Minutes Are Worth the Minutes: Good Documentation Practices Improve Board Deliberations and Reduce Regulatory and Litigation Risk

In the last decade, the salience of corporate minuting and documentation processes has greatly increased.  More than ever, plaintiffs are using requests for books and records to attempt to state breach of fiduciary duty and securities law claims.  Regulators also demand these records when investigating potential compliance concerns.  In the 21st Annual Albert A. DeStefano Lecture on Corporate, Securities & Financial Law at Fordham University School of Law on February 27, 2024, Minutes Are Worth The Minutes: Good Documentation Practices Improve Board Deliberations and Reduce Regulatory and Litigation Risk, this subject was my focus. I have now published the underlying article of the same name, which can be accessed here.

This increased concentration on corporate records has manifested itself in important ways in litigation in the Delaware Court of Chancery and the Delaware Supreme Court, such as:

• When formal board documents such as minutes and advisor presentations exist that document why the board acted as it did on a matter at issue, the courts have generally refused to allow books and records petitioners access to informal information like texts and emails;
• When, however, decisions have not been documented by minutes and other formal records, but appear to have been made through informal communications, the courts have required production of wide-ranging discovery like texts and emails necessary to enable a petitioner to consider filing a complaint for breach of fiduciary duty or other proper purposes;
• When books and records incorporated in a complaint show that directors attempted to address a compliance risk, and thus refuted any reasonable inference of lack of a good-faith effort, Caremark complaints have been dismissed;
• When books and records were produced before a complaint was filed and contain no indication of efforts to address a compliance risk, that absence of effort has contributed to a pleading stage inference of the absence of a good-faith effort to fulfill Caremark duties and thus the denial of motions to dismiss;
• When corporate minutes and advisor presentations are prepared in a timely way, evidence careful deliberations and proper reasons for board action, and tell a story consistent with the company’s SEC filings, the courts have given them credence and they have helped corporate defendants win motions to dismiss and trials, and defeat motions for preliminary injunctions in important cases such as those under Unocal and Revlon; and
• When corporate minutes are prepared and approved in bulk after a transactional or investigational process has concluded, or even worse, after a complaint has been filed on the basis of a preliminary proxy, or tell a story inconsistent with the preliminary proxy, courts have given them little weight as evidence and resolve doubts about them at the pleading stage, as they should, in favor of the plaintiffs.

Using the cases as a basis to identify recurrent themes and best practices to take advantage of the benefits of documenting corporate conduct in a timely and effective manner, and avoid the considerable downsides of failing to do so, the article makes these key suggestions:

• Have a general protocol for minuting meetings and be thoughtful when deviating from that protocol;
• Transform the minuting approval process into an active, iterative part of a reasoned, deliberative process;
• Ideally, minutes for the prior meeting should be approved at the very next meeting;
• Ideally, key minutes should be approved at meetings, not by written consent;
• Make sure minutes and advisor presentations cover key evolving issues and tie up loose ends;
• Use approved minutes to craft important documents, such as preliminary proxies and committee reports, in the most careful, credible manner; and
• Realize the connection between quality documentation practices, integrity in corporate decision-making, and the judicial perception of both corporate fiduciaries and corporate lawyers.

Documenting the basis for corporate action in a timely, credible way will never be sexy. But, with a recognition that promptness, not procrastination, is both more efficient and effective, it can become less, not more, burdensome. By seeing crafting and approving minutes, resolutions, and other decisional information as integral to an iterative, active process of thinking in a business-like way about important issues, a more lively and active deliberative process emerges in which it is more likely that all reasonable perspectives will be vetted, and the board’s eventual decision is well-grounded. Using this approach will result not just in lower legal, regulatory, and reputational risk; it will also lead to better business decisions, more ethical behavior, and a stronger company that is well-positioned to create sustainable value for its investors and treat all its key stakeholders with respect.