Minutes Deserve More Time


Minutes Deserve More Time

Scott M. Wornow and Khoa D. Do

Scott M. Wornow is the former chief legal officer of Atmel Corporation.

Khoa D. Do is a partner at Jones Day and served as M&A counsel to Atmel Corporation. The views and opinions presented in this article are personal to the authors and may not reflect those of Jones Day.

Boring. Mundane. An afterthought. A task often assigned to the uninitiated first year corporate associate. Minutes—board minutes, audit committee minutes, compensation committee minutes, special committee minutes, etc.—tend to be glossed over by practitioners and, in some cases, even by board members. They are often viewed as unimportant, a purely bureaucratic function, neither significant nor relevant to a company’s daily activities until those minutes happen to become important.

Delaware law offers little guidance on the matter of corporate minutes. It provides, with a sparse dictate, that "[o]ne of the officers shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose."1 This proviso is the only explicit statutory duty imposed on corporate officers under Delaware corporate law. No more, no less, as the Delaware Chancery Court recently affirmed.2 Absent extensive statutory or common law prescriptions regarding the content, form, or structure of minutes, courts and practitioners must discern the appropriate approach, method, and manner for documenting the proceedings of stockholders and directors.

Little thought is traditionally given to the "art" of corporate minutes. How should they be crafted? How should they be framed? Should they provide an extensive description or a short review of matters discussed? Should they include intricate details of complex issues or offer just a high-level overview? And, once prepared, what is the process for review and approval of the minutes? Can the contents be shared with auditors or other "outsiders" without any filter or special handling?

Where should we begin when drafting minutes? With the purpose, presumably.

Focus on the purpose. Minutes serve a purpose. They reflect the business decisions of a company’s board of directors and its committees. They describe the processes the board and its committees use in reaching their decisions. Practitioners should not lose sight of this simple precept. Minutes tell the story of corporate decision-making; if done effectively, they present evidence, in written, tangible (and nowadays, electronic) form, that the board properly exercised its fiduciary duties in an informed and reasonable manner.

Minutes should fundamentally document the board’s "business judgment" for both internal and external consumption. If so documented, such minutes should increase the probability that the board’s decision-making will be respected. In Delaware and other jurisdictions, courts will generally defer to the board’s business judgment because they are loathe to substitute the board’s judgment absent real and apparent conflicts of interest or semblances of self-dealing. Minutes that describe the board’s full, informed, and reasoned proceedings and reflect its considered business judgment help pave the way for these proceedings to receive deference. Minutes falling short of this purpose, however, may not withstand judicial scrutiny if, and when, challenged. In the landmark Smith v. Van Gorkom case, the Delaware Supreme Court long ago underscored the critical role minutes may play as evidence that the business decisions in question were the products of a careful, informed, and deliberative board process.3

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Form. A longstanding debate persists between drafters, officers, and practitioners who favor more and those who prefer fewer words. Yet there is no correct form for these different approaches. The drafter should consider a simple question: If an outsider were to review the minutes, would this individual conclude that the board made a clear, informed decision based on relevant information? It’s not more complicated than this basic concept. The form used will largely depend on the circumstances, the issues requiring explanation, and the likelihood of second-guessing by a court or other persons.

A decade ago, Michael Ovitz, president of The Walt Disney Company, was fired without cause. To the shock of many, the former entertainment industry agent received severance of nearly $130 million for only fourteen months of work. Questions understandably arose regarding whether such a significant payment for that short-lived tenure reflected a breach of fiduciary duty by the board—in other words, how could the board justify an outsized severance for minimal service to Disney? Among issues reviewed in the course of extensive litigation, the Delaware Supreme Court commented on documentation proffered in support of the board’s decision to make the payment, specifically noting a lack of exhibits attached to the minutes that might have better evidenced the compensation committee’s discussion, evaluation, and analysis of the severance.4 While not dispositive in litigation, the court’s analysis underscored the practical benefits of ensuring that minutes accurately reflect the board participants’ discussion, interaction, debate, and understanding of the matters under consideration. The common statement in many minutes that "discussion occurred" is acceptable in most circumstances, so long as the predicate to this statement is a clear, coherent description of the underlying matters discussed.

