Author: governancedrafting (page 4 of 4)

     For one month during the summer of 2008, what became known as the Basin Complex Fire threatened to engulf the wilderness-surrounded monastery, Tassajara Zen Mountain Center (“Tassajara”), a central California coast component of, and at that time the generator of almost half of the operating expenses of, the San Francisco Zen Center (the “Center”). 

     Colleen Morton Busch’s engrossing Fire Monks: Zen Mind Meets Wildfire at the Gates of Tassajara (2011) asks, “Suddenly, people who ordinarily spent a good deal of time sitting cross-legged in front of a wall faced a situation that required decisive action.  What did that look like?  And how could sitting still and doing nothing prepare you to act, and to act fast?”

     Of crucial concern were Tassajara’s isolation—it could be reached by only one road, which might well be cut off by the fire—and the readiness of fire authorities to prohibit anyone who left from returning until the emergency had ended.  There would thus be a temporal and physical “point of no return”—or, what Amazon’s Jeff Bezos has famously characterized as a “one-way door” decision.

     Busch’s detailed account of the community’s dynamics in confronting as “a field test for Zen practice” such a (figuratively and literally) elemental threat to its physical facilities—and to its spiritual, organizational, and financial stability— holds many lessons for directors and officers of companies coping with crises.

     Among them (without spoilers, as far as possible):

     First, assess realistically the capacities of potential members of the crisis team and of its leadership group, especially if only a limited number can participate.

     Summer guests were immediately evacuated; and law enforcement and firefighting authorities, who had originally declared that everyone should leave, ultimately told Tassajara’s leaders that at most eight longer-term residents could remain.  In an early sign of the community’s independent approach, fourteen members stayed on (several other supporters would arrive later), and agreed that six would “function as a decision-making team.” Nonetheless, by a relatively early point, “half of the senior staff had been evacuated.”

     Second, establish quickly each team member’s role, and relative authority, in the decision-making process.  Two residents left after becoming concerned that there was no clearly-defined “trigger point” for the evacuation of the entire group.  At a critical juncture, this very issue would divide: Tassajara’s director, David Zimmerman; one of the Center’s Abbots (“a position of both spiritual and organizational leadership”), who had arrived four days after the state had ordered all “nonessential” people to leave; the other Abbot, who telephoned Zimmerman a week later; and a resident who also captained a station of California’s firefighting agency.  

     One of the four later “insisted that he made the right decision. . . with the information he had at the time.”  A second recalled, “We respected [that person’s] decision. But we weren’t fully persuaded by it.”  A third would tell Busch, “I could have done something there to better communicate.”  And the fourth—who had opposed creating the “trigger point,” on the grounds that “We wanted to respond to events as they arose rather than draw a line in the sand.”— would conclude in a post-crisis message to the community, “The decisions we make may not be the ‘right’ ones, but they are simply the best decisions we can make in the moment before us.”       

     In such a fast-moving situation, who can make suggestions, recommendations, or requests to—or command, order, or overrule—whom?  As matters progressed, and over the on-scene Abbot’s objection, the Center’s president, who had not had fire training, attempted to join the group at Tassajara.  However, he and the treasurer were intercepted and turned away by a police officer who informed them that, “We’re not having a conversation about this.”  (A curious aspect of the book is the almost-complete absence of any reference to the Center’s board of directors or other governance structures.)

     Third, apply the community’s values, perspective, and training to the situation. As evacuations began, Jane Hirshfield, a former resident who had helped defend the monastery from the “Marble Cone Fire” of 1977 and who continued to teach poetry workshops there, organized efforts to reduce fire hazards around the buildings.  When asked by a resident whether the normal sesshin [intensive meditation session] schedule would be abandoned, she replied, “This is a work sesshin.  It’s not not [Zen] practice.”  Or, as Busch notes, Zen practice “teaches. . . not simply how to be quiet and still. . . but how to let that measure of equilibrium accompany you when you leave the [practice hall].”

     Fourth, determine and refine as best you can not just goals but their respective priorities; the parameters of “success”; and (since fire often reemerges after apparently having been extinguished) how to know when the crisis has ended. 

     Fifth, know what the law is, and how it—and the prospect of personal liability– might affect participants’ decision-making.  Just as some firefighters see their Ten Standard Orders (including “Be alert.  Keep calm.  Think clearly.  Act decisively.”)  as “’ideally possible but practically unattainable,’” some of the residents were aware that, despite its name, California’s “mandatory evacuation” order does not enable authorities to force residents to leave; and they had learned that one can in some circumstances legally ignite “backfires” on one’s own property, to protect it from more serious damage. 

     But the Tassajara group did not fully appreciate that a new awareness of potential liability had made incident commanders more cautious about putting their firefighters’ lives at risk, and about discussing decisions with outsiders.

     And, although residents who chose to stay were asked by firefighters to provide not only emergency contact information but also the names of their dentists (for the possible identification of bodily remains), the leaders of Tassajara and the Center apparently did not require, or even ask, them to sign waivers absolving the institutions from liability for their deaths, or for any injuries that they might sustain. 

     Sixth, consider carefully the commitments and commands of, and conflicts among, external authorities.  Several times, Tassajara leaders’ expectations of assistance were disappointed, and it was not always clear which of the official firefighting forces had jurisdiction and control. Tassajara director Zimmerman “never really knew how the different agencies managing the blaze were related or whom he could trust.”

     Seventh, maintain both internal and external lines of communication.  Firefighters as well as residents—who were “repeatedly [warned] by firefighters not to get too spread out or let themselves get isolated”—continuously monitored weather reports (and did their own firespotting from various vantage points) as the fire grew larger and nearer.  The core members of the Tassajara group stayed connected through walkie-talkies, into one of which the leader of the firefighters had programmed the frequencies that some of the firefighters would be using to speak with each other.  From afar, some members operated a blog providing frequent updates on Tassajara (which had “a radio phone and two satellite [phone] lines” and “a temporary Internet connection”), and kept in touch with reporters, even as the Center’s president tried to get help through its political connections.

