Until recently, most people would have preferred watching paint dry to discussing the drafting of board minutes. And yet this sleeper topic is now being hotly debated in legal circles, especially since the WorldCom settlement has made director liability a cause célèbre.
‘Because there’s a buzz about how important minutes are, people who draft minutes are paying more attention,’ says Robert Lamm, senior vice president of corporate governance and secretary at Computer Associates. Lamm says this renewed interest is justified given that ‘contemporary writing is generally viewed as the best evidence of what transpired on a particular matter at a particular time.’
Broc Romanek, editor of TheCorporateCounsel.net, agrees, pointing out that in litigation Disney was faulted for devoting only a page and a half of the minutes to the approval of Michael Ovitz’s contract.
Since the WorldCom settlement in January, directors have entered the fray, intensifying their focus on board minutes. ‘From what I hear,’ notes Lamm, ‘directors are certainly asking corporate secretaries to draft the minutes more promptly and they’re asking corporate secretaries to review them, which they might not have done in the past. I also hear companies with short-shrift minutes are changing their approach.’
In light of recent developments, Lamm is serving on a subcommittee to revise the Society of Corporate Secretaries & Governance Professionals’ (the Society) treatise on corporate minutes.
Is bigger better?
Anthony Mancuso, author of The corporate minutes book, which provides privately held companies with tools for keeping complete records, says there’s definitely a trend for minutes to be longer and more detailed these days, especially among larger public companies. ‘If you’re on the board of a public company, the minutes really should be quite lengthy and describe decisions and who voted for and against them,’ he explains.
Meanwhile, Thomas Dubbs, who represents institutional investors in securities litigation as a partner at Goodkind Labaton Rudoff & Sucharow LLP, fears corporate secretaries don’t fully appreciate the trend and have remained far too reticent. ‘Less is more may be a great maxim for modern architecture but it doesn’t work for corporate minutes in the current litigious environment,’ he notes.
It’s especially important for there to be detailed minutes of all audit committee proceedings, given that the audit committee is responsible for questioning and interacting with a company’s outside auditor, Dubbs argues – and the best way to prove this interaction has occurred is for the minutes to reflect the fact. ‘If the minutes reflect a discussion as to how the audit differences between management and the outside auditor are resolved, that’s the best protection for the audit committee,’ Dubbs adds.
Yet some experts are concerned lengthier minutes might create a fresh crop of problems. The Society fears the WorldCom case could have a chilling effect on board meeting discussions and minute-taking. ‘I can easily imagine directors asking – possibly demanding – that what they say in meetings is recorded verbatim,’ David Smith, the Society’s president, says. ‘That could make life for the secretary very difficult.’
Steven Shapiro, executive vice president and corporate secretary at First Midwest Bancorp, is also concerned a mania for recording everything that happens at board meetings could discourage directors from speaking candidly. ‘If you get to the point where directors think everything they say is going to be recorded, you won’t get an open discussion,’ he maintains.
One problem, according to Shapiro, is that verbatim accounts can be misconstrued. Say nine out of ten directors raise a point while the tenth says nothing. ‘Does that mean he or she wasn’t paying attention?’ asks Shapiro. ‘Maybe, maybe not. But why open yourselves up to that? What matters is that when you took an action, the directors approved it.’
And yet others say corporate secretaries are trying to keep the minutes deliberately vague. ‘Some corporate secretaries are living in the Pleistocene era,’ charges Dubbs. ‘I don’t think they’re talking to litigators and I don’t think they’re reacting appropriately to the changes in the litigation environment.’ That said, he calls for a balanced account of all proceedings: ‘The minutes don’t have to record that some people think the chairman is an obnoxious jerk, but you do have to note there was discussion [of his actions], for example.’
Middle ground
Many experts are calling for a measured response when it comes to rethinking corporate minutes. ‘A literal transcript of who said what is difficult to do accurately, and I worry it would dampen frank discussion of the issues,’ says Smith. ‘On the other hand, if minutes are without detail, they create an impression of inattention to the issues. Minutes need to suggest the nature of the discussion and capture a sense of the back and forth. That way, the record shows proper attention was paid.’
Gary Lutin, an investment banker at Lutin & Company in New York who conducts shareholder forums on corporate control matters, offers a similar view. ‘I really don’t care whether minutes help lawyers squabble,’ he comments. ‘What I want is a record of what we’ve decided and why. I want minutes you can learn something from. I’m interested in them for business information and decision-making.’ Having served as controlling shareholder on several different boards, Lutin also says directors are free to augment the record with their own notes. ‘I always kept my copy of the briefing books and I’d keep all my notes with them,’ he adds.
Finally, focusing too intense a spotlight on the minutes may be missing the point. ‘The directors in our company have the opportunity to review the minutes,’ says Shapiro. ‘I assume they’re checking that they are an accurate summary of the meeting that took place and the actions and discussions that happened.’ Lamm agrees: ‘It’s critical to have your board review minutes before they’re signed and put in the minutes book for all eternity. I think most boards do this. It’s become best practice.’
Bare-bones minutes might have been fine in the past, but many are convinced today’s corporate climate calls for some real soul-searching about what should be included in the official record. ‘We’ve all become more sensitive,’ says Lamm. ‘I sometimes have my draft minutes reviewed by a litigator; corporate lawyers are not always able to view their own drafting objectively. Having someone else look and say, I think you should change this or that can be helpful.’
Knowing how a plaintiff’s lawyer regards minutes can also point the way to improving your minute-keeping practices. ‘Between Sarbanes-Oxley, WorldCom and Enron, it’s time to rethink the role of corporate minutes,’ concludes Dubbs. ‘Companies need to ask themselves to what extent they reflect a board acting on behalf of the shareholders, as well as using minutes to provide comfort for directors if they’re second-guessed.’