Does form affect substance? Perhaps. Could diverting from commonly accepted forms of minutes lead to problems? Could departure from "standard" form raise questions regarding completeness or authenticity of minutes? Minutes should be viewed as potential evidence that could later be introduced into litigation. If the drafter understands this possibility, the importance of preparation and craftsmanship becomes more apparent. In In Re Bigmar, Inc., the Delaware Chancery Court noted that the minutes prepared by counsel offered no evidentiary value because he was not present at the board meeting, but instead relied on a director’s testimony without any corroborating evidence.5 By later reducing to writing the director’s description of the proceedings, counsel circumvented the standard practice of attending as secretary of the board meeting and documenting its proceedings as they occur. Merely transcribing hearsay evidence of what purportedly occurred at a board meeting as the definitive minutes of the meeting is less than ideal. The value of minutes lies in their evidentiary substance if debate later arises regarding matters discussed in those minutes. Form, structure, and content can lend support, with the following considerations kept in mind:

  • Identifying participants. Although seemingly obvious, it is imperative that the meeting secretary identify all participants within the minutes (and to that end, the secretary of the meeting, responsible for documenting all actions discussed, should be clearly designated before the meeting commences). This identification should include each participant’s affiliation and the capacity in which they are attending the meeting, whether they are members of corporate management, outside counsel, external consultants, or otherwise. In a committee meeting, for example, directors who do not serve on the specific committee should be identified as "guests." Minutes should also note whether the participants attend the entirety of a meeting. If external advisors are present for only portions of a meeting, or management is excused during discussion of certain topics, the minutes should document these details.
  • Time. How long did the meeting last? Tracking the beginning and end of a meeting affords the reader some perspective on the extent of the board’s discussions. An indication that the meeting occurred over five hours is likely to establish a different context, and create a different perception, than minutes describing a meeting of just half an hour. Noting the duration—that the meeting began at 8 a.m. and ended at 1 p.m.—may also help to refresh the recollection of participants if later questioned, providing them a better sense of meeting dynamics when recalling specifics.6
  • Executive sessions. Best corporate practices suggest that some board or committee topics should be discussed in select subgroups and may not be appropriate for all persons otherwise in attendance at the principal meeting. These executive sessions allocate a private portion of the meeting during which a fully transparent and uninhibited discussion of a designated matter can occur among a smaller group, without fear of retaliation, embarrassment, or retribution. Involving only participants "who need to know" in executive sessions may also help preserve the confidentiality of the discussions. Topics for these sessions may vary, and this article does not intend to set forth the full range of possible subjects. But, by way of example, the board may wish to discuss the chief executive officer’s performance in a private session. It may prefer to review corporate strategies or acquisition opportunities outside the presence of external advisors or certain members of company management. The audit committee will typically be inclined to conduct private conversations with both the chief financial officer and the external auditors. There are other occasions in which unfettered discussion is more appropriate in an executive session than in the general meeting. In each case, these executive sessions should be expressly noted in the minutes, indicating who was, or was not, in attendance. Minutes should include a description of the executive session that informs a non-participant of its purpose without sacrificing the sense of privacy. Noting that the audit committee "met in private session with the chief financial officer," for instance, is probably sufficient to document the occurrence of an executive session and to alert the reader that the subject involved a matter relevant to the company’s finances. Executive sessions in other contexts may require different formulations and sensitivities, including an awareness of privilege issues that could arise, as discussed below.
  • Descriptions of interactions. How should particular interactions be noted? Is there a preferred protocol for referencing director questions, by identifying, for example, the name of the specific director raising a question ("Jane asked") or leaving references more generic ("a director asked")? Preferences diverge, with one school of thought suggesting that use of specific directors’ names within the text more effectively indicates active participation, while another point of view believes that the generic formulation portrays the same level of involvement without placing undue attention on the acts of particular directors. On the whole, assuming the meetings occur in the ordinary course and the events discussed are not unique, we suggest that the generic formulation may provide a better path, eliminating the possibility of misidentifying directors, while appropriately placing focus on the board as a single decision-making body, rather than on any individual director.
  • Decisions. Board decisions are often unanimous. In these instances, the documentation is simple and the minutes follow suit. There may, however, be occasions when decisions are not unanimous. In the context of a significant corporate transaction, what if a split occurs between board members who recommend the deal and board members who disfavor it? What if a minority of directors intend to vote against a merger transaction? Under these circumstances, one should assume that public disclosure of the deliberations and votes will be a likely outcome. And questions could be posed, seeking critically to assess the reasons underlying the majority and minority positions. When anticipating such factors, the minutes should describe the back-and-forth among directors. While even in this case the minutes can continue to refer to questions asked by "a director" rather than note an individual’s name, each director who voted in favor of the merger transaction, and each who voted against it, must nonetheless be specifically identified. The minutes must provide the foundation upon which a description of the transaction can later be prepared or questions answered. It is essential that the minutes clearly evince and describe a board decision, especially when differences of opinion and alternative judgments exist. If the minutes successfully achieve this purpose in situations lacking unanimity, they may serve as additional credible evidence of an effective process and thoughtful deliberation notwithstanding disagreements among the board.