     Eighth, review the organization’s experience in previous situations, and keep records of the current circumstances and decisions. At the first indication of danger, Zimmerman consulted Tassajara’s “fire log” from the Marble Cone Fire thirty-one years before; and he carefully typed up his own handwritten notes “to leave behind a thorough written record. . . like the ones he’d been reading.” (The firefighters maintained their own official Key Decision Log.)

     Ninth, prepare for recurring situations by stocking up on equipment and ensuring that members have appropriate training.  Tassajara had amassed a supply of high-quality fire protection gear (which visiting firefighters “fingered . . . , nodding approvingly, saying, ‘Oh, yeah.  You’ve got the good stuff.’”), and had constructed a special standpipe system to deliver strong flows of water for firefighting.  However, only one of the key group of residents had “any current wilderness first-aid training.”

    Tenth, conduct practice drills, which might include a “’ready-for-anything crew’ [to stand] by, [as] an extra set of hands, ears, and eyes.”

     Eleventh, maintain, to the degree possible, the organization’s ordinary routines.  One resident observed that initially, “the regular evening service. . . , often not fully attended, was packed.  ‘Everyone was in there,’ she recalled. ‘Suddenly we all needed to show up to the one thing that was still known amid all that was so uncertain.’”

     Finally, be prepared for criticism, both from outsiders (that members had not helped neighbors cope with the fire) and from insiders (over the core group’s ultimate decisions about complete evacuation).

     Busch’s engaging profiles of key participants (including a couple going through a “full-blown conflict”), and her chronicle of their often-intense interactions, are not without what some readers might call “woo-woo” moments. For instance, one of the Abbots told a reporter, as the deadly fire neared, “We’re not really fighting the fire.  We’re meeting the fire, letting the fire come to us, [to] make friends with it, tame it as it reaches our boundaries.” 

     He also professed “confidence in [spontaneously and intuitively perceptive] beginner’s mind [and in] the willingness to remain completely present and not turn away from the unknown.”   However, one of the firefighting authorities advised a resident, “The difference between a professional firefighter and you is[,] I know what to be afraid of”; and another firefighter had come increasingly to appreciate a senior colleague’s professional motto, “When in doubt, chicken out.”

    The same Abbot characterized Zen practice as “very straightforward and direct. . . You take care of what is in front of you.  You do what you can, and when you can’t, well, ok, then you can’t.” Busch reports that, consistent with their training, residents protecting the monastery “just did the next thing and the next thing, continuously.  They did what they could do and didn’t dwell on what they couldn’t.” 

     But that was after they had each made a commitment to this effort, and thereby to assume very serious personal risks—decisions that, for individuals and for the community, were not necessarily “straightforward and direct” at all. 

     In fact, though each member of the Tassajara community– and of the firefighting and law enforcement authorities involved– appears to have been acting entirely in good faith, people ended up disagreeing on critical issues. And more than one person at Tassajara would ultimately change his or her decision about evacuating.

   Whether or not they practice Zen meditation, corporate directors might regularly reflect on the relevance to their own responsibilities of poet Jane Hirshfield’s (almost-haiku) summary of Zen wisdom: “Everything changes.  Everything is connected. Pay attention.”

    They might also consider Busch’s observation that for the “Fire Monks” of Tassajara, “[a]s with Zen practice, the point wasn’t to create some static state of permanent protection.  The point was to be perfectly ready for whatever comes.”

    Or, in the words of a contemporary group not often publicly associated with meditative practices, “You got to roll with the punches, and get to what’s real.”

   [I have found of interest the collection of brief but thought-provoking essays—many of which refer to useful sources on, or related to, Zen teachings and practice—available on the blog of Professor Emeritus Ben Howard.]

     The transmission to, and transformation in, the United States of traditional Zen meditation and Zen community administration are the subjects of Michael Dowling’s Shoes Outside the Door: Desire, Devotion, and Excess at San Francisco Zen Center (2001), which reviews the recognition and reform of some troubling elements of an organization’s culture and governance.

     Dowling chronicles the crisis created in the late 1970s and early 1980s by the management and financial practices, and the sexual involvement with community members, of Richard Baker, who as Abbot and Chief Priest dominated both the spiritual operations and the secular administration of the San Francisco Zen Center (the “Center”). 

     As one longtime member told the author, “If you were to think of Zen Center as a corporation, and Richard as CEO, [his hyperconnected, high-level swirl of executive activities and networking] would make perfect sense.  It’s just that some of us were slow to think in those terms.  We thought we were outside of the world of corporate life.”

      Of course, as Dowling notes, the Center had been incorporated in California as a corporation sole, enabling Baker to exercise extraordinary authority.  For example, in 1979 he used Center funds to buy a $25,000 BMW—on the grounds that it made his extensive driving for Center purposes safer and more pleasurable, and that he was attempting “to prove that you could be fully a layperson and [also] a monk.” (Baker also told Dowling that “I like to drive in zazen posture,” and that “I thought, compared to my sort of peers [Tibetan Buddhist leader Trungpa Rimpoche, and est founder Werner Erhard], I’m being pretty modest.  But it was just sheer indulgence.”)

     The chair of the board at that time would recall, “The Board actually said, ‘We don’t want you to buy this.’  But he’d already bought it.  And what I can’t believe is that we said, ‘Oh, well, then there’s nothing we can do about it.’  Isn’t that amazing?”

     According to meeting minutes, the purchase was ultimately approved, “[a]fter a very long discussion”—by, Dowling observes, a “group of senior priests hand-picked by [Baker, which] had effectively displaced the legally empowered Board of Directors in administrative decision making,” even though “many of [its] members. . . were still voting members of the Board.”

      Despite its previous and protracted passivity, the community ultimately persuaded Baker to resign, and then revitalized its governance structures and processes.  To Dowling, “This was the real work of making Zen American.  It was a tireless, often tiresome effort that involved almost every member of the community. . . . . It was a ten-to-fifteen-year effort . . .”

