How much detail do you need to ensure accurate board minutes? Following the banking Royal Commission directors debate should meetings be transcribed, or even recorded?
One of the issues raised during the banking Royal Commission was why the minutes of specific CBA and NAB board meetings did not contain records of discussion or questions raised by directors.
“Do you understand that a failure to comply with requirements in relation to the keeping of minutes under section 251A of the Corporations Act 2001 is an offence?” counsel assisting Rowena Orr QC asked CBA chair Catherine Livingstone AO FAICD. “The explanation is the minutes don’t usually record verbatim what is discussed at the board meeting,” replied Livingstone.
That exchange got some boards and company secretaries questioning whether things should change.
“Companies are looking closely at the level of detail in their board minutes from two angles,” says Katie King AAICD, a director of Collaborative Media & Publishing and a former company secretary. “First, they are examining how they reflect the care and diligence directors exercised in their discussions and decisions. Second, how they may be viewed in hindsight and from an external perspective.
“The Royal Commission has raised the possibility that if something isn’t included in the minutes, then whether it occurred at all can be questioned. That turns the approach to minutes, established by the James Hardie case, on its head. Minutes aren’t just evidence of what did happen, but can also be evidence of what didn’t happen.”
Mark Standen, a partner at MinterEllison, has initiated “a slight sharpening of current practices” when talking to clients. “I am saying to people now that if it’s not written down, it didn’t happen and therefore there’s a need to consider the extent to which things should be recorded, not just at board level, but at all leadership levels,” he says. “I think it’s the next step in the natural progression from the James Hardie case to ensure minutes record not just everything that’s been decided, but some of the factors in reaching the decision.”
Will minutes get longer or be replaced by recordings?
“We don’t want to go that far,” says Standen. “But there will be a renewed focus on minutes and what is best practice.
We have to be open and transparent with regulators by law or general principle, and boards will still be concerned about the discoverability of minutes in proceedings. “There’s a real tension in companies at present. They are trying to adjust to new ways of doing things, but, of course, they still have exposure to potential legal and class actions. Boards need to deal with a balancing act of providing too much information and too little — but no-one quite knows where that is as yet.”
Sarah Turner GAICD, general counsel and company secretary at digital media business REA Group, notes: “Every company secretary has to manage a fine line between too much information and not enough. Minutes are not intended to be a transcript of what happened. It remains unhelpful to take a very fulsome view of minutes, but obviously there has to be enough in there to record what was discussed and the issues that arose. My minutes certainly won’t be getting any shorter, but there are days when you wonder whether they are potentially longer than they need to be.”
Andrew Lumsden, a partner at law firm Corrs Chambers Westgarth, also sees no purpose in minutes being perfunctory or becoming transcripts. “However, when you are dealing with difficult matters, you need to demonstrate that directors were not just sitting there and letting it all roll by,” he says. “The court expects you to show directors were thinking about the key issues and looking for ways to address them.”
Lumsden says minutes are designed to be “a kind of aide-mémoire”. “They should be designed to jog the memory of those present and demonstrate that the board’s processes leading to its final actions met necessary standards of board performance,” he says.
King expects minutes to get longer, which could be a good thing. “They need to stand alone as a record of the meeting, which is more meaningful than a list of resolutions and action items,” she says. “However, this shouldn’t be taken to the other extreme. Capturing too much detail can reduce the significance of words that really matter. An eloquent summary of the key themes discussed by the board offers more powerful insight than a blow-by-blow account of a lengthy discussion.”
Steven Cole FAICD, a member of the AICD’s corporate governance committee, chair of Neometals and Perth Markets and managing director of Cole Corporate, believes much of the commentary on minutes following the banking Royal Commission has been a restatement of what is “sound contemporary practice”, although he says there’s never been a prescriptive agreement on what is appropriate in all circumstances. He expects to see more scrutiny of minutes from boards with styles that are at the extreme poles — those either tending towards verbatim style such as, “D1 said… D3 responded… etc,” or towards a more scant style where virtually only the resolutions themselves are recorded.
