When the Massachusetts Secretary of State’s Office this year announced an investigation into the $57 billion sale of Gillette to Procter & Gamble, state officials zeroed in on the minutes of a meeting by Gillette’s board of directors in which the sale was discussed.
“There’s no evidence of extensive deliberations,” Massachusetts Secretary of State William Galvin told The Boston Globe, referring to the board minutes. “I find it hard to accept that these are the actual minutes of what occurred.”
Although the sale of Gillette to Procter & Gamble was not hindered by the state’s investigation (the deal closed Oct. 1), the transaction is just one example of the increasing scrutiny that board minutes come under by regulators, plaintiffs’ lawyers and shareholders in the post-Sarbanes-Oxley era.
The failure of the board minutes to reflect extensive deliberations were also an issue in the shareholder lawsuit against Walt Disney, whose board had approved an extremely generous compensation package for outgoing President Michael Eisner. While the judge in the Disney case ultimately ruled in favor of the company, the plaintiffs had examined the board minutes with a fine-tooth comb and used them to argue that anything not reflected in the minutes never happened.
Peregrine
In light of the heightened scrutiny of board minutes, companies should be “revisiting the manner in which they take the minutes and [also should] revisit the manner in which the board reviews those minutes,” says Michael Peregrine, a partner with McDermott Will & Emery in Chicago. “Boards need to give a little more time and effort to make sure [the minutes] reflect the discussion.”
But minutes are not a cure-all if things are not done right to begin with, Peregrine emphasizes. “Minutes can be extremely valuable when the board follows the appropriate procedures. But good minutes without good process is not going to be a silver bullet.”
Short & Sweet
Peregrine tells Compliance Week that there are “a lot of discovery requests” now for board minutes by plaintiffs’ attorneys fishing for an indication that the board “gave no specific thought to [the] matter or wasn’t concerned about the options or risks.”
“You don’t have to be right,” he notes. “You just have to make a good faith effort to be right. Minutes can’t fix an otherwise broken process but they can support the board’s defense against any challenge to its business judgment.”
Copeland
Robert Copeland, a partner with Duane Morris in San Diego, agrees that minutes can be an important defense document for corporate boards. “The buck stops with the directors,” he says. “The minutes are generally—under most state corporation statutes—conclusively presumed to be what really happened at the meeting.”
Copeland says that minutes should be “short and sweet and to the point—you don’t want them to be like a transcript. Boards typically are acting by a majority, so it’s unimportant whether one director said this or that. Quotations can be taken out of context and used by a creative lawyer in a deposition or at trial to embarrass or to make a point that otherwise wouldn’t be there.”
Peregrine notes that transcript-like minutes are a bad idea because “people are chilled if they think every word will be reflected in the minutes. They want to the freedom to speak without their exact words being taken down.”
BE PREPARED
According to a recent Corporate Update published by the law firm of Dorsey & Whitney, it is nearly impossible for a meeting secretary to keep a good record of board or committee proceedings without plenty of advance preparation. "Proposed resolutions for anticipated actions should be drafted and circulated to the board or committee before the meeting." In addition, says the firm, the secretary can be considerably more effective when using a checklist or template to record key information, such as:
Date and location;
Whether the meeting is a regular, organizational or special meeting;
Whether the meeting is held by telephone conference call or in person;
Beginning and ending time;
Names of attendees and those absent;
Acting chairman and secretary;
Names of presenters or other participants;
Headings indicating general topic under discussion (which may be taken from the agenda);
Indication of action taken (action terms to consider: discussed, agreed, approved, authorized, deferred, noted receipt of);
Comings and goings of members or participants;
Resolutions adopted;
References to briefing materials disseminated in advance or material discussed or presented at the meeting by specific date and title.
Source
Up-To-The-Minutes: Best Practices For Memorializing Board And Committee Meetings (Dorsey & Whitney)
But minutes shouldn’t err in the opposite direction of lacking any detail either, says Peregrine. “Companies are moving away from the short-form minutes. Companies have been experimenting with something that is more substantive, that reflects more the tenor of the discussion. There’s a broad recognition that the old style of minute-taking is not going to serve [companies] well in the future. Minutes should be able to provide clear and readily available support for the decision-making.”
Backfilling
Because of the growing importance of board minutes, experts say it’s advisable for the person taking the minutes to be someone who understands what should be included and what should be left out. “It should be someone who can effectively distill the wheat from the chaff,” Peregrine says. “More and more that is a member of the legal staff.”
The person taking the minutes “doesn’t have to be a lawyer,” says Copeland, but lawyers should see the minutes before they’re finalized. “Have [the person taking the minutes] rough them out in a rough draft and send them over and then have the lawyer assist whoever the scrivener is and give input into the final draft of the minutes.”
If the minutes do not provide enough detail, “you may want to suggest that, at the next board meeting, they spend some time reflecting that the minutes [of the prior meeting] didn’t capture everything done at the prior meeting. You always have the ability to backfill—to retell the story or elaborate on what was done.”
How long the minutes need to be is a judgment call that depends on the specifics of a particular meeting, Copeland notes. “It’s not a one-size-fits-all kind of thing. A meeting may last hours and there may only be one thing that the board actually adopted resolutions about. [In that case] a fairly short paragraph might cover three hours of discussion. At other times, you might have one authorization after another and have 10 pages of minutes.”
When companies have the minutes taken in-house, they are sometimes “shorter then they ought to be,” says Copeland. “They will miss the nuances—the window dressing you need.”
Sometimes minutes are “too cursory” because they are not done immediately after the meeting, according to Copeland. “Another dangerous practice is to record board meetings and then type the minutes from that,” he says, noting that the failure to preserve the tape could become an issue if such recordings aren’t erased as a matter of practice every time.
Copeland says it’s “cheaper generally to have a lawyer looking at the minutes and helping to get the minutes right on the front end rather than trying to extricate yourself from a situation where those minutes are being wrapped around your neck like an albatross.”
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