     By 2012, the chair of the governance committee could observe, for a magazine’s profile of the Center’s fiftieth anniversary, “Our website describes our governance policies, in detail. There’s an effort to be not only transparent but also accountable.”

     Today, the Center’s site includes its bylaws (last amended in 2016), which share with those of some other Zen practice organizations a provision for an “Elders Council.”

     At the Center, the Elders Council “provides continuity of religious leadership.” It “meets periodically to reflect on the health of Zen Center practice”; and identifies, and proposes to the board, candidates for senior religious offices (Abbots and Abbesses).

     Members of the Elders Council include current and former (serving during the previous ten years) Abbots and Abbesses, as well as some individuals who have not only practiced in the Center’s Zen lineage for at least twenty years—including four practice periods at a specific facility of the Center—but have also served as “Head Student.”

     The Elders Council is distinct from two other groups: the Center’s “advisory Council,” administrators appointed by the Abbots and Abbesses to address “administrative and practice leadership” and “review Zen Center personnel to consider what is best for each person in terms of practice, training, and the functioning of Zen Center as a whole”; and the Abbesses/Abbot’s Group, in which current and former holders of those offices “discuss matters. . . including but not limited to priest ordination, liturgy, forms and overall religious policy as well as . . . offer peer support” to each other.

     Not all of the members of the Elders Council must be current or former Abbots or Abbesses.  Nor does it seem that they all are required to be otherwise currently affiliated with the Center; or even, possibly, to have been “Head Student” of a practice group at the Center (rather than one affiliated with another organization of the same Zen lineage). Moreover, the bylaws provide that the Elders Council can by unanimous vote waive any of the membership requirements.

     Both in this situation and more generally, what practical facets of governance might “outside advisors,” or members of an “advisory group”  or “advisory committee” (perhaps best not collectively described, at the risk of their being mistaken for actual directors, as a “board of advisors” or “advisory board”) wish to have clarified (especially in writing)?

     Some issues are similar to those relevant to so-called “advisory directors.”

     A “baker’s dozen” of others:

     First, can members of such a group expect to be involved only through meetings of the group, and in the preparation of the group’s recommendations or decisions, or might they anticipate being approached privately by individual directors (or by a committee of the board, or even by the board as a whole) to contribute their personal perspectives on particular issues? 

     Second, if advisors can be approached individually, can only some (instead of all) of them be asked for their thoughts on specific concerns?

     Third, can advisors expect that if they are not asked to contribute their views on a particular topic, they will still be informed that other members of the group were asked, and what the substance of their individual and/or collective responses was?

     Fourth, will advisors be expected—or allowed– individually to contact some or all members of the board to introduce, or expand on, their own concerns about particular issues?  Or is such information to be presented to the board only through the advisory group itself? Or, are both the group and its individual members expected only to respond to specific questions posed to them by the board?

     Fifth, if advisors can contact the board individually, are they expected to share this communication with the other members of the advisory group?

     Sixth, can an advisor individually (instead of through the group) request that the board furnish further information on a particular issue—and if so, will this request, and any material so provided, be shared with the other members of the group?

     Seventh, is the advisory group expected to conduct and record a vote on specific matters, or simply to convey “a sense of the group”? 

     Eighth, can members insist that their individual views on particular issues be conveyed, verbatim or in paraphrase, to the board?

     Ninth, to what degree will the board communicate with an individual advisor or the advisory group its reaction to information or proposals, beyond informing them of the board’s decision on, or other disposition of, an issue?

      Tenth, to what degree is each advisory group expected to interact (or not) with other advisory groups?

     Eleventh, can the advisory group select its own leader (if there is to be one), and decide when it will have regular and special meetings? 

      Twelfth, can the group, as committees of the board generally can, retain counsel or other professional advisors of its own choosing, at the corporation’s expense? 

      Finally, to what degree is are the procedures and logistics of an advisory group expected (as those of board committees generally are) to follow those of the board itself?  Can the group unilaterally adopt its own internal rules, or must it obtain board approval for them?  

     Some might find in “Shoes Outside the Door” echoes of a poem attributed to Zen master Soen Nakagawa (1907-1984):

      Looking for serenity/ You have come/ To the monastery.

      Looking for serenity/ I am leaving/ The monastery. 

     In fact, a poet who lived and practiced at the Center from 1974 to 1982 but “never gave [Baker] authority over my life” told Dowling, “What I love about the Zen tradition is that the idea of leaving is built in.  You have an intensive monastic experience, and you take it with you.  You really don’t have to feel like a failure when you leave.” 

     Referring to her, another member from that era reflected, “The people who were most successful at Zen Center had their craft or art and didn’t lose touch with it.”

       *With apologies and thanks to Robert M. Pirsig (1928-2017), whose Zen and the Art of Motorcycle Maintenance (1974), which I discovered at a library book sale two months before I went to college, inspired me to take, the following spring, Professor James Ward Smith’s introductory course on “Philosophy and the Modern Mind,” and ultimately to major in philosophy. 

      I would never have imagined then that many years later I would cite his book in a law review article, or that I would actually receive from the famously reclusive author a response to a copy forwarded through his publisher.   

      Robert Pirsig was one of the founders of, and served as a vice president and director of, the Minnesota Zen Meditation Center.

     On February 2, Amazon offered “over 10,000” different models of “executive chair,” many described in great detail.

     But nowhere did Amazon’s articles of incorporation, bylaws, and corporate governance guidelines, all available on the Investor Relations section of its site, describe the “executive chair” position that Jeff Bezos, its current CEO and board chair, had just announced that he would soon occupy.

     In an e-mail to employees, Bezos promised that he would “stay engaged in important Amazon initiatives but also have the time and energy I need to focus on. . . my other passions,” and reassured them (and investors and customers) that “this isn’t about retiring.”

     But it’s not about clarity, either; and Amazon is not alone in that regard. 

