Alaska Corporate Counsel Section

Corporate Board Meetings Helpful Tips and Best Practices May 20, 2015

Brent Bullock email - [email protected] Tel. - 503.727.2020 Perkins Coie LLP

Overview - Board Meetings •

State law generally sets default provisions for board meetings, but certain provisions may be modified

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KEY -- When reviewing board meeting and minute-taking processes, it is important to review articles and bylaws, along with applicable corporate statutes, to make sure there is not a conflict, especially if articles and bylaws have not been updated for some time

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Alaska Corporations Code (ACC) applies to both traditional Alaska corporations and Native corporations (with certain exceptions)

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Statutes regarding board minutes and books and records apply to both traditional and Native corporations, however, ACC 10.06.960 sets forth different approval requirements for certain things (such as certain amendments to articles)

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Valid Meeting -- Procedural Requirements For an action taken at a board meeting to be effective, the meeting must be “valid” (i.e., certain procedural requirements must be met) • Valid notice • Quorum present, and • Approval by necessary vote

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Notice Regular Meetings -- Notice not generally required if: •

Time and place is fixed in bylaws or by board Note: Fairly common practice to have board approve annual meeting schedule. Also good to confirm next meeting at end of each board meeting and reflect it in minutes.

Special Meetings -- Notice is required and must include: • •

Time and place Some states, including Alaska, also require notice of special meeting to include description of business to be transacted and/or purpose (ACC 10.06.470)

Timing and delivery (varies by state) – Under ACC: • •

At least 10 days before meeting if “in writing” At least 72 hours if via “electronic means, personal messenger, or comparable person-to-person communication” Note: In Oregon default minimum notice is two days by any means (but may be longer or shorter)

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Email or Other “Electronic” Notice Many states, including Alaska, permit email or other “electronic” notice Some states (such as Oregon) require that directors expressly consent in writing to receive electronic notice Alaska is silent on whether directors must consent/approve email notice, but requires that notice to shareholders by “electronic transmission” be authorized by applicable shareholder Best Practice: Have written confirmation of authorized email address for notice from both directors and shareholders What is common practice in Alaska?

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Who May Call a Board Meeting? Revised Model Business Corporation Act (RMBCA) generally leaves matter to be set out in bylaws Normally at least president, secretary and some minimum number of directors

In Alaska -- board chair, president, any vicepresident, secretary or any director may call board meetings (ACC 10.06.470(a))

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Waiver of Notice Notice can generally be waived unless prohibited in articles or bylaws Generally deemed waived if director attends and does not protest lack of valid notice at start of meeting (ACC10.06.740(c))

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Quorum Quorum must be present for board to take action • While ACC 10.06.230 permits fixed or variable sized boards, it requires that the number be “fixed” by the board or shareholders and ACC 10.06.473 sets quorum requirement at majority of number of directors fixed by articles or bylaws (unless greater number is required by articles or bylaws) Note: Care must be taken to track this since people often wrongly assume a “quorum” to be a “majority” of directors then in office vs. the “fixed” number

If a quorum is present, “approval” of corporate act generally requires approval by majority of directors present (unless articles or bylaws specify greater vote) Perkins Coie LLP | PerkinsCoie.com

Written Consent in Lieu of Meeting Most states, including Alaska, allow “unanimous” written board consent (unless not permitted by articles or bylaws) (ACC10.06.475(b)) •

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Some states permit electronic transmission of written consents and accept electronic signatures ACC is silent on these points, but permits electronic signatures by shareholders on “proxies” Oregon’s definition of “signature” includes electronic signatures and conformed signatures What is normal practice in Alaska?

Effective date is generally last day signed •

ACC statute is silent on this point. What is normal practice in Alaska? Note: Oregon permits actions to be effective as of an earlier or later date than the date signed

Best Practice: Including a date line beside signature lines helps establish clear record Perkins Coie LLP | PerkinsCoie.com

Telephonic or Videoconference Meetings Alaska, like other states, permits participation via phone or videoconference (unless prohibited by articles or bylaws) (ACC 10.06.475(a))

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Recording of Minutes Objective and importance of minutes • Minutes are official and permanent record of board action • Generally required to be maintained under state law (including Alaska) • Provide evidence of delegation of authority and confirmation of approval of corporate actions and transactions • Serve to document fulfillment of directors’ duty of care and loyalty Perkins Coie LLP | PerkinsCoie.com

Overview of Sections in Minutes Introduction/Preamble – “Nuts and Bolts” • Date, time, location, attendees, presenters, type of meeting, how/when/if notice was given, presence of quorum, any remote participation, meeting chair and meeting secretary Note: Generally serves to establish validity of meeting

• Minutes should also reflect late arrivals, early departures, or if any attendees are excused for a period of time, especially if action was taken when not present Perkins Coie LLP | PerkinsCoie.com

Overview of Sections in Minutes (cont’d) Discussion Items • Topics, materials distributed in advance, materials presented at meeting, actions taken, and resolutions adopted • Some difference of opinion over how to reflect “amount of time” spent on topic

Executive Session (if applicable) • Only that executive session took place, who attended and duration • Exception – If quorum exists and formal action is taken, chair should advise secretary so action can be properly reflected in minutes

Adjournment • Time meeting was concluded • Also useful to include date, time, and location of next meeting, if known Perkins Coie LLP | PerkinsCoie.com

Resolutions In general, not all “actions” need formal board resolutions Some actions generally should be documented by formal resolutions, including: • • • • • • •

