When It Comes To Corporate Minutes, Saying Less Is Often Better

John P. Beavers
Partner, Bricker & Eckler LLP
Updated August 2006
Originally posted October 2000

Saying less is often better when it comes to corporate minutes. Minutes have two purposes: to inform and to protect. The purpose of this article is to give some guidelines for accomplishing both.

Considerations

When preparing minutes, consider the following three questions:

• "Who is the intended audience for these minutes?" Minutes should meet the information needs of the audience without creating undue liability. With meetings of a board of directors or other governing body, the intended audience is the shareholders, owners or members. With a meeting of a committee of the board or other governing body, the intended audience is the board or governing body itself (or whoever may rely upon the committee or to whom the committee is responsible).

• "Who may rely on these minutes for purposes of protection of the business judgment rule?" The business judgment rule protects not only the body whose proceedings are reflected by the minutes, but also any other bodies or persons who may rely on decisions of that body. In many jurisdictions, protection of the business judgment rule requires a decision and requires a duty of care and a duty of loyalty in making that decision.

• "Who else may review these minutes?" For almost every organization, "who else" includes government investigators who may be furthering an investigation and trial attorneys who may be preparing a cross examination. For closely held organizations, "who else" may some day include investment bankers deciding whether the organization is a candidate for a public offering, venture capital companies considering whether to make an investment, or institution lenders considering whether to make a loan.

What Should Be Reflected

Compliance with certain procedural matters

For protective purposes, minutes should state, typically in an introductory paragraph, (i) the date, time and place of the meeting to reflect compliance with notice requirements and (ii) who was in attendance to reflect compliance with quorum requirements. Typically, board meetings require notice of time, date and place; reflecting the actual time, date and place in the minutes is evidence of compliance with the notice requirement.

Some meetings - for example, special meetings of a corporation’s shareholders - require notice of purpose as well as time, date and place. Reflecting that purpose in the minutes is evidence of compliance with the notice requirements, and the minutes can do so simply by identifying the matters considered, as discussed below.

For evidentiary purposes, it is usually helpful, either in the introductory paragraph or by signatures at the end of the minutes, to reflect who presided over the meeting and who was responsible for the minutes of the meeting. A person other than an officer, such as the organization’s chair or secretary, who has authority under the organization’s governing documents, may preside or take minutes at a meeting in which the officer is not present. If this is the case, the minutes should reflect so with a simple declaratory statement to the effect that "X served as acting chair to preside at the meeting" or "Y served as acting secretary to take minutes of the meeting."

Identification of general matters considered

For protective purposes, especially when a meeting is called for specified purposes or with an agenda, the minutes should identify in general terms the matters considered. For example, "The directors considered the various documents presented for consummating the merger of X into Y." However, for the reasons discussed below, it is generally not advisable for minutes to reflect detail regarding the considerations or the discussions involved.

Decisions made

For both informative and protective purposes, the decisions made are the most important content of the minutes. A record of the decisions made is not only the information needed by most audiences, but is also necessary in many jurisdictions to invoke protection of the business judgment rule. Decisions may be either:

• To take or authorize the taking of some action, or

• Not to take or authorize the taking of some action.

Minutes should reflect either type of decision. A decision to take or authorize some action typically takes the form of a "Resolved" clause, such as:

RESOLVED, that each of the following merger documents . . . is hereby approved and adopted in the form presented together with such changes as may be approved by the officer executing the same on behalf of this Corporation, which approval shall be conclusively evidenced by the execution and delivery of the same by such officer.

A decision not to take or authorize some action is more often than not less formal than a "Resolved" clause:

The directors considered and decided to decline approval and adoption of the merger documents presented.

Recording of votes

Generally minutes are not legally required to reflect who voted and how he or she voted on any particular decision. Except for abstentions for compliance with the duty of loyalty and minority votes requested to be reflected discussed below, a simple statement to the effect of either of the following should suffice: "the directors adopted the following resolution" or "the directors decided to decline . . . ."

Abstentions for compliance with the duty of loyalty

The laws of many jurisdictions require that any financial or personal interest of any member of a body in any matter being considered by that body be disclosed and that the interested member abstain from voting in any decision with respect to that matter. For protective purposes, the minutes should reflect an abstention when it is because of a financial or personal interest. However, the minutes should reflect only the abstention and not the underlying particular financial or personal interest. A simple statement to the effect of the following will suffice: "Mr. X abstained for reasons stated at the meeting."

Minority votes requested to be reflected

Courts of many jurisdictions hold that members voting on the non-prevailing side of an issue considered by a body may request his or her vote be reflected, and if so, minutes should reflect that requested minority vote. Many statutes require negative votes on the non-prevailing side of an issue be reflected in the minutes. For example, Delaware’s corporation law gives a director the right to "cause" his or her dissenting vote to be "entered" in the minutes.