     Few major corporations (with Celanese a notable exception, in pages 3 and 16-17 of its Corporate Governance Guidelines) refer in their governance documents to an executive chair.  In fact, many of those documents detail the functions of a non-executive chair, that is, a director who chairs the board but is not a full-time employee of the company.

     Only in 2017 did the National Association of Corporate Directors publish “The Role of the Executive Chair FAQ,” summarizing the office as “a temporary position fulfilled by the former combined CEO/chair who has relinquished the CEO title while remaining board chair and onboarding an incoming CEO.” The NACD noted that “[c]reating this role is not standard practice.”  

    Before Jeff Bezos, today’s most successful executive, assumes his new role, Amazon should disclose its definition of the responsibilities of an executive chair.

     That might inspire other boards to develop and document many of the basic procedures and practices connected to their more traditional chairs.

     For instance, how, and how regularly, are chairs (s)elected by the board?  What is the succession planning process for board chairs?  How can they be removed, and for what (if any) specific reasons?  Are there age and/or term limits for the office?  Are chairs granted any special voting powers—like, for example, Vice President Kamala Harris’s ability to break tie votes in the U.S. Senate?

     Those answers should be almost as easy to find on corporations’ Web sites, for anyone interested, as actual chairs are on Amazon’s.

     Some corporations’ governance principles (sometimes called governance guidelines) instruct directors not to speak to the media about company business without first consulting the CEO or President.

     Some guidelines call on directors to clarify, when participating in public presentations, that (unless management has allowed, or instructed, otherwise) their remarks represent only their own personal views.

    Would management be more likely to support a director’s involvement in a sensitive meeting if the organizers had announced that participants would be subject to the “Chatham House Rule”?  Under the current (2002) version of that rule, participants in a meeting “are free to use the information received, but neither the identity, nor the affiliation of the speaker(s), nor that of any other participant, may be revealed” to others.

     Or, since– as acknowledged by the international policy institute that promulgated, promoted, and lent its name to it– the “rule” is not legally binding, should a company’s management instead condition a director’s participation in certain meetings on all parties’ having signed, in advance, formal nondisclosure agreements?

    The confidentiality expectations for a meeting under the Chatham House Rule fall well short of those for discussions or conversations characterized as “off the record,” whose participants generally expect not just anonymity but that their remarks will not be quoted at all.

    Neither the Chatham House Rule nor the “off the record” arrangement can apply in full to a board or committee meeting, because the minutes of those meetings should indicate at least the presence or absence of each individual director, and, at least on a general level, the topics discussed and decisions reached by the group.

     But should a director assume that (at least the draft version of) those minutes could quote, with or without attributing to her, any statements that she makes during such the meeting?  If she opposes the quotation of her remarks, and/or being quoted by name, must those references be removed from the minutes?

     Conversely, could she insist that the minutes, beyond recording her vote on a particular proposal, reflect– by verbatim quotation or otherwise– that she made a specific statement or raised a certain issue or question?

     Each board and its corporate secretary might wish to refine, and regularly review, the board’s policies on such matters; and perhaps to revisit them before deliberations anticipated to be particularly divisive and/or sensitive. 

     “Addressing” such concerns would help directors know just how close they are to the shadows and semi-secrecy of The Chatham House (10 St. James’s Square, London); and whether they will be speaking just for contribution, or also for possible attribution (and even retribution).

     Directors should remember that the attorney-client privilege and the confidentiality of “work product” prepared “in anticipation of litigation” do not automatically apply to protect from disclosure the minutes of board meetings or board committee meetings, especially if those documents are seen by the court as having been created in the ordinary course of the company’s business.

     See, e.g., Brown v. American Partners Federal Credit Union, 645 S.E.2d 117, 540-41 (N.C. App. 2007; U.S. v. South Chicago Bank, 1998 WL 774001 (N.D. Ill.), at *8, citing U.S. v. Mass. Inst. of Tech., 957 F.Supp. 301, 305 (D.Mass.1997). 

     Neither can the privilege be invoked simply because the board furnished the minutes “to legal counsel ‘for review.’”  In re ISN Software Corp. Appraisal Litigation, 2014 WL 1394362 (Del. Ch.), at *2 (characterizing this argument as “unpersuasive”).

     Nor will the minutes’ notation that “counsel present at the meeting ‘updated the [Executive] Committee on the status of” litigation” suffice, where “[t]here is no detail whatever of the content of the status report [and t]he minutes themselves contain no legal advice, opinion, plan or strategy.”  Nestle Co., Inc. v. A. Cherney & Sons, Inc., 1980 WL 30337 (D. Md.), at *5.    

     Similarly, “a simple statement in the Minutes that the Directors were briefed by an attorney or discussed a matter raised by an attorney, without more, is not protected by the attorney-client privilege.” Trollinger v. Tyson Foods, Inc., 2007 WL 951869 (E.D. Tenn.), at *2.

     Not even the minutes of “special fraud committees. . . . created for the purpose of investigating fraud” are protected as work product, if the court finds “no evidence that their meetings were held for litigation purposes.”  U.S. v. South Chicago Bank, supra, at *8.

     However, if the minutes do reflect confidential consultations with counsel about specific matters, the company may be permitted to redact those portions as privileged.  Powell v. Western Illinois Elec. Coop., 536 N.E. 2d 231, 235-36 (App Ct. Ill. 4^th Dist. 1989); Welch v. Board of Directors of Wildwood Golf Club, 146 F.R.D. 131, 139 (W.D.Pa.1993) Eastern Technologies, Inc. v. Chem–Solv, Inc., 128 F.R.D. 74 (E.D.Pa.1989). 

     Can it be plausibly asserted that all of the minutes of a special litigation committee—for instance, one created to consider a demand made by a shareholder that the board initiate a lawsuit against one or more current or former directors or officers—are privileged, and also protected as work product? 

     Would such arguments be enhanced if counsel for the board, or for the committee, had been present for all of each of the committee’s meetings? 

