Room to improve? The Importance of Getting Your Agendas and Minutes Right

Recording Board Minutes

 

Total read time: 6 minutes (approx.)

 

It’s AGM season and now is a good time to reflect on the great job your directors have done and to start planning for the year ahead with your new board.

 

But is there any room for improvement? Could your directors become better at what they do to avoid ending up in the courtroom.

 

There have been a number of recent cases about the actions of directors. These cases send a clear message – there is an increasing trend of holding company directors accountable for the actions of a company.

 

One such case is the May 2012 James Hardie case[1] which highlights the importance of directors getting board meeting agendas and minutes right, so that they can fulfil their statutory duty of care and diligence.

 

Although the James Hardie decision applies to a for profit company, the same principles would apply for a not for profit company, given the obligations on directors are, generally speaking, the same.

 

This article takes a look at the James Hardie case and what it means for your directors when it comes to agendas and minutes, so that your directors can become better at what they do.

 

How did James Hardie[2] end up in court?

 

At a board meeting on 15 February 2001, the directors of James Hardie approved an announcement to the ASX about a corporate restructure. The restructure included the establishment of a foundation which would handle all asbestos-related claims against James Hardie.

 

The next day, the announcement was released and it stated that the foundation would be “fully funded” to meet the claims.  However, it later became apparent that the foundation was not fully funded.

 

ASIC considered that the statement in the announcement was therefore misleading and it commenced proceedings against the directors of James Hardie for breaching their duty of care and diligence under the Corporations Act.

 

Outcome for the directors

 

After proceedings in the NSW Supreme Court and then the NSW Court of Appeal, the matter was considered by the High Court. The High Court held in May 2012 that the former James Hardie directors had breached the Corporations Act.

 

The decision essentially turned on the factual finding that the directors had approved the announcement, and the signed minutes of the board meeting had a significant part to play in the Court’s decision, highlighting the importance of getting the agenda and minutes right.

 

What the decision means for directors

 

1.     Getting the agenda right

 

What happened in the case

 

In James Hardie, the board papers that were distributed ahead of the board meeting did not contain a draft of the announcement, but instead referred to a proposal about the establishment of the foundation. The final details of the proposal were only tabled at the board meeting, at the same time as the draft announcement.

 

The non-executive directors argued that the board had not approved the draft announcement and that it could delegate this type of external communication matter to management. In other words, they were arguing that the approval of the announcement was not an agenda item.

 

The trial judge did not accept this argument and said that the directors:

 

  • had in fact approved the announcement (based on what the minutes said – more on this shortly); and
  • In any case, the directors had a non-delegable duty to approve the announcement as part of its responsibility to be involved in monitoring the company. This was particularly because James Hardie management had previously indicated that they would bring the announcement to the board for approval and the directors knew of the legal risks involved in making misleading announcements.

 

But this was an ASX announcement. What about other sorts of announcements?

 

The courts are yet to fully consider the boundaries of non-delegable duties in relation to the obligation to approve certain announcements, but the Court in James Hardie indicated that boards may be required to approve announcements or press releases that relate to matters that are of considerable importance to the company’s future and/or matters of importance to stakeholders.

 

Implications for directors

 

So, for a not for profit organisation, directors should:

 

  • include items on the agenda that relate to their involvement in monitoring the company, that is, matters that need critical and detailed attention. This cannot be delegated;
  • read all the board papers, including documents they are asked to approve, to make sure they understand the underlying facts about the agenda items;
  • speak up if they do not understand something in the documents; and
  • approve any press release that relates to matters of considerable importance to the company’s future and/or matters of importance to members.

 

2.     Getting the minutes right

 

What happened in the case

 

There were several issues in James Hardie about the minutes of the board meeting.

 

The first issue was that the minutes were signed by the chairman at the next board meeting in April 2001, breaching section 251A(1) of the Corporations Act because this was more than one (1) month after the meeting. The minutes therefore lost their special evidentiary status, highlighting the importance and probative value of minutes.

 

Another issue was that there were a number of inaccuracies in the minutes.  The directors argued that this was because the minutes were drafted before the meeting and were not a true record. However, the minutes were actually amended after the meeting, but the directors had not picked up the inaccuracies.

 

The Court did not consider the directors’ failure to read and detect inaccuracies to be a breach of their duties. However, it appeared that the judges viewed this negatively, cautioned directors to make sure they read minutes properly before approving them.

 

The Court did not comment directly on the content of the minutes, but there were comments about the importance of accurate minutes recording the events at a meeting.

 

Implications for directors

 

So, for a not for profit organisation, directors should:

 

  • bear in mind the importance and probative value of minutes of meetings when they are involved in the preparation of, and reviewing, the minutes;
  • make sure that if minutes are prepared before a meeting:
    • the content is prepared at the same time as the board papers; and
    • the minutes are amended after the meeting so they include substance, accurately recording the discussions and events at the meeting;
  • read the draft minutes carefully, to ensure that they accurately record the discussions and events at the meeting, and raise any concerns, before approving the minutes. All directors need to do this and it is an important risk minimisation exercise; and
  • ensure that the minutes are entered into the minute book within one (1) month after the meeting, so they do not breach section 251A(1) of the Corporations Act and lose their special evidentiary status.

 

Although there are increasingly onerous duties being imposed on directors, we consider that the implications of James Hardie can and should be managed with careful planning to ensure your directors properly fulfill their obligations.

 

 


[1] ASIC v Hellicar and Others [2012] HCA 17 (James Hardie)

[2] James Hardie Industries Ltd

 

About Ciara Lui

Ciara Lui is a Lawyer in Mills Oakley’s Sydney Not-for-Profit team. Ciara has 5 years experience working in both private practice and in-house, providing advice about various areas of law and acting for a client base including charities and not-for-profit organisations, healthcare regulatory bodies, land claimant groups and individuals.

Comments

  1. Vanessa Parkes says:

    HI, i am the secretary of a non profit aged care home. We have a board of 11 members, meetings are held once a month. The chair of our meeting insists on the minutes being circulated within 24hrs of a meeting being held. This causes a rush on my behalf as i also have a full time job and obvious small errors will occur. The Chair also insists on taking minutes as well. Can you please advise what the “Best Practice” would be in relation to getting the minutes out to a board after a meeting.
    Many thanks

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