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.