Cole believes minutes may become marginally longer only for boards that already have sound governance practices in this area. For example, these boards may want to see the minutes include a slightly more detailed list of substantive considerations that were taken into account during the board’s deliberations in coming to a resolution. However, Cole hopes minutes do not become a record of all that is said. Based on his own experiences, verbatim-style recordings:
- Inhibit open and frank discussion
- Stifle constructive debate/challenge on substantive issues
- Encourage people to speak when they have nothing to add, so they are recorded as being “active and engaged”
- Encourage dominating and boorish types to hog deliberations and get their statements recorded
- Risk reducing approval of minutes to a substantive debate with dispute as to whether or not “D1” said what was recorded (or not) and/or that the comment was taken out of context or was misinterpreted
- Can provide a dangerous record of insignificant — or interim — aspects of a meeting, which can be leveraged in litigation proceedings against the company or its directors
- Drive a meeting towards more formal administrative protocols rather than towards finding consensus after challenging deliberation
- Encourages nitpicking of petty issues to “set the record straight” when the matter is of little material consequence.
King notes if board meetings are recorded electronically as a tool to prepare more detailed minutes, there are risks around the security, retention and use of that information. For example, a recording’s existence could undermine minutes being the single source of truth about a meeting. But she doesn’t envisage recordings happening widely and says this would create more problems than it solves. “It’s perhaps more likely among smaller organisations where there isn’t an experienced company secretary who can filter the key discussion points.”
The AICD view is that recording board meetings verbatim or via transcript-style minutes is inappropriate. Board minutes are used to record the decisions of the board; to convey board decisions to the executives who will implement them and serve as a reference to the board if it wishes to revisit a decision.
King believes the key aim should be to improve the quality of board minutes, which doesn’t automatically translate to making them longer. “Commissioner Hayne’s observations that better board reporting can often result in less volume rather than more is equally applicable to minutes,” she says. “The practical challenge is that minute-taking will become more difficult. It will need a skilled hand to draw out the significant issues and demonstrate rigorous discussion while maintaining balance and objectivity.”
Telstra company secretary Sue Laver GAICD believes the purpose of minutes and the way they should be taken remains unchanged. However, in order to make them as effective as possible, directors and executives should be encouraged to question matters they see as particularly important in board meetings. “Directors should scrutinise minutes before approving them and should request amendments if they do not consider the minutes accurately reflect the matters discussed,” says Laver. “The higher the quality of papers going to board meetings, the higher the quality of minutes produced.”
A matter of tact
New research on company secretaries suggests diplomacy rules when it comes to board minutes.
CBA chair Catherine Livingstone AO FAICD was in the dock at the Hayne Royal Commission in November 2018 when Rowena Orr QC quizzed her about the keeping of CBA’s minutes. Livingstone said she had asked a tough question during a board meeting about CBA’s response to AUSTRAC’s concerns regarding its compliance with anti-money-laundering laws — but the minutes did not record it.
Orr suggested CBA might have breached its minute-taking obligations. “The minute books must record proceedings and resolutions of meetings of directors,” said Orr. Livingstone responded: “They do, but they don’t record every single question a director asks.”
A company’s minutes are in the hands of the company secretary. When a board member and management have a tense exchange, how does a company secretary deal with recording it? According to new research at the Queensland University of Technology, the answer is: very carefully.
Researcher and former management accountant Robyn McKenzie interviewed 11 experienced company secretaries about their roles. She says the interviews confirm company minutes don’t record everything that happens in a meeting. Most company secretaries, she suggests, would be reluctant to record a contentious exchange between a director and management that did not lead to a board motion.
“Less is more,” says McKenzie. Company secretaries “don’t want to document too much. They don’t want to show that directors are in disagreement”.
While secretaries may differ, McKenzie’s research says most play a diplomatic role, catering to the needs of both chair and CEO. One secretary explained a process of running the minutes “through the chief executive and the chair first” before distribution to directors.
Secretaries are also aware their meeting record could end up as evidence in court. “They’re very careful about what they write,” she says.
McKenzie points out that Livingstone could have asked the company secretary to include an exchange in the minutes. But if Livingstone did not ask, it probably would have stayed out. The social norms within a board mean “you have to be a pretty strong player” to ask for something to be documented, she adds. “Or you probably end up resigning.”
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