Corporate Governance: The Dos and Don'ts of Successful Board Meetings

Do Give Appropriate Notice of the Meeting to the Board of Directors

Although all jurisdictions are different, there are general rules which apply to corporate board meetings. The most important rule is to give proper notice that there will indeed be a meeting of the board of directors. If the directors are not given proper notice of a meeting, resolutions passed at the meeting could turn out to be void. That means it is essential to give the right information to everyone in advance of the meeting date. Before scheduling the meeting, make an effort to determine whether the board members are available on that date.

Directors are entitled to “reasonable notice” that there will be a meeting. A formal notice of meeting should be sent by mail to ensure you can track its receipt by each director. A written notice of meeting should include the following details:

• The date, time, and location of the meeting
• The length of time the meeting is expected to take
• A note whether it is a regular meeting, annual meeting, or a special meeting
• If it was a special meeting, the name of the person who called the meeting should be included
• An agenda or list of the items to be discussed
• Waiver of notice of board meeting forms
• If the board needs to review written materials, a board packet with copies of all documents should be included with the notice

Carefully review these materials before sending them to the directors. If any board member prefers to be served notice via electronic mail, be sure to use your email providers' receipt option to track receipt of the notice.

Don’t Fail to Plan a Substantive Agenda

Although it should be obvious that every meeting must have an agenda, many corporate leaders give insufficient thought to the substance behind the agenda. Before you send out the notice of meeting, brainstorm about the biggest issues facing the corporation. Focus on areas where the corporation needs guidance and advice. Some CEOs struggle with how much information to provide to the board. When in doubt, err on the side of including more details in the board packet rather than less information. You do not need to give a long explanation of the issues during the meeting. Instead, assume that the directors have reviewed the materials in the board packet and ensure they have the opportunity to ask questions and speak their minds.

Every company and board meeting is unique; however, here are some general tips on how to conduct a meeting properly by fine-tuning the agenda.

• Resolutions – Consider which decisions the board of directors must make at the meeting. Then, draft clear resolutions for action.
• Shareholder Agreements – Private companies and venture-financed corporations typically have shareholder agreements that must be approved by the board of directors. Keep a list of shareholder agreements to ensure they are approved by the board at the appropriate time.
• Treasurer's Report – Every meeting should include a brief update on the company's financial prospects.
• Committee Reports – If your company has ongoing committee work, give the committees time to report their findings.
• Old Business – Every meeting should have an agenda item to update or conclude business from prior meetings.
• Approval of Old Minutes – Always make sure the board of directors approve the minutes of the prior board meetings.

Of course, there are many other agenda items that would be appropriate in any given circumstance. Review your company's annual report and strategy documents before completing the agenda.

Do Provide Board Members with a Waiver

It is important that the board of directors have full authority to act on corporate business during the board meeting. If there are not enough members present, then the board of directors will not be able to get any issues resolved and the entire meeting will have been for naught.

Since members of the board are not always available on the date of the meeting, it is important for each person who does not attend to communicate their intentions in writing. The best way to prepare for this possibility is to send each director a waiver of notice of meeting along with the written notice of meeting.

The waiver of notice should contain language demonstrating that the director agrees and consents that any business which may be transacted at the meeting is valid and legal. Although not all state laws require corporations to retain their waiver forms, you should always aim to follow best practices by filing the notice of meeting and waivers in the corporate records archive.

Don’t Take Offense at Executive Sessions

Executive sessions are an important part of corporate governance. An executive session is a separate meeting or time within a meeting where the executive staff is asked to leave the room. Although an attorney is often allowed to remain in the room, there are often hurt feelings when the rest of the executive team are asked to leave a board meeting. Do not be offended by the notion of the executive session. In fact, as a leader of the company, you should frequently include an executive session on the meeting agenda.