However, courts have generally not required that the minutes reflect the member’s reasons for his or her vote even if requested. As with the abstention for compliance with the duty of loyalty, a simple statement to the effect of the following will suffice: "Mr. X requested that his negative vote be reflected in the minutes."

Factors considered in making decisions

Minutes should reflect factors considered in making decisions only if needed by the intended audience or if advisable for showing compliance with the duty of care. For example, minutes should reflect any factors that the intended audience wants to have considered. As perhaps best stated by trial attorney Quintin Lindsmith in his article "Loss Prevention in the Boardroom: Keeping Blood Off the Walls" in Acredula (January 2000):

When it comes to corporate minutes, less is more. Minutes should be sparse and should have virtually no detail of the nature of the discussion. An example of minutes recording the discussion of an item on the agenda should be as follows:

"The board next considered the design department’s recommendation of polka dots over stripes. Following a presentation of the issue by Mr. Stripes, there followed a general discussion and the board voted unanimously to accept the proposal."

In certain situations, legal counsel for the body may advise that minutes list certain considered factors in decisions where appropriate to reflect the exercise of due care. The laws of most jurisdictions allow a body to consider general categories of factors, such as interests of the organization’s employees, suppliers, creditors and customers; the community and society; and the economy of the jurisdiction and nation. Any statement of such considered factors should be no more detailed than necessary to identify those general factors.

Minutes should reflect a board’s reliance upon the advice, opinion or report of other advisors, including legal counsel, a committee or an officer. At times, directors are faced with decisions that require special knowledge or expertise, which the directors themselves do not possess. Because members of a governing board may not have the time or resources to investigate personally every matter that comes before the board, many governing statutes permit the board to rely reasonably upon information presented by officers, employees, board committees, and independent professional advisors in the board’s decision-making process. In such case, the minutes should reflect such reliance with a simple statement that the board "took such action in reliance upon the advice of . . . ."

Materials distributed or otherwise available

Because directors are entitled to rely under certain circumstances upon reports and other information furnished by officers or employees, or board committees, or accountants, lawyers or other professionals and also in order to show due diligence done by directors, it is helpful for the minutes to reflect:

• Which reports or other information are in written form (so that a director can find them in the future if required or necessary);

• Which such reports or information were distributed or available prior to the meeting (so that the minutes are consistent with the director's subsequent memory of his/her due diligence performed for the meeting); and

• That questions were asked with answers received so that there is evidence of directors determining the reliability of officers/employees making presentations and of experts presenting reports.

The two primary reasons by referencing such reports is helpful are: First, to refresh directors' memories if they ever have to testify in the future regarding what they did (the "memory issue"), and, second, to preclude a party in any litigation from blocking any such testimony based upon the parol evidence rule that no testimony by a director should be permitted on any matter not referenced in the minutes because the minutes are the official record, or best evidence, of the meeting (the "parol evidence issue").

Privileged discussions

At times, discussions at a meeting, especially with legal counsel regarding legal rights or obligations, are privileged. Those discussions should not be memorialized in minutes. The following simple sentence will suffice: "The board participated in a privileged discussion on the subject matter with counsel." The minutes should reflect counsel’s presence in any such session because, as stated by Mr. Lindsmith in his Acredula article, discussions between board members and counsel are not discoverable, and saying less will protect directors against charges of misconduct.

Minutes should be the only record

Under the laws of most jurisdictions, the minutes of a proceeding are the official record of that proceeding. In such cases, minutes should be the exclusive recording of the proceeding. Members of a body who take notes at a meeting should, as a routine practice, destroy those notes after satisfying themselves that the minutes accurately reflect the proceedings. Many organizations collect all written material, including notes, at the conclusion of the meeting; as a routine or customary practice, this has been accepted by courts of most jurisdictions.

The minutes of the corporation are considered the best evidence of what transpired at the meeting. Under the best evidence rule, other evidence, such as someone’s notes or memory, is generally not admissible to prove what happened at the meeting, unless it can be shown that the minutes have been lost, destroyed, or are otherwise unavailable. Personal notes or memory, however, can be used to impeach the competence or integrity of a witness. An experienced trial attorney can effectively call into question competence or integrity by asking a witness to explain differences between his or someone else’s notes and the minutes or the witness’s memory.

Carefully drafted corporate minutes can both inform and protect. Saying less is often the best approach to accomplish both. Drafters of minutes should keep in mind both the intended audience for the minutes as well as other possible readers, such as government investigators and trial attorneys, who are likely not as welcome to the information as the intended audience. The minutes should inform the intended audience and protect against giving a cause of action to the other. Minutes should also give enough detail to show compliance with notice provisions and entitle reliance under the business judgment rule. Additionally, minutes should reflect only the decisions made, including both those to take and not to take action. Doing so will keep the court room from invading the boardroom.