Non Profit Report - May 2012

Date: May 30, 2012

Board Meeting Minutes -- Best Not To Get Too Wordy!
By: Jeff Glassie & Dorothy Deng

Many association executives have asked questions about the proper scope and content of board meetings. It’s important to keep minutes in accordance with legal and organizational governance best practices. Here are some thoughts about keeping board meeting minutes.

As an initial matter, under state corporate law, directors have fiduciary duties to manage the corporation’s activities. Directors exercise these duties by keeping informed, acting in good faith, and deliberating at meetings as to the proper course of action for the associations. When the board makes decisions, a record of those actions is important for keeping track of policy determinations and memorializing the actions for future reference. While minutes of meetings are often not specifically legally mandated under state corporate laws, it’s advisable to maintain records of meetings and it certainly constitutes a best practice. In addition, state corporate laws generally provide that members are entitled to obtain certain corporate records, including financial reports and minutes of board meetings. The minutes also will provide a record of the board’s exercise of its fiduciary duties and serve as guidance for operations.

Although there are no formal legal requirements with respect to what must be included in meeting minutes, we can look to parliamentary procedure for guidance. Robert’s Rules of Order (11th Ed. 2011), §48, says that meeting minutes “should contain mainly a record of what was done at the meeting, not what was said by the members.” Thus, minutes should record the actions taken, and not be a verbatim transcript or summary of what was said. Robert’s lists the following key elements of meeting minutes:

  1. The date, time, and place of the meeting
  2. The kind of meeting (i.e. regular or special)
  3. A list of the presiding officer, directors, staff, and other attendees
  4. The presence of a quorum
  5. Other information to demonstrate that the meeting was called in compliance with the Bylaws
  6. Whether the minutes of the previous meeting were read and approved
  7. Exact statement of actions taken at the meeting

Ray Keesey’s book, Modern Parliamentary Procedure (1994) elaborates on this at page 84:

Some organizations go to the extreme of recording the name of each member who presents a motion, major ideas presented in the discussion, and the numerical count on all votes. Such details are rarely needed and only make the job of the secretary difficult. … It is desirable to include in the minutes the major arguments for and against a motion, but these should not be identified with speakers proposing them since the privilege of discussing freely is jeopardized when what is said becomes a part of public record.

So, in the main body of meeting minutes, it’s recommended that the minutes include a short statement of each action taken by the board with a brief explanation of the rationale for the decision. If the board members engage in extensive deliberation before passing a motion, it is also recommended that the major arguments be summarized in the minutes. This will provide evidence that the board exercised its fiduciary duties.

Although the action taken by the board should be recorded in the minutes, the minutes should definitely not read like a transcript of the meeting. As such, the names of participants in the deliberation do not need to be recorded. One of the reasons is to encourage board members to freely deliberate without being concerned of potential legal liability arising out of statements made during the meeting. Note that the new D.C. nonprofit law says that it will be presumed all board members consent to actions taken, so if some directors are in disagreement it’s reasonable to note their objections. D.C. Code §29-406.24.

In addition, statements about conversations reviewed years later in the context of litigation can be misinterpreted. Minutes of an organization’s meetings are one of the types of documents that lawyers will look for in litigation to determine potential weaknesses in the case. In lengthy minutes, what is not said or considered also can come back to affect the organization’s position. There is no good reason to include all of the discussion, and potentially only harm and legal liability will arise from misconstrued comments in extensive minutes.

In conclusion, the best practice of keeping meeting minutes is to include the list of standard items referenced above, the actions taken by the board, and a brief summary of reasons supporting such actions.

This article was first published in Association TRENDS on May 24, 2012, and is reprinted by permission.

Recent Court Decision Finds that Directors of a Maryland Corporation can be Sued in Maryland, with no other Connections to the State
By: Peter Sheehan

TAKE AWAY: A recent case may cause people to think twice before agreeing to serve on the board of a Maryland corporation.

DISCUSSION: In Oliver v. Crump, No. ELH-11-1925 (D. Md. Sept. 15, 2011), the U.S. District Court for the District of Maryland ruled that the directors of a Maryland corporation could be sued in a Maryland court, based solely on their serving as directors of a corporation domiciled in the State. Arguably, the opinion could apply to the directors of non-profit entities domiciled in Maryland, who, like the directors of a for-profit corporation, assume fiduciary obligations to an organization by accepting a position on its board of directors. Furthermore, if the Oliver court’s reasoning is adopted by courts in other jurisdictions, directors of organizations incorporated elsewhere -- Washington, D.C., for instance -- could be sued in that jurisdiction, without having any connection to that forum, other than serving on the board of an entity incorporated there.

In Oliver, the plaintiffs -- shareholders of the Maryland corporation for which the defendants served as directors -- sued the directors, essentially claiming that they breached their fiduciary duties to the company. The directors, who at all relevant times were residents of Delaware, argued that it was unfair and unconstitutional for them to be required to defend against the claims in Maryland, stressing that none of the alleged wrongdoing actually occurred in Maryland and that they did not have any other connection to the State, besides their merely serving as directors of the corporation. The U.S. District Court rejected the directors’ argument, reasoning that, because the business was incorporated in Maryland, the harm caused by their alleged misconduct occurred in Maryland. The District Court further explained that, by accepting directorship of a Maryland corporation, a director submits to the jurisdiction of Maryland courts with respect to lawsuits based on his or her breach of fiduciary duties to the corporation.

Nevertheless, it is highly significant that the lawsuit in Oliver arose out of the defendant directors’ alleged breach of their fiduciary duties to a corporation incorporated in Maryland. To be sure, nothing about the case suggests that a director of a Maryland corporation -- with no other ties to the State -- could be required to defend a lawsuit in the State, where the conduct giving rise to lawsuit is not related to his or her role with the corporation. For example, a director of a Maryland corporation, who has never set foot in the State, still probably could not be sued in Maryland for a car accident that occurred in another state. In other words, serving as a director of a Maryland corporation does not automatically submit one to the jurisdiction of the Maryland courts for any and all lawsuits -- just lawsuits arising out of alleged harm to the corporation. It also should be noted that the court in Oliver emphasized that requiring the defendant directors, who were residents of Delaware, to litigate the case in Maryland did not impose an unreasonable hardship on them, in light of the geographical proximity of the two states. Thus, the court’s analysis leaves open the possibility that a Maryland court might not be able to obtain jurisdiction over the director of a Maryland corporation, who resides, for example, on the west coast or in another country. In such a case, the court might find that requiring the director to traverse such a long distance to defend against a lawsuit would be so unreasonable as to be unconstitutional.

Although the scope and full implications of the Oliver case will likely be clarified over time, in the meantime, it is advisable to consult with an attorney when considering accepting a position on the board of directors of an entity incorporated in a state different from the one where you reside. Doing so will help avoid unanticipated and major inconveniences.