     Would there be further support for protection of the minutes if a director who also served as counsel to the company had attended the relevant board or committee meeting?  In that situation, would the extent of her participation, beyond her mere presence, make any difference? 

     Would it matter whether a director/attorney was an “inside” counsel (i.e., full-time, salaried officer of that corporation) with a position such the company’s General Counsel, or Vice President-Legal, rather than being an “outside” counsel at a private law firm?   

     Would it matter whether she had also served as, and created the minutes in the additional capacity of, Secretary of the Corporation, or of the committee?

     Would the answers be different if the committee had been created to assess and respond to a shareholder derivative lawsuit already initiated in a court by a shareholder—for instance, if the committee was charged with determining whether this existing litigation was in the overall best interests of the company, or whether (as often occurs) the company should move for its dismissal?

    Would the board be well-advised to spin off into a separate committee (and/or subcommittee), so as to protect minutes from disclosure, the responsibility for any detailed investigation and/or examination of issues likely to result in litigation?

     Or are all of these simply “academic” questions, because board and committee minutes have been often carefully drafted to reveal a minimum of details of all discussions?

     The minutes of board meetings and committee meetings are usually, by design, sparse summaries rather than verbatim transcriptions of directors’ deliberations. 

     For example, minutes from a 2013 meeting of the Sotheby’s board “state only that “[t]here was an extensive discussion among the directors about the presentations that were made” on critical issues.  Third Point LLC v. Ruprecht, 2014 WL 1922029 (Del. Ch.), at *5.

     Yet minutes memorialize actions taken by the board; indicate the presence (and abstentions or dissents) of individual directors; and can reveal some of the process by which the board reached specific decisions. 

     Minutes might also indicate, or at least suggest, the board’s failure to consider significant information or options, such as the terms or possible targets of a corporate acquisition, or the fairness of amendments to a loan.

     See In re Oracle Corporation Derivative Litigation, 2020 WL 3410745 (Del. Ch.), at *6 (“Notably, the Board minutes do not reflect that [the parties] discussed a price collar of $100 to $125”); In re Tesla Motors, Inc. Stockholder Litigation, 2018 WL 1560293 (Del. Ch.), at *7 (“The meeting minutes reflect that . . . the Board did not discuss potential acquisitions of any target other than SolarCity.”); Caspian Select Credit Master Fund, Ltd. v. Gohl, 2015 WL 5718592 (Del. Ch.), at *9 (“The Board minutes suggest that the amendments were approved without considering the fairness of amendments or available alternative financing.  The minutes reflect no deliberation or discussion concerning the amendments, and no independent fairness opinions were sought.”)  But see In re Baker Hughes Incorporated Merger Litigation, 2020 WL 6281427 (Del. Ch. 2020), at *11 (“The fact that the Board’s minutes do not reference the Audited Financials is a slender reed upon which to infer that the Board and its advisers did nothing to review and consider the[ir] practical implications. . . “).

     Minutes can also convey the board’s awareness and attention to emerging problems; or, perhaps, the opposite. 

     For instance, in declining to dismiss a shareholder derivative lawsuit that alleged that directors of ice cream manufacturer Blue Bell had breached their Caremark duty to monitor corporate developments and respond to alarming signals, the Delaware Supreme Court noted that although “[o]ver the course of 2014, Blue Bell received ten positive tests for [the potentially-fatal bacterium] listeria” in its products, “[m]inutes from the board’s 2014 meetings are bereft of reports on the listeria issue”; in fact, the complaint included board minutes indicating that the board discussed the issue only after “two years of evidence that listeria was a growing concern.” Marchand v. Barnhill, 212 A.3d 805, 812 and 813-14 (Del. 2019).   

     In August 2020, the Delaware Court of Chancery held that the minutes of AmerisourceBergen Corporation’s board and its audit committee did not establish that the board had initiated remedial actions in response to reports of compliance violations concerning its syringes filled with oncology pharmaceuticals.  In fact, the directors “have put forth nothing to show tangible action taken to remedy the underlying drug health and safety issues.”  Teamsters Local 443 Health Services & Insurance Plan v. Chou, 2020 WL 5028065, at **20-24, and at *25. 

     Directors should keep in mind that minutes are often requested by plaintiffs, required to be produced during the discovery processs, and cited by courts.  As the Court of Chancery has recognized, in the context of shareholder derivative litigation, the company’s interest in maintaining the confidentiality of these documents must be balanced “against the legitimate interests of the public in litigation filed in the courts, as well as stockholder interests in monitoring how directors of Delaware corporations perform their managerial duties.”  Stone v. Ritter, 2005 WL 2416365, at *2.  In that situation, the Court found that none of the complaint’s “references. . . to minutes of the board of directors and Audit Committee meetings threaten to chill internal deliberations of the board or any of its committees [by revealing] preliminary discussions, opinions or assessments of board members.”

     Yet, as discussed in Section 2.02(C )(2) of my book, many companies’ corporate governance principles fail to address practical issues in the creation, revision, and dissemination of meeting minutes:

     First, how specific should the minutes be about the reasons why particular decisions were made?  Is the answer different for decisions on certain types of issues, or generally for the rejection rather than the approval of a yes-no proposal?

     Second, can a director insist that the minutes reflect her reasons for supporting or opposing a proposal?  See Dunmire v. Farmers & Merchants Bancorp, 2016 WL 6651411 (Del. Ch.), at *5 (quoting the minutes of a board meeting that specified the reason given by a dissenting director for his dissenting vote from a special committee’s recommendation approving a merger).

    Third, should minutes reflect whether, and if so why, a director recused herself from participating in the discussion and/or vote concerning a particular decision? 

    Fourth, how soon after the meeting will directors be provided with the minutes, and how can they suggest revisions?  Are draft minutes generally circulated before, and then approved at, the next regularly-scheduled meeting of the board or committee?  Is the process different for draft minutes of special meetings of boards or committees? 

