal Commission has shown, it is difficult for directors to retrospectively argue that events recorded in board minutes are incorrect. Signed minutes are prima facie evidence of events that occur during a board meeting, and therefore the importance of accuracy of those minutes cannot be overstated.
Directors should carefully review draft minutes circulated after board meetings, and ask for any amendments or clarifications that they consider necessary to reflect the events that occurred during the meeting, before the minutes are approved.
Directors should also look out for any omissions from the draft minutes – if the minutes are silent on a matter, this could be taken to mean that the matter was not considered by the board during the meeting.
In today's post-Hayne era, it is crucial that boards are clear on their obligations in relation to minutes, and understand the importance of keeping accurate minutes.
Minutes are often a board's first line of defence. At best, a skilfully drafted set of minutes can assist in the efficient operation of a company, and protect directors from liability. At worst, poorly recorded minutes may be used as evidence against directors, exposing them to undue legal risk.
Effective minute taking is an art form that takes experience to master – but when done skilfully, it can make all the difference.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.