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My perspective on company minutes is from dealing mainly with small, closely held corporations, LLCs and other so-called “artificial persons.”
However, this video entitled “Guidance for Documenting Board & Committee Minutes” covers several important points for all company owners and operators to consider when holding corporate meetings and recording their minutes.
Small company owners and operators like us will learn more about the corporate mentality that is part and parcel our duty to operate our corporate formalities as they should be.
Host TK Kerstetter interviewed Megan Baier, a partner with Wilson Sensing Goodrich & Rosati, to outline best practices for recording board and committee minutes. They cover, among other things, how lengthy board discussions might be referenced in the minutes, and the substance of the discussion and its relationship to the company’s business operations, which are all factors that influence how detailed the minutes should be.
Their discussion is generally in the context of what I might call BigFirma (meaning large corporations). But, as Mr. Kerstetter states early in the video, “This is a topic that everybody needs guidance on.”
That includes us, so the content is relative to our consideration. I’ve said many times if they want the same benefits, small closely held companies must follow the same rules for good corporate governance that are required of the large firms (i.e. BigFirma).
Early on in the video, Kerstetter asks Ms. Baier about the level of detail that should be included in minutes of a meeting. The context is a corporation’s board of directors or committee meeting where the members are physically present and discussing a corporate action or proposal. As with many such questions, the answer seems to be, it depends. And that’s part of the reason this discussion is so interesting.
[Sidebar: Similar corporate-style practices may be applied to proceedings of other entities and business organizations. For example, an LLC may hold formal meetings of the managers or members. Certain trusts, perhaps a “business trust” or an irrevocable trust, and trusts generally in certain circumstances might conduct their formal trustee meetings similar to the corporate model. A non-profit company that does not have shareholders, but instead may have formal meetings of its trustees or directors, membership, and executive officers. Likewise for some unincorporated associations, hybrid entities, and, in limited circumstances, perhaps general or limited partnerships and joint ventures that act in formal meetings where the minutes are recorded and kept. The general idea is that where a paper entity holds formal meetings, the minutes of the proceedings should be recorded for future reference, and the protocols may be similar in many cases.]
Baier says that a lot of routine board discussions probably do not need to be recorded verbatim or even referenced in complete detail in the minutes. She says it depends on the length of the discussion, and the substance of the topic being hashed out. Operational and financing updates and other “ordinary course matters” can be mentioned in the minutes “relatively straightforward, relatively high-level, and done in an outline fashion” to look “routine.”
However, she suggests for “matters that tend to be more sensitive” like M&As (mergers and acquisitions):
…financing, specifically doing capital raising, financing, things like that. Those tend to be positions and spots where you can add detail to the minutes that can really help you after the fact.” •••• “Adding those types of details is important later on down the road specifically in an M&A context should the transaction ever be challenged.
This is as I have said in the past, recording certain important discussions and acts really are for the archive, to be referenced at a later date should there be any contest or challenge as to when or why or how the company acted. The minutes memorialize these actions and can be, once ratified, relied upon as the official record of the things they address. The written record is there for clarity, and to settle disputes, and to reference for protecting those directly involved in the action or transaction (think: directors) and the shareholders.
Baier’s points out:
As you think about it, you know, one of the examples we give is, it’s come up before in a court case, is, after the fact as you look back at the minutes and the board says ‘we spent five hours discussing and debating whether this is a really good idea for the company, and there’s two sentences in the minutes that reflect five hours of discussion, right? And so from a court and a scrutiny perspective as you look back on that I think it’s important to think about that as you’re creating those minutes. And saying, it doesn’t necessarily need to be board member X said this and board member Y said that, but certainly more context around the types of things on a general basis that you discussed, meaning, you know, is this a good strategic fit? Is this acquirer someone we’re interested in being bought by? Or will there be things that we think about going forward in terms of employee incentives? Things like that that I think you can add, you know, general comments around, general detail, that doesn’t get into, or that conveys the length and the detail which you spent discussing that in the actual meeting itself.
Kerstetter reiterated Baier’s “excellent” point that careful consideration in advance of what you will detail in the minutes, especially in a situation that could be litigated where a court will “look back” in the record, can be an ounce (or ton) of prevention, in his context stating “What are those issues that are particularly sensitive that you might be very happy to have some detail in your minutes.” (It’s a statement, not a question.)