     Fifth, what deadline do directors have to supply their recommendations for amendments to minutes?  How are such suggestions (and any responses from other directors) communicated to the other directors, if at all, before the next meeting?      

     Sixth, by what process is the final version of the minutes approved?  By majority vote of the participating members of the board or committee? 

     Seventh, are directors required to affirmatively indicate in writing their approval of the minutes?  Several years ago, California’s Court of Appeal (Fourth District, Division 3) reviewed a dispute in which, although a CEO claimed to have circulated to the board minutes that indicated the directors’ approval of his new employment contract, two of the directors declared that “they never received the minutes for review and approval and that the minutes are inaccurate because neither of them voted to approve” the agreement.  T3 Motion, Inc. v. Tsumpes, 2017 WL 5372962, at *3.  As the court noted in affirming the trial court’s apparent conclusion that the minutes were inaccurate, “Minutes of a board of directors meeting are prima facie, but not conclusive, evidence of what they show, and parol evidence may be received to determine what actually took place at the meeting.”  Id. at *6.

     Eighth, can a director whose proposed amendments were not accepted attach a dissent to the minutes of the previous meeting, or have her dissent recorded in the minutes of the current meeting?

     Ninth, should the secretary, and individual directors, retain copies of directors’ proposed amendments, and of previous drafts of amended minutes?  In 1998, when the legitimacy of a company’s board and committee minutes was questioned, the Delaware Court of Chancery required the production of the draft minutes and of the notes from which they had been prepared.  Frank v. Engle, 1998 WL 155553, at **2-3.

    Tenth, should the board—or can a committee itself, without prior approval of the board—adopt different processes for any of the above, whether for a specific meeting (or group of meeting) or for all of its meetings?  How should such departures from previous practice be approved?

    Eleventh, are all directors, even those who are not members of a specific committee, entitled to the minutes of that committee’s latest—and previous– meetings?  Are directors who are not members of a committee entitled to receive, and even to suggest revisions to, draft versions of that committee’s minutes?

    Twelfth, are new members of a board or committee to be supplied with, as part of their “on-boarding” process or committee orientation, minutes of the board or committee for, say, the previous year?

     A final consideration: minutes can also be considered evidence of whether the board devoted an appropriate amount (both in relative and absolute terms) of attention to a particular issue. 

     For example, in a reviewing, as an alleged breach of the directors’ duty of care, The Walt Disney Company board’s approval of an employment agreement that had provided president Michael Ovitz, after a tenure of only fourteen months, with a severance package of $140 million, the Delaware Court of Chancery in 2003 observed that “Less than one and one-half pages of the fifteen pages of [the board’s meeting] minutes were devoted to discussions of [Michael] Ovitz’s hiring as Disney’s new president.”  In re Walt Disney Co. Derivative Litigation, 825 A.2d 275, at 287.

     A little more than two years later, the same court noted that “a precise amount of time for the length of [Disney’s] compensation committee meeting, and more specifically, the length of the discussion regarding [Ovitz’s employment agreement], is difficult to establish.” 907 A.2d 693, at 768.  However, the court was “persuaded by [two directors’] recollections that the [agreement] was discussed for a not insignificant length of time,” and made a point of mentioning the previous and “more than minimal informal discussions” among committee members about the agreement.  Id at 768-769.

     Thus, directors might well review not just whether their resolution of a critical issue occupies a proper proportion of the meeting’s summary, but also whether those corporate minutes specify the number of literal minutes spent on that particular discussion.

Collectively, the governance principles of major corporations recognize at least three types of what might be called “quasi-directors”: individuals who are not elected by shareholders, but instead are invited by the board itself to participate in—but who can neither vote at nor be counted towards establishing a quorum at—various meetings of the board and its committees.

An “advisory director” might be in line to be nominated for a seat on the board once one becomes available; her service in this capacity could then be considered an advanced form of both auditioning for and grounding in an actual directorship at the company. Alternatively, she might simply have specialized expertise, skills, and insights valued by the board.  (Each of these two situations might correspond to the status of a lawyer as “counsel” or as “of counsel,” depending on his law firm’s own definitions of the term(s).) 

An “emeritus director” is a (but not necessarily every) director who retired (perhaps after reaching age and/or term limits), resigned from, or was not re-elected to the board.

Qualifications for the role of “honorary director,” and its distinction (if any) from advisory director, are more vague.  However, the name suggests an attempt by the corporation to affiliate itself with a person of prominence, particularly one in the company’s actual and/or intended field(s) of operation. 

Although boards with advisory directors might be concerned that third parties could misperceive those individuals (or, separately, members of a company’s “advisory board”) as actual directors, honorary directors might anticipate the reverse confusion: that their own title could diminish any perception, expectation, or evaluation of their actual contributions to the board’s work.

Governance principles often don’t clarify critical issues concerning the establishment and definition of, designation of particular individuals for, and their functioning as, quasi-directors.

In fact, the same company might have different answers to the following questions with respect to its advisory, emeritus, and/or honorary directors—and perhaps even with regard to different individuals in the same category:

First, by what processes (majority votes?) does the board decide to create the role(s) of, and to invite particular people to become, quasi-directors?  Technically, are such individuals elected, or appointed, by the board—and does that make a practical difference?

Second, is it necessary that a quasi-director qualify as independent (as that term is defined by the company’s governance principles)?  (For instance, emeritus directors with a long and recently-concluded tenure on the board might not be considered independent.)

Third, what is a quasi-director’s term of service before possible re-election (or reappointment)?  Are there any term and/or age limits; and if so, how do those limits differ from those applicable to the company’s actual directors?

Fourth, although quasi-directors, like actual directors, can resign at any time, are they—unlike actual directors—generally subject to removal by the board itself?  If so, must the board furnish a legitimate reason for their removal?

Fifth, are quasi-directors entitled to attend all meetings of the board and its committees, or only those (or portions of those) to which they are invited?  If attendance is by invitation, who (the board or committee chair?  a majority of the board’s, or of a committee’s, members?) must support the invitation?

