Best practices for board of directors meetings
Clients often ask about the role and responsibilities of being a corporate director and whether or not they should accept an offer to join a board of directors (referred to in this blog as a "Board"). Although the decision to join a Board is ultimately a personal one and an experience that can be both personally and professionally rewarding, it is a decision that should be carefully made after completing adequate due diligence and obtaining a full and complete understanding of the needs of the business and the other people involved at the Board and management levels of a corporation. In completing this due diligence, it is important to gain a firm understanding of how the current Board operates, its strengths and weaknesses and the ways in which one’s involvement can help improve its functionality and effectiveness. No two Boards are the same and the challenges and complexities facing the Board of a closely-held small to medium enterprise will differ from those facing the Board of a large public company. That being said, there are a number of best-practices that can be adopted by every Board to improve governance, increase effectiveness and mitigate the risks inherent in acting as a corporate director.
This blog post focuses on certain practices that can help improve the quality and functionality of Board meetings.
Agenda and Materials
The agenda and materials set the structure for the Board meeting. Both items should be sent to the directors in advance of the Board meeting, so that each director is able to review the materials in detail and properly prepare for the matters contained in the agenda.
The agenda should be a short, and concise one-page document. It should be specific and may allocate time limits for each topic to be discussed at the Board meeting. The agenda should identify those items that are expected to be routine and require little to no debate (i.e. approval of the minutes from the previous meeting), and those items that will require greater deliberation (i.e. important resolutions or strategic business decisions).
Each substantive item of business contained in the agenda should be reflected in the materials circulated to the directors prior to the Board meeting. These materials will often contain updates on financial performance, operations, personnel, opportunities and short to medium term objectives of the corporation. Failing to provide adequate materials in advance of the Board meeting will typically result in ad hoc discussion and an inability to make informed decisions (or any decisions) on important issues.
Managing the Meeting
The chairperson of the Board (the "Chair") runs the Board meeting. The Chair should be well-prepared so the Board meeting closely follows the agenda. While the Chair is the gatekeeper, full and meaningful participation by all members of the Board ought to be encouraged, and each director should value and respect the input given by his or her peers. The Chair needs to ensure the Board meeting is efficiently run, and that time is not wasted on business that would be best left for a different time or different forum (i.e. management meetings).
A corporation’s bylaws set rules to be followed at Board meetings. These rules pertain to matters such as a quorum (the threshold of directors required at the meeting for business to be properly conducted), the manner of voting (show of hands versus ballot, for example), and the required director approval for specific business and decisions. Board members who believes a conflict may arise, based on the business being discussed, should disclose the conflict to the other directors and consider whether it is appropriate to excuse themselves from that portion of the meeting.
An underprepared Chair can lose the confidence of the other Board members very easily, and a Chair who fails to adhere to a corporation’s bylaws can render those resolutions or motions passed at the meeting to be invalid.
The importance of an accurate record of the Board meeting cannot be understated. The minutes serve as the official record of the Board meeting, which may be disclosed and analyzed for compliance and scrutiny by current, former and potential stakeholders.
The scope and comprehensiveness of the minutes frequently depends on the size of the entity. For smaller private companies, the minutes will often contain a highly detailed account of the full discussion of every point from the meeting. For larger public companies, the minutes are usually pared down and limited to high-level overviews of each agenda item.
Boards should consider adopting a policy requiring the destruction of all notes and other records that do not form part of the final Minutes. Doing so may help avoid multiple accounts of the business conducted at the Board meeting.
Board meetings are the arena where important corporate decisions are deliberated and decided by those elected persons whose role is to further the best interests of a corporation. The suggestions provided for in this blog should provide any corporate director, no matter the size of the Board he or she serves on, with high-level considerations to help improve the effectiveness and efficiency of its next Board meeting.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.