Preparing board minutes is often the poor stepchild of corporate governance tasks. Minutes themselves are frequently given only cursory review by board members. Yet greater emphasis on corporate record keeping under the Sarbanes-Oxley Act of 2002 and related regulations, shareholders heightened expectations of directors and intense scrutiny of director conduct in litigation are increasingly placing corporate minutes in the spotlight.
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In response to corporate abuses at Enron, WorldComm, Tyco and other companies, Congress enacted Sarbanes-Oxley, and the Securities and Exchange Commission (SEC) and the stock exchanges proceeded to adopt rules implementing and supplementing it. Sarbanes-Oxley and the related regulatory changes emphasized the importance of independent directors and processes such as executive sessions that encourage independent decision making, independent and active audit committees, heightened implementation and disclosure of internal controls and certifications of public company financial information by the chief executive officer and chief financial officer.
Concurrent with this regulatory activity, activist shareholders have increasingly sought to hold directors accountable for their decisions. Shareholders have pushed boards, in many cases successfully, to dismantle takeover protections and to adopt charter amendments providing for majority voting and have persuaded other shareholders to just vote no against directors whose performance they have criticized. In addition, activist hedge funds do not hesitate to run, or threaten to run, competing slates in director elections to get representation on boards in order to press for strategic changes. The bottom line of all this activism is higher expectations of corporate directors and greater scrutiny of their performance.
Despite this backdrop of increased regulatory and shareholder pressure, the legal obligations of directors under state corporate laws have remained constant and case law relatively director-friendly. Under state corporate statutes, the business and affairs of a corporation must be managed by, or under the direction of, a board of directors, but directors will generally not be liable in exercising their oversight role except under unusual circumstances. [footnotes omitted]