The must-have record: board meeting minutes; It is more imperative than ever that what happens behind the closed doors of board meetings be preserved to answer any claim of irregularity.

• Author: Howard, Roscoe C., Jr.
• Position: BOARD PRACTICES

HARDLY A DAY passes without news of allegations of corporate mismanagement leveled by a government agency, an aggressive plaintiff's lawyer, or an internal watchdog unit within a large company. Directors and officers find themselves scrutinized, questioned, challenged, and sometimes sued in their personal capacities for a multitude of alleged sins of commission and omission. Amid this maelstrom, the question occasionally arises: What kind of record should a board of directors maintain of its proceedings?

In this litigious age, when any paper or electronic record can be a potential weapon in the hands of an adversary, are the directors--and perhaps even the company itself--better off with only the most abbreviated minutes of proceedings, or perhaps none at all? Tempting as the notion may be to simply keep no record at all, or perhaps only the most cursory record needed to attain minimum compliance with state law, any board following that course of action will, in the end, create more problems than it solves.

Public outcry, sweeping changes

Consideration of this question must begin with an assessment of the current public climate, which in turn informs and influences the political, regulatory, and judicial environments in which the corporation must exist. The public outcry over corporate scandals prompted Congress to enact the Sarbanes-Oxley Act of 2002 (SOX), which resulted in sweeping changes in corporate governance. SOX was designed to create within publicly traded companies a culture of compliance with the law, and toward that end the act set high standards for preparing and maintaining accurate and complete corporate financial records and financial statements.

SOX has changed the climate in which boards of directors must now operate. Their acts will have a certain sense of transparency, and the consequences of any malfeasance will be severe. One possible reaction to the increased scrutiny and liability is to deny access to the very evidence that may be used to prove the SOX violations: the minutes and notes of board meetings. However, as this article will explore, the scrutiny will come nevertheless.

One of the assumptions of the advice we provide below is that the discussions of the board are for the benefit of the shareholders and the company, and any actions taken or acquiesced in would withstand scrutiny. In that case, contemporaneous evidence to support such a conclusion is vital to proof of the actual intentions of the board...