Best Board Practices for Corporate Secretaries Dan McLeod and Tim Robson November 5, 2014

Agenda • Evolving role of corporate secretaries • Improving board meeting effectiveness – Preparation for meetings – Managing meetings – Minute taking and preparation – Administrative and post-meeting considerations • Role in corporate transactions

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Evolving Role of Corporate Secretaries

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Role of the Corporate Secretary • • • • •

Traditionally seen as administrative role; record-keeper With expanded rules and expectations regarding corporate governance, role of corporate secretary can be critical Active partner with directors to ensure board effectiveness and good governance Gate-keeper to ensure appropriate flow of information Advisor regarding corporate policies and initiatives; current developments in corporate governance

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Role of the Corporate Secretary (continued) "The corporate secretary is a senior corporate officer with wide-ranging responsibilities who serves as a focal point for communication with the board of directors, senior management and the company's shareholders and who occupies a key role in the administration of critical corporate governance matters"

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Role of the Corporate Secretary (continued) • • • • • •

Specific roles, duties and responsibilities will vary from company to company Secretary should take initiative in understanding, defining and developing the role To whom does the secretary report? Senior management or the board directly? Balancing act – may be dual reporting responsibilities Other roles (i.e. GC; shareholder relations) may be included as well Terms of reference for corporate secretary

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Understanding Governance Requirements •

Secretary will need to be familiar with increasing number of governance obligations – Applicable provisions of corporate law – Articles and by-laws – Shareholder agreement – Board & committee mandates – Chair/director/officer position descriptions – Securities regulation and stock exchange governance instruments – Proxy advisory voting guidelines

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Improving Board Meeting Effectiveness

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Developing the Meeting Agenda •

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Understand matters requiring approval – Matters brought before specific meeting – Matters requiring approval on periodic basis under statutory requirements or board mandate Annual meeting planner – Assists in scheduling meetings well in advance to fit directors’ schedules – Assists in keeping track of periodic approval requirements Preparation of specific meeting agenda in coordination with chair and senior management – Consider timing concerns Indicate on agenda if board materials are included and approvals required

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Distribution of Board Materials • •

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Distribute materials sufficiently in advance of meeting Electronic distribution – Consider confidentiality of materials and potential audience; inability to delete electronic copies Physical distribution – Organize materials in binders with dividers – Table of contents should match agenda – Include board agenda on first and last page of binder Secure online resources – Boardbooks

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Distribution of Board Materials (continued) •

Precautions for confidential information – Only physical copies are distributed and only at the meeting – All copies are distributed and then collected by corporate secretary – Physical copies are retained in accordance with the corporation’s document retention policy – No electronic copies are produced or distributed – Use “code” names

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Prior to Meeting •

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Ensure notice is given in accordance with by-laws – Waivers obtained if adequate notice not provided – Challenging for “emergency” or last minute meetings Meeting logistics and facilities are important – consider details – Dedicated conference line; other technology required for meeting Review all materials distributed to the board – Consider appropriateness for purposes of board meeting – Governance, not management decisions Pre-draft resolutions that are known in advance Timing of document distribution can be challenging when relying on business team to prepare materials for distribution – Ensure expectations regarding timing are understood

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During the Meeting • • • • •

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Record attendance of board members (and periodic absences from the meeting) Calculate whether quorum is obtained and advise chair Ensure quorum is maintained Assist chair in ensuring agenda items covered Discuss matters of an administrative nature first – Approval of minutes of previous meetings – Other routine and non-contentious matters May be balancing act between fulfilling expectations and staying out of the board’s way

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Purpose of Meeting Minutes “A record of the decisions and determinations made and where appropriate, the processes followed by a board or governing body”

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Purpose of Meeting Minutes (continued) •

Corporations statutes require that minutes be prepared and maintained: – ABCA and CBCA require corporations to prepare and maintain at the corporation’s records office – Minutes of meetings and resolutions of shareholders – Minutes of meetings and resolutions of directors and committees of directors – Little guidance as to how this function is to be performed, beyond a general requirement that corporate records be kept in a retrievable format (bound, looseleaf or electronic format)

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Purpose of Meeting Minutes (continued) •

Minutes serve a number of functions for a corporation – Evidentiary function • To establish that directors have fulfilled their fiduciary duty of honesty, prudence and good faith in their deliberations • To establish and document the process that a board has followed in its deliberations. – In some contexts, the reasonableness of process the board follows in making a decision is almost as important as the merits of the decision itself • To establish facts of board deliberations to be entered into evidence in legal proceedings - the “corporation’s version of events” – Communication and record-keeping function with respect to creating an official record of the actions and decisions of a board for due diligence and other purposes

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Essentials of Meeting Minutes •

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Minutes are not: – A transcript. The objective is not to produce a verbatim report of the meeting (except where required by law, by-laws or established policy) – A compendium of anecdotes, emotions or subjective viewpoints – An opportunity for individuals to note objections (unless these are required for legal defense related or corporate law purposes) – A complete record of the ins-and-outs of a board’s intermediate conclusions, preliminary investigations or dead-ends It’s important to remember that audience is broader than the board: – Auditors review in connection with their audit function – Minutes are generally made available to outsiders for due diligence – Minutes are producible in litigation or regulatory proceedings – Draft accordingly

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Essentials of Meeting Minutes (continued) •

Minutes should generally contain the following bare essentials: – Confirmation that notice has been given (or waived) and quorum met – Information regarding the date, location and duration of a meeting – Identification of all participants in a meeting, their method of participation, and whether they left/rejoined the meeting – Identification of persons making presentations to the board and a general description of those presentations – An brief and objective summary of discussions by directors and a concise summary of any determinations made – The text of any resolutions approved – Information regarding declarations of conflict and other information necessary to establish compliance with corporate statutes

