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Executive Session Minutes - Minute Or Not: Minute Or Substantial?

Carl E. Kaplan, Fulbright & Jaworski L.L.P.


Carl E. Kaplan is a partner at the New York office of Fulbright & Jaworski L.L.P. He has a corporate and securities-based practice, with emphasis in the affairs of public and private high technology companies, emerging growth companies and venture capital funds. The author acknowledges the contribution and assistance of Minji Kim who was a 2006 summer associate in the New York office of Fulbright & Jaworski, L.L.P.

Disney saga[1] has focused attention on documentation of corporate deliberations. Proper minute-taking is more important than ever.

Corporate minutes have always played a crucial role in discussions of corporate governance, even before the series of Disney decisions blazed through the Delaware state courts. Courts routinely treat minutes as evidence of what happened at a business meeting. Minutes of corporate director meetings are generally considered to be prima facie correct.[2] This is especially significant for directors being charged with breaching their duties. Unless their actions and deliberations are documented in an official manner, it may prove impossible to thwart claims before trial, leaving the bench or jury to determine the sufficiency of directors’ conduct. Recollections of events occurring years before may be inconsistent and the trier of fact will be left to determine credibility of directors’ testimony. We believe that minutes that carefully reflect the decision-making process make it easier for a director to show that fiduciary duties were properly carried out.

The opinion in the second Disney case (Disney II)[3] highlighted the issue of corporate minutes. In Disney II, the Delaware Chancery Court considered the defendant directors’ motion to dismiss. In doing so, the court examined the minutes of the board meeting at which Michael Ovitz’s possible employment was discussed. The court noted that the minutes were fifteen pages long, but only one and a half pages were devoted to Ovitz’s hiring. The facts of the case state:

A portion of that page and a half was spent discussing the $ 250,000 fee paid to Russell for obtaining Ovitz. According to the minutes, the Old Board did not ask any questions about the details of Ovitz's salary, stock options, or possible termination. The Old Board also did not consider the consequences of a termination, or the various payout scenarios that existed. Nevertheless, at that same meeting, the Old Board decided to appoint Ovitz president of Disney.[4]

The court reiterated these facts in its discussion and highlighted the shortcomings:

Less than one and one-half pages of the fifteen pages of Old Board minutes were devoted to discussions of Ovitz’s hiring as Disney’s new president. Actually, most of that time appears to have been spent discussing compensation for director Russell. No presentations were made to the Old Board regarding the terms of the draft agreement. No questions were raised, at least so far as the minutes reflect. At the end of the meeting, the Old Board authorized Ovitz’s hiring as Disney’s president.[5]

This lack of detail helped the directors very little in showing that their actions were taken carefully and in good faith. The court held that a trial was necessary to prove, among other things, what happened at that meeting and others. The final result, favorable to defendants, resulted from the court, in a non-jury trial, crediting virtually all of the defense testimony. The next set of defendants might not fare as well.

The line of Disney cases makes it clear that appropriate documentation is vital for directors participating in board meetings. However, good minute-taking practices are equally important for executive sessions. The number of executive sessions being held has been growing, partly due to new listing standards by the New York Stock Exchange and NASDAQ.[6] New amendments to the Investment Company Act require companies to meet in executive session on a regular basis as well.[7] When the Business Roundtable conducted a survey of 105 companies last year, 69% said that executive sessions were being held at every board meeting. The number is projected to rise to 75% in 2006.

Who takes the minutes? Company General Counsel should not be responsible for this task. (General Counsel will probably not be at the session anyway) The minute taker should be outside company counsel or perhaps independent director counsel with no relationship to the company other than in its service as board counsel.

What about privilege? Again, documentation which reflects accurately the content of session should outweigh these concerns; in litigation or with regulatory agencies it is problemic whether the minutes are discoverable or usable in evidence.

in Disney II, there is no guarantee that the directors would have been successful on their motion to dismiss. What is certain is that more detailed minutes would have helped the directors – and they needed all the help they could get.


[1] See Brehm v. Eisner, 746 A.2d 244 (Del. 2000); In re Walt Disney Co. Derivative Litig., 825 A.2d 275 (Del. Ch. 2003); In re Walt Disney Co. Derivative Litig., 2005 Del. Ch. LEXIS 113 (2005). For further discussion of director responsibility and the Disney cases, See Carl E. Kaplan and Beth Mazzagetti, Duty of Care: Delaware Directors Be Careful, 19th Edition of vcexperts.com, (Feb. 2004); Carl E. Kaplan and Beth Mazzagetti, Liability After Disney: Delaware Directors Still Be Careful!, Encyclopedia of Private Equity & Venture Capital § 2.3.1.u (2006), http://vcexperts.com.

[2] Young v. James, 103 A.2d 299, 303 (Del. Ch. 1954).

[3] See In re Walt Disney Co. (2003), supra.

[4] Id. at 281.

[5] Id. at 287.

[6] See Self-Regulatory Organizations; New York Stock Exchange, Inc. and National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Changes (SR-NYSE-2002-33 and SR-NASD-2002-141) and Amendments No. 1 thereto; Order Approving Proposed Rule Changes (SR-NASD-2002-77, SR-NASD-2002-80, SR-NASD-2002-138 and SR-NASD-2002-139) and Amendments No. 1 to SR-NASD-2002-80 and SR-NASD-2002-139; and Notice of Filing and Order Granting Accelerated Approval of Amendment Nos. 2 and 3 to SR-NYSE-2002-33, Amendment Nos. 2, 3, 4 and 5 to SR-NASD-2002-141, Amendment Nos. 2 and 3 to SR-NASD-2002-80, Amendment Nos. 1, 2, and 3 to SR-NASD-2002-138, and Amendment No. 2 to SR-NASD-2002-139, Relating to Corporate Governance (November 4, 2003).

[7] See Investment Company Governance, Investment Company Act Release No. IC-26520 (September 7, 2004).