On Governance: Goldilocks and the Three Sets of Minutes

On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the Governance & Sustainability Center research team, is meant to serve to spark discussion on some of the most important corporate governance issues.

(This post originally appeared on Securities Edge April 12, 2019.)

There probably aren’t too many subjects nerdier than corporate minutes. Lawyers (among others) tend to focus on exciting (dare I say sexy?) matters like M&A, activism, and bet-the-company litigation. Those and other topics are surely exciting, but failing to pay attention to minutes can cost big time.

Like it or not, minutes are among the few pieces of evidence – sometimes the only evidence – that boards and committees have properly executed their fiduciary duties. Did the board give a matter due consideration? Did the directors ask the right questions? Any questions? Did they consider the risks as well as the benefits of an action or of inaction? If these and other questions are not answered by reading the minutes, they may not be answerable at all.

Failing to have good minutes can have serious adverse consequences. Aside from the potential liability and reputational damage associated with a failure to fulfill fiduciary obligations, transactions can be voided, and so on. And in one recent case, the Delaware Supreme Court found that in the absence of minutes, plaintiffs making a “books and records” demand on a company would be able to see emails between directors, among other things. 

(You can find my prior posting on that case here.) If that doesn’t put butterflies in your stomach, nothing will.

Now that we’re all agreed that minutes are important, what’s next? I suspect it’s the age-old question “should minutes be bare-bones, or should they contain lots of details?” Frankly, I’m not a fan of either. I’ve worked with litigators who would like to have minutes that say little more than “There was a meeting. The Board approved ‘X.’ The meeting was adjourned.” But that approach to minutes creates the problem outlined above – without decent minutes, how can you demonstrate that the board did the right thing?

At the same time, minutes that resemble a transcript of the meeting are very risky. I once attended a program at which Delaware Supreme Court Chief Justice Leo Strine (when he was “merely” a Vice Chancellor) said something like “a lawyer who drafts minutes as if they were a transcript should be disbarred.” (For similar reasons, recording meetings is a horrible idea.)

I believe that the proper course is what I call “Goldilocks Minutes.” Not too long, not too short, but just right. Minutes can (and IMHO should) give an indication as to what was discussed. For example, if the board is considering an acquisition, it’s not only OK – it’s actually a good idea – to reflect that the board discussed the merits and risks of the transaction, along with some examples of the factors discussed. 

“The Board discussed the synergies expected to result from the transaction, including the assumptions on which the estimated synergies were based…”. 

Or “The Board discussed potential risks associated with the transaction, including A, B, and C.” I don’t think you need to go beyond that, and of course, you need to be careful about how you word “A, B, and C,” but you’ve got to admit that it conveys the sense that the board really thought about what was being proposed.

And a few such words tell a whole lot more than what is probably the most used (overused) phrase in the world of minutes: “A robust discussion followed.” (If I had a nickel for every time the word “robust” appeared in minutes, I’d have lots of nickels.)

Years ago, when I was an assistant secretary of a major company, we had to produce five years’ worth of minutes so that our underwriters’ law firm could conduct the customary due diligence review. For reasons I won’t bore you with, the senior partner at the law firm ended up having to do the review. He called me when he finished looking over the minutes and said, “I just finished reading your minutes. They tell me what happened without giving anything away.” I knew I’d done my job well.

I’m a big believer in observing corporate formalities, so you can expect more posts on this and related topics going forward.

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