Finding the Balance in Board Meeting Minutes

When boards meet, the minutes recording the discussion carries a significant burden. It’s a delicate balance, as the minutes should include proof the directors have exercised their fiduciary duty and exclude fodder for lawsuits and enforcement actions.

What a financial institution’s board records in its minutes can prove particularly valuable to investigators and attorneys if the bank finds itself in the thralls of an investigation or the subject of an investor lawsuit. Sticking to best practices can not only provide a historical record of the company, but also offer a valuable cloak of protection via proof that directors provided fiduciary duty and care.

“There’s a tension between putting too much in the minutes and putting too little,” says James McAlpin Jr., a partner at Bryan Cave Leighton Paisner LLP and an independent director at Bank Director’s parent company, DirectorCorps. “Most err on the side of putting too much in the minutes.”

Bank investors and regulators place certain expectations on bank directors regarding their fiduciary duty. A lot of the parameters focus on holding management accountable and debating key decisions during board meetings.

For the board, the only tangible proof to the outside public that a discussion took place about a key initiative comes via the meeting minutes. It’s also where boards can show that significant debate took place on important issues facing the bank.

“Any gathering that is intended to be treated as a meeting of the directors should have minutes,” says Aaron Kaslow, general counsel and chief administrative officer at $13.8 billion Sandy Spring Bancorp, based in Olney, Maryland. “Committees should also be taking meeting minutes.”

Kaslow adds that an informal discussion between a few directors wouldn’t typically rise to the level of needing the official minutes recorded.

When boards need to take minutes is relatively straightforward, but boards can interpret the how and what of the meeting minutes differently. Regulators have not set hard-and-fast rules about minutes, leaving a lot to the whim of the board. It’s up to the bank to decide the process that works for the organization to protect it from litigation. Sixty-five percent of directors responding to Bank Director’s 2021 Governance Best Practices Survey said their minutes provided a thorough summary of board proceedings, including all discussions. Twenty-seven percent said their minutes contained just a brief summary of board decisions.

When incorporating too much into the transcript, a bank may prove that discussion was provided on key aspects of the business, like whether to go forward with a merger. But it’s not always prudent to keep too much detail in the minutes, McAlpin adds. Whatever the board includes in the minutes can eventually be pulled in discovery if a shareholder suit goes forward or if regulators begin investigating the bank. If, say, a board member debates strongly against a certain provision, but then votes in favor of it, questions about what changed the vote can arise. Did the director have good reason to switch sides? Or did the director succumb to pressure? Or did another reason lead to the switch? It may raise doubt on whether the director upheld his or her fiduciary duty.

“Show the general nature of the discussion, the fact that discussion occurred and the particular topic of the discussion,” says Kaslow. “I would avoid attributing particular questions or opinions to specific directors.” If the board does show such detail in the minutes, then they’re “exposing [the directors] in some way to become a focal point of a lawsuit,” Kaslow adds.

It’s also why most boards will want to avoid using a full transcript of the meeting. If the board can see minute-by-minute detail of who thought what, why and their reasons, then so can attorneys. These will become particularly valuable points of contention in a legal setting, which could result in the bank and its directors facing liability for any action the institution took. Bank Director’s 2021 survey found 8% of banks’ minutes provide a verbatim transcript of board proceedings.

Due to this trail of legal tidbits, it’s also why boards should avoid keeping any recordings of the meeting minutes for longer than it takes to create and approve the official record. Many boards may choose to record the meeting to create the minutes after. While this has practical reasons — it can be difficult to record everything by hand as it’s happening, particularly if the board has a fast-moving agenda — it also can become fodder for a lawsuit.

“Minutes should be the exclusive record of the meeting,” says Kaslow. But if recordings exist long after the meeting occurs, then the minutes are replaced by the recordings for investigators, and the tapes become the official record.

“Whenever minutes are prepared, destroy the recording,” says McAlpin. Often the secretary of the board will develop the minutes. This might occur under the board’s direction or under the guise of the general counsel. Once the minutes are prepared, allow the directors to review. If the board approves, then that’s when the recordings should be destroyed.

The same rule exists for directors who take notes. While a meeting may last a couple hours and directors may want to review certain things mentioned during the discussion, if the notebooks are kept long afterwards, then lawyers can also use those in court.

What should you include in the minutes? Instead of tracking verbatim everything that’s said, it’s important to show that a reasonable process and debate occurred before the board approved or denied certain motions. This requires tracking when issues arise during the meeting and noting that debate occurred without detailing which director said what or which side a director took in a discussion.

“It’s very helpful of the board minutes to show the process,” says McAlpin. “It’s not the decision the court is looking at, but the process that [the board] took in reaching a decision.”

Typically, once minutes are typed up, the board members will receive the draft version. They will have a chance to review the entire document, assessing whether it captures what occurred or what they expressed, if that detail is included. If there are any quotes in the meeting minutes, then directors should eye those carefully to ensure that the quote reflects their opinion and provides the right context of what they said.

Every member should review the minutes, which will be read at the start of the next meeting. The directors will vote on whether to approve the minutes at that point.

After the vote goes through, McAlpin adds, the minutes should survive as the only “historical record,” leaving the rest of the meeting behind closed doors.

Governance Survey Results: Directors Sound Off on Diversity, Performance

SURVEY.pngU.S. banks have made modest progress on improving the diversity of their boards of directors, but more work needs to be done, based on the results of Bank Director’s 2020 Governance Best Practices Survey.

Sponsored by Bryan Cave Leighton Paisner, the survey was conducted in February and March of this year and included the perspectives of 159 independent directors, chairmen and CEOs of U.S. banks under $50 billion in assets.

Thirty-nine percent of the survey participants say their boards have several diverse directors, based on gender or ethnic and racial backgrounds. Thirty percent have one of two diverse directors but hope to recruit more. Thirteen percent indicate they have one or two diverse directors and believe that is sufficient, while another 13% say they have no such directors and would like to recruit some. And 5% say they have no diverse directors and aren’t seeking to add those attributes.

“What I say to boards is to look at your communities,” says James McAlpin Jr., a partner at Bryan Cave and leader of the firm’s banking practice group. “Many communities in the United States have undergone fundamental demographic change over the last 15 years.” Included in this demographic evolution is an increase in the number of women and minority business owners. “Then look around your board table,” he continues. “I think it’s really important for the board to reflect the bank’s demographic customer base.”

There is a solid body of academic research that diverse boards make better decisions, resulting in stronger financial performance. But not all of the survey’s respondents are on board with that assessment. While 52% agree that diversity improves a board’s performance, 40% believe it does to an extent but the impact is overrated, and 8% do not believe that diversity improves performance.

The survey also finds that a significant number of participants report a lack of engagement by some members of their board, with 39% saying that some or few of their directors are actively engaged during board and committee meetings.

Not unsurprising perhaps, the survey found that a significant number — 42% — report having at least one or two underperforming directors.

McAlpin suggests that engagement and performance issues “need to be addressed through board evaluation and feedback to those directors.” Unfortunately, less than half of the survey participants say their boards perform some type of periodic performance review, and just 31% include individual director assessments in that process.

Other Survey Results Include

  • Fifty-eight percent of the respondents serve on board where the chair is an independent director. On boards where the CEO is also the chair, only 55% have a lead independent director.
  • The median length of board service for the participants is 12 years; 76% are over the age of 60.
  • Eighty-four percent identify as white and 78% as male. Just 1% are Black and 1% are Hispanic.

Click HERE to view the full survey results.

For a further analysis of the findings that examines process, independence, composition, oversight and refreshment, access “How Bank Boards Manage Their Business” HERE.