Board Minutes - A Degree Of Precision?

Monday, October 4, 2010 - 00:00

It is the mark of an educated mind to rest satisfied with the degree of precision which the nature of the subject admits and not to seek exactness where only an approximation is possible.

- Aristotle

In this era of financial instability, directors of banks are under increasing pressure to lead their institutions to profitability and earnings growth, without undertaking undue risk. Shareholders no longer have the patience to stand by as bank directors feel their way through the new global economy, and directors are increasingly at risk of shareholder suits. In addition, bank regulators are examining bank board behavior with heightened scrutiny. Never has the accurate recording of minutes of board of directors' meetings and the practice of individual director note taking been more important than it is now. On the other hand, board minutes that are too detailed can be a waste of time at best - and dangerous at worst.

What should board minutes contain and how detailed should they be? This article will briefly examine some best practices for minute recording and individual note taking by bank boards of directors.

Who Should Take The Notes?

The first step to ensuring the preparation of quality minutes is selecting the right individual to prepare them. If the person taking the minutes doesn't understand what he or she is listening to, the minutes are unlikely to be of sufficient quality to protect the board. The best choice is a person who (i) has experience in note taking and minutes preparation, (ii) understands the subject matter of the board discussion, so that the important details of the discussion are accurately recorded, and (iii) can be trusted with the confidential nature of the discussion. Legal counsel to the board of directors is an obvious choice, and one that is consistent with the criteria mentioned above. Counsel is often asked to attend board meetings, and asking the already attending lawyer to maintain the minutes is a logical choice.

In the alternative, an individual board member (such as the secretary of the board) or an executive officer of the bank can be identified to take meeting minutes. In the case of the bank executive, that individual should be directed by the board to maintain the subject matter of the board discussions confidential. Occasionally, a board will authorize the audio recording of a board meeting, so as to permit a full and accurate set of minutes to be prepared. Such a recording will allow the minutes to be factually accurate and will assist in appropriate attribution of comments and opinions of individual directors. If the meeting is recorded, the transcription should be used solely to prepare the minutes, and the recording should then be destroyed once the minutes have been disseminated to and approved by the board of directors.

What Should The Minutes Include?

The contents of the minutes are of the utmost importance, and should include sufficient detail, without being a transcription of the dialogue. The minutes serve as the record of board discussion and decision making and will be the "eyes to the soul" of the bank for posterity.

The minutes should reflect:

• names of attendees (including reference to any excused or unexcused absences);

• date, time and place of meeting;

• whether due notice of the meeting was given or waived;

• who acted as chair and who as secretary of the meeting;

• a notation as to whether a quorum exists;

• a clear, concise summary of actions taken at meeting;

• the names of directors making and seconding motions;

• a chronological summary of all issues discussed, using concise statements, and providing appropriate attribution of opinions or comments to individual directors (subject, however, to determining an appropriate level of detail);

• a copy of all motions or resolutions adopted by the board;

• Notation of who made, and who seconded, each motion;

• A record of all votes by the board, indicating which decisions were reached unanimously;

• a summary of key action and follow-up items;

• an accurate record of those who are in the room at all times (if someone arrives late or leaves the meeting at any time, that should be noted);

• fact and time of adjournment.

The minutes should not :

• be a verbatim transcription of the meeting;

• reflect a split vote of the board, unless a tally of the votes for and against the particular action, with a notation as to which directors voted for and against, is included;

• omit discussion items simply because they were of a sensitive or confidential nature.

What Role Can Be Played By Executive Sessions?

Occasionally, issues of particular sensitivity, such as personnel issues, alleged misconduct, financial issues with the auditor or security issues, require discussion by the board of directors. Such discussions are generally private and confidential, and should be limited to the board of directors, and not other attendees at the board meeting, such as executive officers or consultants. Prior to discussing such a topic, the board may go into "executive session" and excuse all non-board members from the room for the duration of the discussion. Minutes of the meeting should indicate that the board met in executive session, and report on the topic of the discussion, although the specifics (such as the amount of a lawsuit settlement) may be confidential and appear only in a set of confidential-to-the-board minutes or other notes, such as notes taken by the board's counsel. While the board meeting minutes would be subject to production as evidence in litigation, notes taken by the board's counsel concerning privileged, confidential information would, under most circumstances, be shielded by the attorney-client privilege.

Can Individual Directors Take Notes?

Note-taking by individual directors, either in preparation for or during board meetings, can have a positive impact on board discussions and can allow directors to flag issues for follow-up or clarification. Such practice is not, however, without risk. Conduct by boards and individual directors is being challenged more commonly in the courts. Notes by individual directors can serve as valuable evidence that a director has fully and appropriately discharged his or her obligations as a director of the bank, but notes that are incorrect or imprecise can have a devastating impact on the liability risks of the bank or the directors if litigation ensues over the topic of the discussion on which the notes were taken.

A significant key in determining whether a director should take personal notes during a board meeting is whether the director's actions are carried out consistently. Imagine the challenge and scrutiny (from a shareholder, regulator or lawyer) a director would face if she regularly takes notes at board meetings, but at the one board meeting where a particularly important topic is discussed or decision is made, the director has no notes. Even if the absence of notes at that meeting can be rationally explained, consider the impression that might leave on a judge or jury.

If a director decides to take personal notes, he or she should recognize that those notes may not be private forever and might be discoverable in litigation. Therefore, the notes should be clear and concise. Often a director, in preparing for a meeting, will flag an issue that he feels is important with an exclamation point or some other distinguishing mark. The director should be diligent in ensuring that his notes then reflect that the issue was raised and discussed at the meeting (regardless of the fact that the discussion will likely also be reflected in the minutes of the meeting). Doing so will help to alleviate the ambiguity that could exist due to an unexplained explanation point or highlight.

Certain discussions of the board will involve confidential or attorney-client privileged matters, such as personnel or litigation matters. As noted above, these discussions will frequently occur during executive sessions. In order to preserve the confidential nature of these discussions, counsel to the board will likely advise against separate note taking by directors.

As a Partner at Stradley Ronon and vice chair of the firm's Business Practice Group, Chris Connell focuses his practice on all aspects of banking. He can be reached at (215) 564-8130.

Please email the author at cconnell@stradley.com with questions about this article.