The executive session gives the directors the opportunity to evaluate staff performance and consider confidential matters outside the purview of the employees. This may make some staff uncomfortable, but it is not necessarily a bad thing or a sign that employees are about to be disciplined or fired. If you have ever had anxiety about executive sessions, this list of issues that are frequently dealt with during executive sessions should put your mind at ease:

• Evaluation of the CEO or executive director
• Decisions regarding salary and benefits
• Conflicts between one or more directors or criticism between board members
• Investigations about sensitive matters relating to the corporation
• Reports from auditors or management consultants
• Reports regarding lawsuits and insurance matters

In order to ensure you handle executive sessions effectively, be sure not to call for a surprise session during the middle of a meeting—such a move will breed unwarranted paranoia. The best practice is to always include time for an executive session during every board of directors meeting. This also helps the directors form an identity that includes strong leadership, trust, transparency, and communication.

Do Keep Thorough Minutes of the Meeting

Appoint a person to take the minutes of the meeting of the board of directors. The purpose of keeping the minutes is to “provide a memorialized chronology of key information such as board actions, elections of officers or directors, and certain reports from committees and staff.” This can be a difficult task, so make sure you have a secretary or other experienced person who is a good note-taker. In order to help the person be an accurate transcriber of the facts, give them a list of things that should normally be included in the minutes.

Here is a practical list of things should be included in the minutes. Please remember that these are not bright-line rules; instead, consider the needs of your company and edit these suggestions accordingly. Your board meeting minutes should include:

• whether the meeting is regular, annual, or special;
• the date, time, and place of the meeting;
• the names of the attendees;
• the times attendees arrive and leave the meeting;
• who presided;
• what materials were distributed;
• the action or resolution and final vote on the resolution; and
• the exact wording of the action or resolution.

The Association of Corporate Counsel's guidelines on meeting minutes state it is not wise to make an audio or video recording of the meeting, or to attempt to write down everything someone says verbatim. It recommends letting each corporation determine the level of detail they are comfortable with, as long as the company remembers to use a consistent format for all future meetings.

Don’t Feel You Must Use Robert's Rules of Order

Many boards use Robert’s Rules of Order, which is a rulebook written by American General Henry M. Robert in 1876. Roberts wrote the book because he was tasked with sorting out several meetings and conflicts after the Civil War. He realized that board meeting were devolving into anarchy and therefore created a process to help people make decisions. The English parliamentary-style rules have been widely adopted all over the world. Although Robert’s Rules of Order can be helpful, use of the book is not mandatory to have a valid meeting. The use of formalisms such as making motions, seconding the motion, calling the question, and recording the votes may not be right for every board.

Robert’s Rules are over 700 pages long and contain many arcane and complicated procedures. Recent revisions of Robert’s Rules have been designed to stop rule by consensus, focusing instead on quickly making decisions by yes or no votes. In contrast, consensus operates in order to prevent the creation of “winners” and “losers.”

If you decide to make decisions using consensus, the general way decisions are made are as follows:

• An idea is introduced, either as a formal proposal for the board’s action or a simple issue to be discussed.
• Everyone discusses the pros and cons of the idea.
• During the discussion, the idea is modified as each person raises things that should be considered.
• Once general agreement seems to be happening, you can restate the general proposal as it has been modified.
• If everyone agrees, then there is consensus and therefore the board can commit itself to taking action.
• If there is not unanimous agreement, then facilitators often continue the conversation with the hope of finding a solution that is amenable to everyone.

Under this process, it is possible for a single person to have veto power over the entire group. That makes strong leadership and facilitation of productive discussion crucial to making rule by consensus viable.

There are certainly pros and cons to rule by consensus and to traditional parliamentary-style decision making. When setting up a new board or planning a board meeting, it is most important to consider which method is right for your corporation.

Do Draft Corporate Resolutions Documenting the Corporation's Decision Making

Proper documentation is a key part of planning successful board meetings. A corporate resolution helps you structure the process of the meeting. Corporate resolutions record the details about a business issue, details of decisions made by the board of directors, and includes signatures of each person on the board.

