Should everything be for the record? Board meeting minutes, or lack thereof, are causing legal issues.

AuthorRaymond, Doug
PositionLEGAL BRIEF

The minimalist approach to recording boardroom discussions is attracting criticism, but that doesn't mean everything at every meeting should be documented.

In practice, approaches range from reciting only the bare bones of board actions and decisions, to creating a veritable transcript of the entire meeting, including all reports and discussions. Under the corporate law of Delaware and most other jurisdictions, the job of the corporate secretary is "to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose."

But what should the record say?

This is a key question, particularly for public companies where directors have a heightened concern about litigation. In the Chancery Court decision In re Netsmart Technologies, Inc. Shareholders Litigation, the board of a company considering a sale of control had failed to prepare detailed minutes of the meeting held to consider whether to accept the acquisition proposal. Following the board's acceptance, shareholders brought claims against the board for its alleged failure to explore adequately alternatives to the transaction. Moreover, the court blocked the transaction, based in part on the absence of evidence that the board had engaged in serious discussions about these alternatives. The court explained that it might have reached a different result if the board had kept better minutes of its deliberations and had timely approved them, noting that the failure to do so was, "to state the obvious, not confidence-inspiring."

In another case, involving the Disney Company's decisions to hire and later fire a top executive, shareholders claimed the directors had violated their fiduciary duties by failing to sufficiently deliberate before taking these steps. The minutes of the relevant meetings did not include discussions of the key terms of the executive's employment and severance package, and also failed to address the valuation of major portions of the compensation package. Although Disney ultimately prevailed, it suffered a protracted, expensive, and very public legal battle to do so, which, the court explained, could have been avoided if the minutes had been sufficiently detailed.

The heightened awareness and risk of litigation, as well as of high profile government investigations, has led some boards--particularly of public companies--to record everything that happens at a meeting. This not only requires significant effort on the part of the...

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