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Essentials of Meeting Minutes (continued) •

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Resolutions – The text of any resolutions approved at the meeting should be reproduced exactly, as it may be important for due diligence or legal opinion purposes – The names of directors abstaining or dissenting from a resolution should be noted. Otherwise, they are deemed to consent – Probably sufficient to note that the resolution was moved and seconded without identifying the mover and seconder, though some corporate secretaries do – no universal practice here, and either way works Documenting conflicts of interest – Corporate statutes require conflicted directors to inform the meeting of a conflict in any transaction with the corporation, and to refrain from voting – Directors in these circumstances typically leave the meeting during deliberations

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Minute Taking Tips and Tricks • •

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Different corporations, and different boards, may adopt different approaches to the keeping of minutes. Largely a function of factors such as size of entity, sophistication, corporate culture and past practice. Specific legal and regulatory considerations applicable to the corporation and its business may come into play. Some corporations adopt a “short form” approach to minutes Others use a “long form” approach Others take a more flexible approach, tailoring the minutes to the nature of the business conducted at the meeting

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Minute Taking Tips and Tricks (continued) •

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“Short form” approach to minutes - typically entails a very brief summary of business and deliberations at a meeting, with minimal detail – Typically adopted by private issuers or smaller issuers, particularly in context of decisions of less significance. – Some larger issuers also prefer this approach, particularly in matters of lesser significance “Long form” approach entails a more detailed, formal summary of the business of a meeting – May be appropriate in circumstances where evidence regarding the process adopted by the board is of particular importance – sale transactions or fundamental for example.

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Minute Taking Tips and Tricks (continued) •

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Avoid using individual names of directors in summaries of deliberations unless the identify of the director is relevant (eg. conflict of interest) – This gets tedious and can tend to create an impression of greater discord than may actually exist. Also tends to single out individual directors for particular scrutiny Use caution when attaching appendices – the potential for production of appendices should be considered when appending confidential, private or sensitive materials to minutes Capturing in camera sessions Mark “draft” documentation clearly when attaching to minutes

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Minute Taking Tips and Tricks (continued) •

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Ensure minutes are accurate, complete and objective – Use appropriate descriptors to emphasize due process by the board – Remember that minutes may be a double edged sword when introduced into evidence – Minutes can be drafted in a way which places the Corporation and its board in the best light, but it is important to ensure that they present an accurate summary of the proceedings – Falsification of minutes is an offence under the ABCA and CBCA Organize minutes in a logical fashion, following the order of the agenda Use document headers for organization purposes Use short paragraphs Summaries of routine procedural discussions generally not required. Only the basics regarding notice, quorum, adjournment and so on

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Minute Taking Tips and Tricks (continued) •

Draft minutes promptly after meeting – Drafting minutes is not something that most lawyers and corporate secretaries typically look forward to, so it tends to get put off – However, timely preparation is an important element in ensuring that minutes contain an accurate record – May also make cause minutes to be perceived as more reliable in the eyes of a court or regulatory body

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Maintaining a Minute Book • • • • •

Ensure all minutes are included and executed Resolutions in writing must be executed by all directors Directors and shareholders registers kept up to date Include all material contracts Keep materials organized

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Board Orientation and Education • •

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Create a director orientation binder containing all policies and educational materials Coordinate with management for orientation for new directors – Directors should understand board mandate, individual director duties – Also understand business and commence issues of concern to the company Consider continuing education opportunities – Corporate governance practice; directors duties – Continuing understanding regarding business

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Board Effectiveness Assessments • • • • • •

May be mandated periodically by board or governance committee mandate Board or committees consider various aspects of how the board is doing in fulfilling duties Surveys should tie back to board mandate and specific obligations Useful for general governance Can be useful for director nomination considerations Challenges: – Director buy-in – Follow-up and addressing issues identified

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Role of Corporate Secretary in Corporate Transactions

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Coordinating Due Diligence • •

Corporate secretaries are often called upon to facilitate transactional due diligence by outside parties Important to consider the type of due diligence involved – two general types – Offerings • Typically takes the form of confirmatory due diligence in respect of material facts regarding the corporation and its disclosure to investors • May include one or more oral sessions with dealers and advisors – Mergers and acquisitions • May only be confirmatory, but usually more detailed review necessary to allow acquiror and its advisors to assess value.

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Coordinating Due Diligence • •

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Ensure minute books are up to date and extraneous materials not provided Conduct internal due diligence review – Confirm with relevant officers/employees that responses are complete – Assist in formulating written responses to due diligence questions Be aware of contents of minute books and prepared to answer questions Consider the use of virtual data-rooms, which can be populated in advance of a transaction, and built up and maintained over time – Can offer significant time savings, particularly where information in VDR will be repeatedly accessed in multiple transactions – Can preserve confidentiality as compared with swarms of lawyers and others conducting due diligence on site – Different options available from service and software providers

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Minute Taking •

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In M&A context, ensure minutes do not: – Name counterparties; – Specify pricing or valuations; or – Discuss negotiating positions or other information that would reduce the corporation’s bargaining position. If minutes do contain these items, then consider providing redacted versions for due diligence purposes, if possible Use “code names”

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Board Changes and Dissolution •

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Provide outgoing board (or director(s)) with: – Copies of all director and committee meeting minutes – Director indemnity agreements (physical and electronic copies) – Details regarding run-off directors’ and officers’ liability insurance policy, if any Ensure required corporate notices and resolutions are prepared to document resigning board members No SEDI filing required for insiders upon ceasing to be an insider

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QUESTIONS?

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