Meeting Management

Board Minutes – the Legal Issues

The importance of board meeting minutes has grown immeasurably in importance in recent years. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has repeatedly called attention to the inadequate state of board meeting minutes.

In the wake of this unwonted attention, the Australian Institute for Company Directors, the Governance Institute of Australia, and the Institute for Chartered Secretaries and Administrators have joined with the Sydney-based barrister Dominique Hogan-Doran, Douglas Gration of the Victorian Bar, and former Company Secretary of Telstra in a statement about legality and best practice in taking board meeting minutes.

The Royal Commission highlighted the legal issues governing board meeting minutes, and so the joint statement brings great clarity to the question: What, as a matter of law, must go into the minutes of a board meeting?

Board Meeting Minutes Compliance

As the two lawyers point out:

“Section 251A(1) of the Corporations Act 2001  provides that a company must keep minute books in which it records within one month:

(a) proceedings and resolutions of meetings of the company’s members;

(b) proceedings and resolutions of directors’ meetings (including meetings of a committee of directors);

(c) resolutions passed by members without a meeting;

(d) resolutions passed by directors without a meeting; and

(e) if the company is a proprietary company with only one director — the making of declarations by the director.

Taken together, section 251A and a series of other provisions make clear that board minutes may be used in regulatory investigations or in Court, and can be crucial to any finding that a company, its directors and/or other officers, have breached their legal obligations.”

To ensure that minutes provide the information required by a court, two aspects of boardroom activity must be covered: “Minutes record the decisions, or resolutions, made by a board and the processes, or proceedings, by which those decisions have been made.”

This legal expression brings out the two critical aspects of minutes-taking: The minutes of pure resolution and the minutes of narration – the “what” and the “why” questions answered, to put it another way. Each aspect is essential, and must not be neglected, but the approach is quite different, as the joint statement explains.

First, the minutes of pure resolution record decisions taken. Boards of directors take decisions with majority votes, so it is neither necessary nor advisable to record which directors voted ‘for’ a decision. It is, however, important to note what the reasoning was behind the vote for the decision – that is, to have a complete view of what the majority is supporting, as the statement points out.

It is also very important to record who voted against a decision, and to record the reasons why. If later scrutiny seeks to determine if a board is fulfilling its fiduciary responsibilities, it may be important to show that a full-fledged debate was held, and that no viewpoints were suppressed.

For example, in the case of JOHN J STARR (REAL ESTATE) PTY LTD v ROBERT R ANDREW (A’ASIA) PTY LTD & ORS, Supreme Court of New South Wales, 08 August 1991, the judge, in making a ruling, noted the repeated evidence in the board meeting minutes that attempts made by board members to raise issues were “frustrated.” The minutes backed up this view by recording the proceedings.

In the “pure resolution” aspect of minutes-taking, reference to board papers can be very useful. It’s easy to explain decisions if the entire board has read a board paper leading up to the determination, particularly one that discusses all sides of an issue. In that case, it’s sufficient to refer to the board paper and then record the vote.

Getting the narrative right

But getting the other aspect of minutes-taking, the narrative aspect right, is also a considerable challenge.

In this case, noted in the joint statement, the minutes got it wrong: “Courts may consider the content of the minutes deficient, for example by failing to avert to why a decision was made. For example, in ING Funds Management v ANZ Nominees Ltd [2009]  NSWSC 243; (2009) FLR 444, Barrett J observed: The minutes of the board meeting do not show any basis or rationale for the recorded decision … There is

nothing to show what the directors took into account in making the recorded decision … Nor is there, on the evidence, any discernible basis on which [the recorded decision] could have been decided …”

No board of directors should allow this happen, as it can instigate any number of legal issues.

Instead, the minutes should include a careful narration of what was discussed, and how the discussion led to a decision.  This requires considerable discretion on the part of the company secretary taking the minutes, as it can be easy to leave out a crucially relevant part of the discussion, but also too easy to include too much so that the exposition isn’t clear.

Here is what the joint statement recommends:

“In our opinion, the appropriate level of detail to include in minutes is a question for judgment, one which should be determined by, among other things: The nature and importance of, and the risk attaching to, the decision and discussion concerned. Routine and procedural decisions will usually warrant significantly less detail than decisions and discussions that have a material effect on the business and direction of the company as a whole. There should also be regard for the regulatory environment that either the company generally or the particular decision is subject to and ensuring that the minutes and documents referred to in them can demonstrate compliance with relevant regulatory requirements.

Attention should also be paid to any perceived self-interest or conflict of interest on the part of management or the board in the decision concerned (for example, decisions about remuneration and executive bonuses). It is desirable that the rationale for and basis of such decisions be carefully and fully recorded.”

If all of this tends to show that taking the minutes is not easy, then that is the correct conclusion! But a rational approach, understanding the legal issues involved, will lead to a competent result.

Diligent Governance Cloud: Modern Governance Tools for Board Meeting Minutes

Board Meeting Minutes Software provides a board administrator with the right tools to meet the administrative challenges before, during and after board meetings to better connect the board of directors and all board committees to achieve good governance.

Diligent Minutes is built for the board administrator to streamline their minute taking workflow before, during, and after the meeting. It allows them to easily assign actions and notify the board of directors.

Meeting dates, lists of attendees and meeting topics are added to the minutes document automatically with the option to send prompts and notifications of assigned actions directly to directors.

Action items can be added with just a few clicks, and assigned and monitored during or after the meeting When minutes are completed, they can be seamlessly pulled and integrated into your next meeting book for discussion and it’s easy to organise a vote to get the board’s approval on the minutes.

 

 

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