The financial services Royal Commission is forging companies to re-consider how to do detailed board minutes.
The issue was squarely on the agenda of company secretaries in the country when the commission questioned .
While the Commission clarified that it was not good enough to discuss it.
The Corporations Act (cited by the commission) is less precise, requiring that board minutes record “proceedings and resolutions”.
Where does this leave company secretaries, who face the delicate task of striking the right balance?
Challenging the status quo
Not since the James Hardie case in 2012 have been placed under a harsh spotlight. However, the concerned issues of timeliness and accuracy, both of which are clear-cut. Completing the minutes within a month of the meeting and making sure they reflect the board are actually made.
Meanwhile, the commission’s line of inquiry has been completed. Specifically, the appropriateness – and even the legality – in a meeting with management.
This has been described in reports as a ‘bombshell’, a ‘sensational suggestion’, and an ‘explosive exchange’.
The real bombshell is not the adequacy of a major corporation’s board minutes, but the suggestion that the current, long-established practice is inadequate.
Care, diligence and the business judgment rule
In the past, it has been edited to a detailed level in the minutes that demonstrates directors acted with care and diligence. These shows that directors have complied with their statutory obligation and can enable them to rely on the business judgment under the Corporations Act.
In most cases, minutes are more detailed when they relate to a potential decision by the board, especially when its decision is not to approve a proposal. This is more about the broader focus on the process followed by the judgments, rather than more broad discussions.
Until now, minutes have taken place in the boardroom. Among the matters typically left out are:
- Who asked what – that includes the specific question, and which director asked it. Otherwise, questions are attributed to the board as a whole, reflecting its collective operation and authority.
- Asked and answered – Directors’ questions which are addressed during the meeting without giving rise to requests for further information or action.
- Specific responses – Rather than capturing the nuts and bolts of the answers provided. The matters concerned.
Both sides of the table
Increased detail in board minutes will affect directors and management alike.
In the meeting
Preserving confidentiality in the boardroom underpins openness and encourages robust debate. The perspectives expressed may shift and evolve as discussions progress. Some contributions may be individual observations or individual preferences that are not intended to lead to further action. Directors may play devil’s advocate as part of challenging management, questions to further the conversation that might not reflect their own views.
More fulsome records of discussions may inhibit this candor. It may even have the opposite effect of regulatory changes (or a change in interpretation of existing laws).
Directors may be wary of asking what could be perceived as ‘obvious questions’ through concern that it reflects a lacuna of knowledge, especially if they are new to the board or the matter is highly technical. The flip side of this is the new directors will be assisted in their induction by more expansive board minutes.
For company secretaries, more detailed minutes create two issues. They want to take more and more notes during the meeting. Can be considered in hindsight.
After the meeting
The royal commission what the organization has in question has recently expanded to about 30 pages – around double their previous size.
Longer minutes may be the tip of the iceberg in the growing volumes of information directors must consume as their roles expand.
Directors are likely to be sensitive to the exact wording of their inquiries. This will affect the review process for draft minutes, including more time and greater complexity. There may also be additional amendments when the minutes are considered at the next meeting.
The extended preparation and review time may be imposed by the Corporations Act. This would be an ironic outcome given the James Hardie case.
Who wants to skilfully navigate the balance between detail and discretion. It also raises a challenge for organizations without an experienced governance professional.
Brave new world
The commission’s position signals major potential changes to the practice of minute-taking. Organizations, lawyers, advisory bodies and regulators over the coming weeks, months and beyond.
Some of these changes may be quite unexpected.
Could we see directors become so conscious of the need to demonstrate their care and diligence? This could change the dynamics of boardroom discussions and create additional challenges for the chair, not to mention the company secretary.
Will boards or regulators consider these contributions as part of evaluating directors’ performance?
They may or may not be subject to subsequent scrutiny. This could be the minutes long-established standing as the single source of truth about the proceedings of a meeting. In addition, it has to take into account that the organization seeks to resolve the issue.
It is already clear that the royal commission will leave a lasting legacy in changing corporate governance culture and practices. How much this will affect board minutes, now, yet to be written.
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