In some instances, proof of corporate resolutions are required in order to finalize a sales contract, execute a commercial lease or buy property, and open bank accounts and apply for loans. Corporate resolutions are also helpful in keeping track of old and new business, which in turn makes it easier to plan future meetings and set strategy for the company.

Don't Read Committee Reports Out Loud

Whenever a group meets, it is tempting to read from reports in order to bring the board of directors up to speed. However, this is mostly a waste of time. As we explained above, you should always act on the assumptions that directors have read the materials and are prepared to have a discussion.

Simply listening to reports wastes time, forecloses discussion, and can cause some people to just tune out. Instead, open the floor for discussion. Although you definitely want the board of directors to make a decision, discussion and questioning is an important part of that process. You need to be a good facilitator to have a proactive and positive board meeting. You can help this process by providing directors with the information they need in order to ask the right questions. Sometimes the board will reach a decision right away and unanimously. In other times, the board may need more information, exploration, and discussion in order to find the right solution. In either case, your role as a steward of the corporation is to lead discussion without reading from reports.

Do Show Up

When Harvard Business Review researched the effectiveness of corporate boards, they found some surprising results. Factors traditionally considered to be hallmarks of good corporate governance, such as equity involvement, perfect attendance, and board size, were all found to be negligible in creating proactive and successful leadership. The downfall of Enron is often called an example of corporate governance gone wrong, but in reality the Enron board was a model of the very practices often listed as the most likely to lead to success.

Harvard Business Review cited UPS as a model for good corporate governance. Their secret? Board members were comfortable allowing each other to express strong opinions even when there was serious disagreement about the proper strategy to pursue. The company trusted each other to make a stunning decision to turn away from international partnerships to become a truly global business on their own. The move paid off, and today UPS is one of the world's biggest companies.

As the example of UPS demonstrates, “showing up” is the most important thing you can do to ensure successful board meetings. But “showing up” does not mean never missing a meeting. Instead, showing up means fostering a dynamic between board members where transparency and candor are valued rather than punished. Unlike UPS, Enron's board and CEO were doomed by mistrust. When the CEO did not trust the board enough to share information, he produced a report inches thick with key information buried in footnotes. Enron's CEO also failed to inform the board of directors that a whistleblower had come forward with massive financial fraud claims.

Enron's board of directors failed to show up to do their jobs appropriately, never once demanding to know why the company repeatedly issued contradictory public statements. Rather than becoming more involved, the board chose to be hands-off. The decisions made by Enron's leadership led to a very public, and costly, meltdown.

Don’t Surprise Board Members

In the Forbes article How to Run Your First Board of Directors Meeting, Jeff Thermond shares the lessons he learned from his first board meeting, which he completely screwed up. His most important piece of advice is to avoid surprising board members. How do you avoid catching members off guard? Consider these tips:

• Punctuality and Preparation – Thermond says preparation for meetings is important. Begin the meeting on time and make sure the members have the materials you want them to review well in advance. Since board members are all busy, keeping a tight schedule and respecting their time will help you get off on the right foot.
• Practice Makes Perfect – When the board meeting involves multiple presenters, Thermond suggests that you practice your presentation with your co-presenters. Run through your PowerPoint slides and ask each other the most likely questions you will get from your board of directors.
• Make a Recommendation – Thermond’s biggest mistake in his first board meeting was introducing problems without having a clear opinion or recommendation about what the company should do. This caused the meeting to feel directionless and overly long. When you are in charge of the meeting, it is essential to have an outline of the problem, a list of solutions, and an opinion about the best course of action for the company. This shows you are a strong facilitator and discussion will proceed in an orderly fashion.

Conclusion

When you consider the best practices for corporate governance, don't overlook the process of obtaining and nurturing a good board of directors. Planning a productive board meeting requires preparation, attention to detail, and consistency. By following these dos and don'ts, your board meetings will help the corporation grow and prosper.