board matters - midwestssw.org

1 board mattersBest Practices for board MinutesBy Sharon A. HaegerThe board meeting is not over until theminutes are final. The content of theminutes of board of directors meet-ings has become increasingly important giventhe recent scrutiny of corporate governanceby shareholders, regulators, and the are the record of board actions andcarry significant weight. A board should besensitive as to what is included in minutes andhow information is presented. What is theappropriate scope and content of corporateminutes? Unfortunately there is no simpleanswer to this question or a standardizedmethod for preparing the minutes of a boardof directors meeting. However, there aresix best practices that your board Prepare minutes in accor-dance with an appropriate andconsistent policy.

2 Minutes are thefinal and official record of a boardof directors meeting and should beaccurate and complete. Usually thecorporate secretary, who is often thebanks in-house or outside counsel,prepares the Draft minutes immediately followinga meeting, while details remain fresh inthe minds of the attendees. Draft minutesshould be promptly reviewed for correctionand comment first by the boards chairmanand then circulated for review by each of thedirectors who attended the Do not undercut the content of min-utes with individual notes, which may beambiguous or in conBict with the is recommended that notes relating to theminutes as well as any draft minutes shouldbe discarded once the minutes have beenfinalized.

3 This establishes the final record ofthe meeting as well as procedures for handlingdocuments for the Leave out opinions, Community Banker | March 2007board matters Icriticisms, and accolades. Minutes are afactual record of the banks business, and,therefore, opinions, judgments, criticisms andaccolades should be left out. For example,statements like "a well done report" or a"heated discussion" should not be part ofboard Do not write minutes in narrativeform such as a "he said, she said" ap-proach. Also, minutes should not attributeparticular words or comments to particulardirectors. A transcript of a board meeting israrely appropriate unless required by a courtfor litigation Approve the minutes at the next boardmeeting.

4 The final version of the minutesshould be considered and approved, withany changes, as the first agenda item at thenext board of directors meeting. Final minutesshould be retained in a manual or binder andin a safe place with other permanent recordsof the addition to these best practices, here's achecklist of the items that board of directorminutes should include:/ Name of the bank.^ Location, date and time of the meeting,including the time it Names of the directors and other indi-viduals present at the Notation of the existence of a Approval of the minutes from the Notation of the time when individualsentered or left the Brief summaries or descriptions of any pre-sentations made at the meeting and the names ofthe individuals making the Highlights of written reports consideredby the directors.

5 Which may be attached to theminutes as an Descriptions of any discussions and timespent on information or reports provided tothe directors in advance of the meeting onsubjects considered at the Delegations made by the board and thereason for the Summaries of each major issue or sub-ject matter before the board for deliberationincluding: A description of any issues raised, materi-als considered, and arguments, pro and con. Notation of the length of time the subjectmatter was deliberated by the directors. Highlights of the points made in delibera-tion and discussions. The rationale discussed by the directorsin reaching a decision. Information obtained from specialists,consultants, lawyers, and experts, which maybe attached to All motions made at the meeting and theboards vote.

6 The minutes should reflect a board actingas one in reaching decisions. Only director abstentions or recusalsshould be noted in the minutes for conflictof interest issues. Upon request, a director who disagrees withthe outcome of a vote may have his/her namenoted in the minutes as a dissenting Name and title of the person who tookthe meeting legal requirements, well-drafted minutes can serve other functions inaddition to an accurate record of can serve as a reminder of board deci-sions, assignments, and deadlines. They can bea summary for those directors who were notable to attend. Minutes also can create a historyof the bank based on the actions taken by thebank's board of directors over the years.

7 Asalways, directors and management should seekthe advice of counsel on corporate governanceissues relating specifically to their bank. |^Sharon A. Haeger is ACB's regulatorycounsel/or regulatory Disney CaseLast summer, the Delaware Supreme Court affirmed the DelawareCourt of Chancery's ruling in a suit brought by shareholdersagainst the board ofThe Walt Disney Company, In this suit,shareholders challenged the board of director's hiring andtermination of Disney President Michael Ovitz, as well as his largenon-fault termination compensation package, which entitled himto receive $38 million in cash and more than $10 million in stockoptions for 14 months of work. The Supreme Court agreed withthe Chancery Court's decision and found in favor of Disney'sboard, affirming the business judgment standard for directors'actions and clarifying the duties of good faith, care, and addition, the Supreme Court's discussion sets outexceptionally useful guidance on best practices and standards ofconduct by corporate boards generally, although the case morespecifically dealt with the decisions made by the compensationcommittee.

8 One of the issues tackled in this case was the issue ofthe content of board minutes. The Supreme Court commentedthat the compensation committee's informational and decision-making process "was not so tidy." The Chancery Court in reachingits decision reviewed the minutes of the board and the committeefor evidence of the amount of time directors spent discussingOvitz's employment and compensation package. The ChanceryCourt lamented that it would have been helpful to the court if theminutes had contained a "longer and more substantial" indicationof the board 's discussion relating to Disney decision underscores the need for thoughtfullyprepared minutes. board minutes should demonstrate that boardmembers actively considered important issues, asked questionsabout the issues, reviewed documents, reports or agreements, anddeliberated about the issues before reaching a decision.

9 All of thisactivity should be included in minutes. According to the SupremeCourt, although the Disney board failed to follow best practices, itdid not do so to the extent that it breached its duty of care. Fromthe decision, it is reasonable to conclude that if best practiceshad been followed and more detail of the directors' deliberationshad been included in the minutes, the Disney suit may have beendismissed early on in the proceedings. 2007 | Community Banker 13