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Exhibits. As previewed above, the Disney litigation raises questions regarding the need to attach explanatory exhibits and analyses to minutes. Should minutes include copies of strategic assessments presented to the board? Or is a description of the board’s strategic discussions sufficient and more appropriate? Once again, purpose should inform the decision. Is the exhibit essential to understanding the purpose of the minutes? Or is the purpose discernible solely from the text of the minutes? Does the exhibit include matters that were tangential, inaccurate, not actually discussed at the board meeting, or perhaps simply inapplicable? A schedule of stock grants, for example, offers clear, explicit evidence of equity grants and provides essential information for external auditors. By contrast, a granular manufacturing analysis presented by the operations team is unlikely to have the same relevance or prove critical to comprehending the purpose of the meeting. As with many of the issues discussed in this article, it is incumbent upon the drafter and reviewers of minutes to consider the specific context presented to determine whether exhibits or attachments are essential to understand the board’s decisions.

Exhibits may sometimes be unhelpful, or may even create a misleading perception of matters not actually debated or fully discussed; such exhibits need not, and perhaps should not, be attached. In other cases, exhibits may be integral to a comprehensive description of the decision-making process and the board’s or its committees’ decisions. And, in these circumstances, they should be attached to the minutes, forming part of the formal record.7

Drafts. Drafts should be drafts. They should be easily identifiable as drafts and clearly marked as "Draft-Subject to Final Approval" (or words to that effect). Ideally, drafts should note that edits can be made until the board approves the final form of the minutes. During the discovery stage of litigation, a reviewer should be able to quickly determine that minutes are in draft form and that the board’s decisions are reflected only in the final minutes. Disclosure of interim drafts that do not reflect final board decisions may not be required, making it critical that final minutes are properly documented and filed with the corporate records. The Delaware Chancery Court indicated in Frank v. Engle that a corporation may privately revise initial drafts of minutes in pursuit of legitimate goals, like accuracy and protection of privilege, but the court may order the release of initial drafts if the corporation revises minutes for improper purposes.8

Drafts of minutes should be promptly circulated among the board—the sooner following the meeting, the better. Accuracy is likely enhanced through timeliness. Preliminary comments and approvals can be obtained through informal channels like email, assuming proper tracking of comments. Final approval, however, should be formally confirmed, preferably at a standing meeting after receipt of the preliminary approvals, which itself indicates that board members have read and reviewed the contents, and their feedback has been considered.

Notes. Should directors take notes during board meetings? There are many perspectives. Jotting down short notes may help directors recollect issues or track strategy discussions. Directors might need notes on financially-related matters to ensure comprehension. How did management determine non-GAAP financial metrics and what components were excluded? Has the company maintained consistency across quarters? What feedback did the auditors provide? While views may differ, directors and counsel should consider whether notes are desirable and how minutes may be evaluated when contemporaneous notes are later reviewed. Do the notes create "parol evidence" that will affect the interpretation of the minutes?9 Thoughtful consideration of these matters is essential as part of any good corporate governance program.