Baier explains the rationale and gives what is, I think, a discrete clue on how to work such sensitive matters into the minutes without divulging private or “sensitive” or risky company matters.
At 4:22 in the video:
That’s right. And it’s certainly business dependent as well. So if you think about like you said, I mean for a company like Target or Equifax. If you think about, you know, what are the things that are most important to the business? There could be massive risks in the business. You know, having routine updates, you know, from a business perspective at meetings around privacy, you know, that’s a little bit of the tail wagging the dog in terms of putting it in the minutes. But, should you be having those conversations in the board meetings generally? And then the minutes just naturally reflect that? So, kinda thinking about it in that regard is helpful as well.
So, it sounds to me like Baier was talking about, perhaps, putting a reference in the minutes to a lengthy sensitive discussion, but not describing in the minutes the full nature or details of the sensitive matter itself. Instead, the reference itself might be included in the minutes with the forethought that, in the event of a future challenge that might touch on that sensitive matter, a court would “look back” at this discussion evidenced in the minutes, and see that the company was aware of and deliberate about their proceeding in the matter.
From there, Kerstetter asks Baier about another important question and concern: whether or not an individual board member’s dissenting voice or vote on a matter should be documented in the meeting minutes. Here’s Kerstetter:
So, another question I’m often asked is, can a director, an individual director that disagrees with the discussions or with the decision that’s been made on the board, sort of asks to have their disagreement in the minutes. Does that hurt the company in any way? Does it hurt the director from a liability any way? What would you suggest? And how do you answer that question of whether somebody, you know, can request to have their disagreement expressed?
Baier responds:
Sure. So there’s a statutory protection for directors that dissent on a vote for dividends. So, to the extent the company is considering making a dividend, there is, you know, in Delaware, a statutory right that says if you document your dissent in the minutes, you know, then you are not personally liable, right, for that decision. So, dividends I think are a little bit of a different animal there. And whether the company and the board determined to do that in a negligent way. But for more, broadly speaking in terms of dissent, when a board member decides, you know, ‘I’d like to dissent and have it documented in the minutes,’ it’s going to be more of a facts-and-circumstances test in terms of whether that would protect you (Dan: the dissenting board member) from any accordant liability.
At 6:10 in the video timeline, Baier gives an example of her facts-and-circumstances test analysis of a director’s possible motive for having their dissent included in the minutes. She points out that, when we look back on these minutes, in hindsight, and we think about the reason for documenting the director’s dissent, she would question whether or not including the dissent in the minutes is motivated by the director’s desire to cover himself; “or whether they actually firmly believed it and thought it was not in the best interest of the stockholder base.”
Great insight! Baier is describing, I think, her lawyer mindset as she does her facts-and-circumstances analysis. I think that is worth noticing.
She concludes that, in non-dividend matters, noting a board member’s dissent…
…certainly can, later on, when people are reading the minutes, indicate, you know, the sense that the board wasn’t all in alignment, of course, right? And can certainly show cracks maybe where you don’t want to see cracks. And so I think from our perspective unless you feel very strongly about the dissent, and you firmly believe it’s not in the best interest of the shareholders, it’s not really appropriate to put that in the minutes.
At 7:25, Kerstetter lobs that obvious question everyone wants to know more about:
You had to see a lot of court cases where the minutes play a major major role. So what are the most common mistakes that you see people making in the minutes that have come back to haunt them after the fact?
Baier is on it with, “Lite in the minutes. So, not enough detail is usually where we see it coming up. Especially when describing lengthy discussions.” Then she contrasts minutes lite with this:
…the flip of that is too much detail, of course, is also a problem. And so, as I started out the discussion here, it’s not a great answer, right? Too little. Too much. Too much can be problematic. If you go into too much detail, the court looks back and says ‘Well it says here you talked about X. It doesn’t say you talked about Y. But you’re telling me now that you talked about Y. Why isn’t that in the minutes?’ So it really is threading the needle around the appropriate amount of disclosure to indicate exactly what was discussed in the meeting without opening yourself up to liability in that regard.
Kerstetter gets the picture: “It sounds like more of an art than it is a science.