Sixth, could a quasi-director’s service be confined to her involvement only with one or more specified committees; subcommittees; or issues to be addressed by the board, a committee, or a subcommittee?

Seventh, how do the fiduciary duties of a quasi-director differ from those of an actual director?   Their duty of loyalty (including the obligation of confidentiality, and restrictions against competing with the company and helping others to do so), and their obligation to follow the company’s code of conduct/ethics, might well be the same—but is their duty of care the same?  Are quasi-directors subject to the codes of ethics and/or conduct that govern actual directors? (A related question, which cannot be resolved by a company’s governance principles: should quasi-directors expect that courts will extend to them, as to directors and officers, the business judgment rule’s presumption that they have fulfilled their duties of care and loyalty?) 

Eighth, are quasi- directors, like actual directors, eligible for indemnification, exculpation, and insurance?

Ninth, does a quasi-director bear the responsibility of an actual director under the company’s governance guidelines to notify the board of significant changes in her health, commitments (including quasi-director positions on other boards), and (for some companies) public reputation?

Tenth, are actual directors and quasi-directors required to obtain a board’s approval before accepting another company’s invitation to be a quasi-director?  How does such service count, if at all, towards the numerical limits imposed by some governance principles on the concurrent service of its actual (and, perhaps, quasi-) directors to other companies’ boards? 

Eleventh, are quasi-directors, like members of the board, generally encouraged to initiate (usually with notification to the CEO) discussions about relevant matters with company officers?  Are they, like members of the board, not discouraged from having (and perhaps even encouraged to have) private conversations with other directors about board business?  Are they generally expected, or at least permitted, to contact each other and/or actual directors?

Twelfth, what information will be made available to quasi-directors in connection with their roles, and who on the board or in company management makes this decision?  Are quasi-directors, like actual directors, encouraged to request that further material be provided to inform board (and committee) discussions?

Thirteenth, are quasi-directors, like actual directors, encouraged to suggest agenda items for board or committee meetings?

Fourteenth, although quasi-directors cannot vote at meetings, can they initiate motions?

Fifteenth, as a matter of practice, how will the company identify on its Web site, in filings, and/or and in communications with shareholders, the types, functions, and identities of its quasi-directors?

Although the governance principles of many major corporations generally require directors to maintain the confidentiality of board and committee discussions and information, relatively few specifically require them to return or destroy materials provided to them in connection with board and committee meetings.

Particularly in today’s world of virtual meetings, where the documents cannot be physically collected from directors as they leave the boardroom, corporations might consider instituting specific procedures to prevent the unauthorized retention and dissemination of “board books” and related items. 

For example, a protected portal operated by the corporation could allow directors to read but not download documents; or, the digital files obtained by directors could be technologically protected against duplication, and coded to “self-destruct” as soon as they have been reviewed. 

Directors might even be furnished with (and required to return, upon their departure from the board) specially secured laptops with remotely-erasable drives, to be used, always and only, to prepare for and participate in board and committee meetings. 

Of even more concern, however, might be the disposal of any personal notes created by directors during the course of such meetings. 

At least two corporations’ governance principles suggest politely that “Directors are discouraged from retaining personal notes made at, or in preparation for, Board meetings, once appropriate review of the minutes of those meetings has been made.” 

It might be more appropriate for governance principles to instead require:

           (1) that the corporate secretary, or other individual responsible for writing up the minutes of a particular meeting, confirm with the participants, as the last item of business before each meeting is adjourned, the decisions and other commitments made by the board at that meeting, and which, if any, directors dissented or abstained from any votes on them; and

           (2) that, as soon as the meeting ends, directors must immediately and completely destroy all personal notes, whether in hard copy or digital form, that they generated in preparation for, or during, the meeting. 

Otherwise, board members, especially if they believed that other directors were taking private notes, might decide to protect themselves by making their own records (contemporaneously or retrospectively).  More than one of these accounts—which might well conflict with each other—could later surface in media coverage, and possibly as evidence in litigation against the company and/or some of its executives. 

Such a “no note-keeping” policy might be most effective if applied by default to all board meetings and all meetings of (at least certain) committees, rather than being adopted “on the fly” just before—or, even more questionably, during—specific meetings or segments of individual meetings, especially one concerning a particularly controversial issue or situation. 

In fact, thirteen years ago the Delaware Court of Chancery found it “suspicious” that “No board members were permitted to leave the room with any documents or notes from the meetings discussing the investigation” made by a special committee of the board into allegations of back-dating stock options.  Ryan v. Gifford, 2008 WL 43699 (Del. Ch.), at *6 and at *2.

Maybe, as 2021 begins, it would be wise for directors to echo Billie Holiday’s famous declaration of almost eight decades ago: “From now on, I’m travelin’ light. . . . [just] me and my memories.”

     Increasingly, corporations’ governance principles call for directors to offer to submit (or actually to submit) their resignations if the directors become—or are likely to become—the subject of negative publicity that could damage their and the company’s reputation.

    Notably, these situations are not confined to a director’s being convicted or indicted, criminally or civilly fined, or having a judgment entered against her in a lawsuit, in connection with her activities on behalf of the corporation.

    Instead, some boards expect a resignation to be submitted if the director (or another board member) indicates—or if a board committee somehow otherwise determines– that the director has committed “an act which might tend to bring [her] into public disrepute, contempt, scandal, or ridicule, or an act which might tend to reflect unfavorably on the Company or its business or reputation.”

    For other boards, the trigger is the director’s simply having become “the subject of media attention that reflects unfavorably on his or her continued service on the Board.”

    Even more loosely, some boards want an offer of resignation if the director’s “change in personal circumstances,” “changed circumstances,” or simply “circumstances,” might possibly besmirch the director’s or company’s reputation.

    Current and potential members of such boards should be very troubled by these backdoor morality clauses.

