Over the years we have used this blog to highlight Delaware case law where the topic of corporate minutes has played a material role in the way the court has reviewed the actions of a board of directors. Those posts can be found here under the tag “minutes.”
Spending some time reading Chief Justice Strine’s article is well-“Worth the Minutes” invested, as he has done a great job of surveying the case law and highlighting the methods and means for generating corporate minutes that will most likely withstand scrutiny and give confidence to the court in the governance actions taken at such meetings.
The minutes of corporate board meetings are, candidly, too often treated as an afterthought. This can lead to the official records being deemed not much of a record at all when later reviewed. Indeed, a reviewing court might even draw certain inferences based on what it finds, or does not find, in the minutes. I have discussed in this blog several times (here and here) certain nuances that go into the craft that is drafting a set of board minutes that properly memorialize the directors’ fealty to their roles as fiduciaries.
A recent opinion from the Court of Chancery demonstrates why, even at the time of setting the agenda for a board meeting, the corporate secretary should be cognizant of how that meeting will be memorialized in the corporate books and records. In an April 27, 2020, Memorandum Opinion in Hughes v. Hu, et al., C.A. No. 2019-0112-JTL, the Vice Chancellor drew certain plaintiff-friendly, pleadings-stage inferences in ruling on a motion to dismiss based on what was–and more importantly, what was not–included in the corporate board minutes regarding the topics in dispute (this Blog addressed the substantive matters in dispute here).
Critical to the court’s analysis was that prior to filing his complaint, the stockholder plaintiff had exercised his rights under Section 220 of the Delaware General Corporation Law to examine the books and records of the company. While the company had produced for inspection some books and records, the company stipulated that “any remaining materials requested by Plaintiff either do not exist or had been withheld on privilege grounds.” Thus, the court held that “if the Company failed to produce a document that it would reasonably be expected to possess if a particular event had occurred, then the plaintiff is entitled to a reasonable inference that the event did not occur.”
The court used that holding as the basis for drawing a number of inferences in the plaintiff’s favor based on what was not included in or with the corporate minutes. For instance, in multiple instances where the corporate minutes referred to a document or presentation that the directors purportedly reviewed, but where no copy of such document was produced for inspection with the minutes in the Section 220 proceedings, the court inferred that such materials did not exist, and therefore were not reviewed by the directors in carrying out their duties.
Moreover, the court also drew substantive inferences in plaintiff’s favor of the anticipated contents of documents referenced in the minutes but not appended to or presented with the such minutes. For instance, a set of minutes stated that the Audit Committee approved a “Policy of Related-Party Transactions Relating to JV Shareholder,” but no such policy had been presented with the corporate books and records for inspection by the stockholder. Thus, the court held: “It is reasonable to infer at the pleading stage that the policy did not place meaningful restrictions on management.”
Finally, it is worth noting that the court also highlighted in multiple places throughout the opinion the overall landscape presented by the corporate books and records. Specifically, the court noted relatively long gaps between meetings of the audit committee, the types of tasks the directors were purportedly undertaking at such meetings, and the actual length of the meetings themselves. For example, the court held it was “reasonable to infer that with the Audit Committee having not met for almost a year, there was no possible way that the Audit Committee could have fulfilled all of the responsibilities it was given under the Audit Committee Charter during a fifty-minute meeting.”
This opinion sheds light on the potential issues that might arise where corporate secretaries (or their counsel) have allowed the task of recording minutes of board meetings to become a mere footnote in the process of keeping accurate and meaningful corporate books and records. Based on this opinion, corporate record-keepers might:
In setting the agenda, give thought to how the meeting is going to flow with an eye to what the written minutes will ultimately record for history. That is, consider the order in which topics are discussed, the relative nature and materiality of each discussion topic, and the time reasonably necessary for the directors to effectively educate themselves about that matter, discuss it, and take action. The minutes should then reflect and record this flow of information, debate, consideration, and action by the directors.
Consider what documents or presentations will be provided to the directors for review and discussion and whether such materials should be provided to the directors in advance of the meeting.
Give thought to what materials–if any–will be appended to minutes in the official books and records of the company.
Drafting minutes that properly record the material events in the life of a board of directors is an art more than a science, but like the classical orders of ancient art and architecture, the gloss from judicial decisions of the courts can define characteristics of minutes that bring that art to life in ways that unmistakably portrays director behavior fully complying with fiduciary norms.
A few years ago we highlighted on this blog an opinion where the Court of Chancery’s analysis turned, in part, on its impression of the quality of the corporate minutes at issue. As we also noted in that post, the drafting of corporate minutes is an art rather than a science.
While counsel to Delaware corporations may debate the level of detail that should be included in minutes of meetings of the board of directors or committees of the board, the Court of Chancery has recently noted that for the minutes to be deemed an accurate portrayal of the conduct of such meetings, there must be evidence that they were created, reviewed and approved roughly contemporaneously with the meeting. In FrontFour Capital Group LLC, et al. v. Taube, et al., C.A. No. 2019-0100-KSJM, at p. 25, n. 98 (March 11, 2019), the Vice Chancellor did not view the minutes of the meetings of a Special Committee reviewing a transaction “as contemporaneous evidence or give them presumptive weight” where there was evidence that the minutes were not finalized until months after the meetings occurred and after litigation was filed.
As this opinion makes clear, when judicial officers are asked to review minutes as a contemporaneous memorialization of the actions taken at meetings of boards of directors, they will look to see whether the minutes were, indeed, created contemporaneously with the actions–when memories are fresh and likely unclouded by later events. Therefore, it remains a worthwhile practice for boards (or their committees) to ensure that their minutes are drafted, reviewed and approved by the next meeting of the body.
Drafting minutes of meetings—particularly for meetings of boards of directors or special committees of boards—is an art rather than a science, and while there are certainly many ways to accurately record the proceedings, understanding the ways minutes might be used later is very important.
In the world of Delaware corporate law, minutes of board meetings often play a pivotal role in shareholder litigation challenging the acts of the directors. Indeed, in a recent high-profile decision in which the Court of Chancery refused to enjoin the annual meeting for Sotheby’s in the face of a vigorous proxy fight, the Vice Chancellor’s opinion remarks upon the contents of board minutes on several occasions, and in a manner that provides some practical tips for consideration when drafting minutes. See, Third Point LLC v. Ruprecht, et al., C.A. Nos. 9469-VCP; 9497-VCP, Mem. Op. (Del. Ch. May 2, 2014).