Confidentiality/privilege. Counsel must carefully consider whether board minutes address matters that raise issues of confidentiality or privilege. Compensation decisions, employee evaluations, acquisition analyses, and litigation assessments, among other matters, may be described. These sensitive issues should be evaluated for necessary redaction prior to circulation of draft or final minutes to non-board members or others to whom legal advice or analysis contained in the minutes may not be directed. Maintenance of minute books must be carefully controlled, especially when outside consultants, including auditors, request access. With minutes in electronic form, the control process is even more critical. Should minutes, in draft or final form, be distributed in an editable format (e.g., an unrestricted Word file) or as a secured document (e.g., a "Read Only" file or password-protected .pdf)? Uncontrolled access may risk not only the loss of privilege, but also the unintended leak of highly sensitive, confidential information within or outside an organization. Delaware courts have withdrawn protection of otherwise privileged information when a corporation has waived the privilege by revealing such information to a third party.10

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Board minutes are frequently characterized as dull. Drafting minutes can be an uninspiring task for many. This mindset is unfortunate. Whether crafting minutes for a start-up, a Fortune 500 company, or in the midst of an acquisition, care should be afforded to the contents, form, and approval processes applicable to minutes. A second chance may not be available to correct ambiguities, errors, or unintended perceptions. Unfortunately, many often seek "do-overs" under the most critical, existential organizational circumstances, when they are unlikely to be granted.

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1. 8 Del. Code tit. 8, § 142(a).

2. Espinoza v. Zuckerberg, 124 A.3d 47, 56 n.41 (Del. Ch. 2015) (citing 8 Del. Code tit. 8, § 142(a) ("Notably, this duty [to record the proceedings] is the only duty of an officer that is specifically set forth in the statute." [emphasis added])).

3. See Smith v. Van Gorkom, 488 A.2d 858, 879 (Del. 1985).

4. See Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 56 (Del. 2006).

5. In re Bigmar, Inc., 2002 Del. Ch. LEXIS 45, at *69-70 (Apr. 5, 2002), aff’d 2004 Del. LEXIS 309 (July 16, 2004).

6. NL Indus. v. MAXXAM, Inc., 1997 Del. Ch. LEXIS 51, at *49 (Apr. 4, 1997) ("Finally, and of considerable importance, is the quality of the board’s actual decision-making process, a factor that also compels a finding adverse to the defendants. The defendants rely upon the recital in the minutes … that there was a ‘lengthy discussion of the merits of the proposed transaction.’ Other than that conclusory statement, there is no evidence that any MAXXAM director questioned any material term of the proposal.").

7. Brehm, 906 A.2d at 56 ("In a ‘best case’ scenario, all committee members would have received, before or at the committee’s first meeting …., a spreadsheet or similar document prepared by (or with the assistance of) a compensation expert . That spreadsheet, which ultimately would become an exhibit to the minutes of the compensation committee meeting, would form the basis of the committee’s deliberations and decision. Had that scenario been followed, there would be no dispute (and no basis for litigation) over what information was furnished to the committee members or when it was furnished." [emphasis added]).

8. Frank v. Engle, 1998 Del. Ch. LEXIS 43, at *6-8 (Mar. 25, 1998) ("In an earlier opinion …., I denied plaintiffs’ request for draft copies of board minutes. I reasoned that the finalized versions of these documents would adequately inform plaintiffs of what occurred at the meetings without compromising the board’s right to edit and certify the content of its minutes privately … [P]laintiff shows good cause to reconsider this issue, i.e., Leonard’s unrebutted testimony that the ‘finalization’ process constituted nothing more than for Leonard to wait for Engle’s (possibly self-serving) comments. That process is not the type of legal review for which defendants are entitled to assert attorney-client privilege as a protection against inappropriate discovery. Defendants shall produce all minute drafts as well as Leonard’s meeting notes." [emphasis added]).

9. Schroder v. Scotten, Dillon Co., 299 A.2d 431, 440 (Del. Ch.1972) (negating the prima facie validity of a board’s meeting minutes based on contradictory testimony: "Although the minutes of a directors’ meeting are the best evidence of what took place there, parol evidence is admissible to supplement or contradict the events as reported in the minutes.").

10. Almeroth v. Innovative Clinical Sols., Ltd., 2004 Bankr. LEXIS 1271, at *1-2 (D. Del. Aug. 27, 2004) ("I find that any attorney-client privilege with respect to certain of the minutes of the Board of Directors meetings has been waived . [M]aking the documents available to a third party constitutes an intentional waiver of the privilege.").