    Corporations’ governance principles already, and almost universally, warn individual directors not to speak publicly on behalf of the company without obtaining approval from (and sometimes supervision by) management.  These provisions generally do not require resignations to be offered or submitted by directors who have not complied.

     However, the morality clauses seem intended to address possibly-controversial conduct and conversations that occur in a director’s private, or “off-the-clock” capacity– to the extent that a director can be said to have one. 

      Although my corporate governance book discusses in detail (in Chapter 3.07, with examples including Martha Stewart and Whole Foods Market’s John Mackey) whether directors have a duty not to embarrass their companies, the complete vagueness of these provisions suggests that directors desperate to preempt even the possibility of public criticism might be quick to throw their colleagues overboard.

     First, “public disrepute,” “contempt,” “scandal,” and “ridicule” are very difficult to define objectively, although they might well constitute a substantial part of the online and offline content generated every day.

    Second, it is entirely unclear which content producers (individual bloggers? random tweeters, and/or re-tweeters?) might qualify as “media” for these purposes. 

     Third, these provisions do not reflect that the allegations at issue might be partially or completely inaccurate, and/or based on information taken out of context. 

      Fourth, they fail to discuss either the board’s process of investigating the allegations or the manner in which—perhaps in coordination with the board—a director could be given (or could simply take) the opportunity to publicly clarify, defend, and/or apologize for her conduct.

     Fifth, “circumstances” justifying a potential resignation might taken to include allegations (however incorrect, or even implausible) of behavior by a director’s relative, friend, or romantic partner, whether or not the director had been aware of the alleged behavior—especially if the director refuses to denounce that person or his supposed conduct, or to sever their relationship.

     Sixth, the provisions do not take into account the nature, or number, of the objections and objectors.  For instance, is a director’s alleged conduct likely to alienate a significant proportion of the corporation’s current and potential customers, trading partners, and shareholders?  Or would it be more likely simply to spark criticism from a small and extreme, but very vocal, advocacy group?   

     Seventh, these morality provisions contain no list, inclusive or not, of factors to be considered by the board in determining whether to accept a director’s resignation.  (By contrast, many corporate governance principles specify factors to be considered by the board as it determines whether to accept the resignation of a director who failed to obtain the support of a majority of shares voted in an uncontested election.)

     Eighth, the complete subjectivity of this process will inevitably invite accusations that the board engaged in favoritism, cronyism, grudge-settling, and possibly even some forms of discrimination (“Why was his resignation not accepted, when hers was?”).

     Ninth, the same murkiness might even encourage third parties to target particular directors by monitoring, in person or virtually, aspects of their non-corporate conduct, in hopes of documenting an embarrassing moment that could be reported to the board.

     Tenth, these provisions might well chill boardroom discussions, if directors believe that, despite the general expectation of boardroom confidentiality, any non-mainstream views that they bring up, even for purposes of debate, might be publicly disclosed by colleagues who want to oust them. 

     Finally, these morality clauses might ultimately be cited by boards as grounds to discharge a director for controversial decisions taken by another board on which the director sits, whether or not that director voted in favor of those decisions (and whether or not the full context of the other board’s deliberations is available for consideration).

     If a director’s actual, private, and lawful conduct is deemed objectionable by the board after it has investigated the issue, and if the director’s own public response (or her failure to respond publicly) has not satisfied the board, the board remains free, as always, to publicly criticize or condemn her conduct; to publicly call on her to resign (although it generally can’t terminate her directorship); to remove her from various committee or other governance roles; and to decline to nominate her for reelection when her term expires.

     In the meantime, directors of corporations whose governance principles contain these morality clauses might well want to keep on speed-dial their own personal counsel.  

As the new year approaches, many of us are reviewing and updating our lists of goals.  Surely we can take comfort, during that exercise, in the privacy of our personal plans and priorities.

     But since 2004, corporations listed on the New York Stock Exchange have been required to publish on their Web sites their “corporate governance guidelines,” sometimes called corporate governance principles.  [New York Stock Exchange Listed Company Manual, Section 303A.09]

     Like New Year’s resolutions (but unlike articles of incorporation or bylaws), these documents are written in plain English rather than legal language, and are generally declared to be aspirational and nonbinding. 

     Both resolutions and guidelines can be quietly changed at any time of year, without giving notice to anyone.

     In fact, despite shareholders’ decades of demands for increased transparency in governance, few boards of directors have publicly identified any specific revisions to these documents. Dozens of major corporations haven’t even put a date on their posted principles, leaving readers to wonder whether, when, and what modifications might have been made. 

      A number of trends over the past five years seem uncontroversial.  For example, guidelines are now more likely to limit the number of boards on which directors can sit, and to require directors to offer their resignations after significant changes in their health.  Some corporations have clarified their policies on the role of a lead independent director, on boardroom confidentiality, and on preparations for management succession.

     More vaguely, recent governance principles often mention the interests of stakeholders such as employees, customers, and communities; emphasize the board’s roles in ensuring compliance, managing risk, and maintaining the “corporate culture”; and promise efforts to increase diversity among the directors.

     However, shareholders might be most concerned about any changes in: the age for directors’ “mandatory” retirement (still usually subject to the board’s discretion); term limits for directors; the criteria for board nominees, and for directors’ qualifying as independent; director compensation; the amount or value of company stock that directors and senior officers are required to own; and policies for the approval of political contributions, charitable donations, and transactions in which a director or senior officer might have a conflict of interest.

    As part of their own preparations for 2021, and at no corporate cost whatsoever, boards could resolve to adopt two simple practices:

     First, include at the beginning of each posted set of guidelines, and next to its Web link, not only its effective date, but also the date of the version that it supersedes.

     Second, add an adjacent link to a “redlined” or “track changes” document that highlights every difference between these two versions.

     Decades ago, Groucho Marx famously offered, “These are my principles.  If you don’t like them, I have others.”  When boards don’t like some of their own governance guidelines, they should at least show shareholders exactly what they’re installing instead.