From time to time, I am asked to speak directly to corporate boards of directors. I find these opportunities endlessly fascinating. Among other things, I learn so much from the directors’ questions. One frequently recurring question I get is:  what can directors do to avoid litigation or to be in a position better defend themselves if they are sued. The first thing I always talk about when asked these kinds of question is the importance of board minutes. Because this is one of my go-to talking points when I meet with boards, I was particularly pleased to see the recent post on the Harvard Law School Forum on Corporate Governance blog written by Leo E. Strine, Jr., the former Delaware Supreme Court Chief Justice and Chancellor, in which Strine highlights the importance of board minutes in corporate litigation. Strine’s comments are essential reading for anyone concerned with the liabilities of corporate directors. Strine’s April 4, 2024 article can be found here.

Strine opens his article by noting that in the last decade corporate minutes have become increasingly important in corporate and securities litigation, particularly as plaintiffs are increasingly using pre-lawsuit books and records requests to attempt to bolster their suits. The importance of corporate records, and board minutes in particular, has been manifested in several important ways:

1. Impact on the Books and Records Request Process: The quality of formal board documents such as board minutes and advisor presentations significantly affects how the books and records request process unfolds. If the board records document why the board acted as it did, “the courts have generally refused to allow books and record petitioners access to informal information like texts and emails.” However, where decisions are not documented to the minutes or other records, and appear to have been made through informal communications, “the courts have required production of wide-ranging discovery like texts and emails” that may enable the petitioner to consider filing a complaint for breach of fiduciary duty.

2. Impact on Dismissal Motions in Caremark Cases: On the one hand, when the book and records incorporated in a complaint show that directors attempted to address a compliance risk, and thus refute the inference of a lack of good-faith effort, Caremark complaints are dismissed. On the other hand, if the books and records contain no indication of efforts to address a compliance risk, the absence of evidence of effort contributes to an inference of the absence of good faith effort to fulfill Caremark duties and thus to a dismissal motion denials.

3. Impact on Corporate Litigation Generally: Where the corporate records were timely prepared, evidence careful deliberations and proper reasons for board action, the courts have given them credence, and they help corporate defendants win motions to dismiss and trial and defeat motions for preliminary injunctions. However, when minutes are prepared and approved in bulk after a transactional or investigative process has concluded, or even worse, after a complaint has been filed on the basis of a preliminary proxy, courts give them little weight as evidence and resolve doubts about them at the pleading stage in favor of the plaintiffs.

Because of the importance of a disciplined corporate minute process, and in order to take advantage of the benefits of documenting corporate conduct and to avoid the downsides of failing to do so, there are best practices companies can follow, as Strine outlines in his article:

  • 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. 

Strine also emphasizes the importance for corporate board to “realize the connection between quality documentation practices, integrity in decision-making, and the judicial perception of both corporate fiduciaries and corporate lawyers.”

While the main thrust of Strine’s article is that a disciplined process for the creation and approval of board minutes results in “lower, regulatory and reputational risk,” he notes a further benefit from having disciplined process for documenting the basis of corporate action; that is “it will also lead to better business decisions, more ethical behavior, and a stronger company.”

By crafting and approving minutes and other corporate records as part of an “iterative, active process of thinking in a business-like way about important issues,” the result is “a more lively and active deliberative process …in which it is more likely that all reasonable perspectives will be vetted, and the board’s eventual decision is well-grounded.”

In a perfect world, all companies would incorporate the lessons in Strine’s article into their new board member onboarding process. Well-advised boards will understand and heed his counsel and take his remarks into account when the plan and execute their board processes. I know that in the future I plan on keeping his article at the ready when I am once again preparing to meet with a corporate board.