If required by law or articles or bylaws Amendments to articles or bylaws Issuing shares or options Declaring dividends Repurchasing shares Formally establishing a person’s authority and/or responsibilities Authorizing management to take actions beyond normal authority • Providing evidence of formal corporate action to third party • Where clear wording is necessary or advisable

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Board Materials Providing materials to directors in advance provides opportunity to review, consider and prepare for discussion Minutes should: • Generally describe what materials were provided and, depending upon importance of issue, when materials were provided • Identify each presenter, nature or topic of presentation, and describe any materials distributed at meeting • If previously discussed, may be helpful to reference prior discussion to better reflect board’s level of attention to matter Note: If presenter is expert upon whom board is relying, minutes should reflect that fact and, if applicable, describe process of selecting expert (in order to establish board’s reasonable belief in expert’s competence)

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Drafting Styles for Minutes No uniform approach -- can vary depending on style/preference of drafter and board, as well as company's particular circumstances Styles: • Short Form • Long Form • Hybrid

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Short Form Advantages • • • •

Can be drafted more quickly and easily Easy to read and determine what action was taken Less likely to contain ambiguities and inconsistencies Less likely to be misconstrued in context of litigation

Disadvantages • Don’t generally discuss why decisions were made or convey extent or scope of discussion/diligence

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Long-Form Advantages • More detail reflecting board discussions and diligence • Greater information about board deliberations • Depending on matter at issue, may be more beneficial in litigation

Disadvantages • Take more time and effort to draft • Greater likelihood of ambiguities, inconsistencies, etc. • Less detail on certain items may lead third parties to infer less time and attention was given to such matters Perkins Coie LLP | PerkinsCoie.com

Hybrid • Greater detail on significant or sensitive matters and only basic information on routine matters • Consistency across board minutes/meetings can be important

• Otherwise, less detail on certain items may lead third parties to infer less time and attention was given to such matters

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General Drafting •

Be clear and concise

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Present basic, factual information in unbiased manner and using well-defined/unambiguous terms

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Carefully review to make sure there are no inadvertent errors which would undermine credibility of minutes

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For actions taken, minutes should briefly describe discussion (or note that discussion of topic took place) and describe whether action was approved or vote was deferred

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Amount of detail should reflect significance of matter being discussed (Hybrid style) • •

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Routine matters may be summarized Significant decisions/actions should be documented more thoroughly to properly evidence amount of time and attention devoted

Since board decisions are generally reviewed by courts under business judgment rule, minutes should reflect that board met its duty of care and loyalty as applicable

Types of Corporate Decisions Deserving Greater Attention • Approving merger or sale of company • Approving material acquisitions or divestitures • Implementing or waiving antitakeover provisions • Entering into significant or complex financings or derivative transactions • Approving public or private debt or equity offerings • Entering into material agreements, JVs or partnerships

• Executive compensation and hiring or terminating key executives • Entering into related party transactions • Approving annual business plan or capital budget • Launching significant new products, services or lines of business Perkins Coie LLP | PerkinsCoie.com

Minutes Relating to Significant Corporate Decisions Should Include: • • • • • • • •

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Summary of item and scope of discussion Any director conflicts of interest Issues presented, including risks and opportunities associated with decision Significant factors considered, including input from management Any reliance on opinions or presentations of experts or outside consultants (and information about qualifications and independence) Alternatives considered and reasons for rejecting those alternatives Reasons board believed proposed action was in best interest of company and shareholders Resolutions that reflect decisions made by board, authority granted or action to be taken

Recording of Votes There are differing opinions on how non-unanimous board votes should be noted in minutes • While dissents are not generally required to be noted in minutes, state law or bylaws may require it or a director may request his or her dissent be noted • In many states, including Alaska (ACC 10.06.450(e)), directors present at meeting are presumed to have assented to action unless dissent is entered into minutes or director files written dissent at meeting or with secretary immediately after • Abstentions and dissents should be noted where matter is significant or other issues necessitate, such as sale or conflict of interest transaction

What is normal practice in Alaska? Perkins Coie LLP | PerkinsCoie.com

Director Conflict of Interest State law determines how conflict of interest transactions are treated ACC 10.06.478(a) provides that transaction in which director has conflict of interest is not void or voidable because director attends meeting at which transaction is approved if material facts regarding transaction and director’s conflict are disclosed: • •

To the shareholders – and a majority of the shareholders entitled to vote (other than the interested director) approve transaction, or To the board – and requisite number of directors (other than interested directors), approve transaction, and the person asserting the validity of the action sustains burden of proving action was just and reasonable to corporation at time approved Note: Many states, including Delaware and Oregon expressly provide for “fairness” as an independent basis for validity of conflict transactions -- i.e., a fall back if disinterested shareholder or director vote is not or cannot be obtained. Is “fairness” also a defense in Alaska?

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Director Conflict of Interest (cont’d) In Alaska, interested directors “may be” counted for purposes of satisfying quorum requirement even though they cannot vote (ACC 10.06.478(d)) Alaska statutory language requires approval by “sufficient vote” of board without counting vote of interested director. (As a result, how a “quorum” is counted could be very important) Note: In RMBCA states, interested director is not generally prohibited from voting (although many will abstain), but for conflict transaction to be “cleansed,” matter must be approved by majority of disinterested directors (provided there are at least two) Is this an issue of concern in Alaska? Perkins Coie LLP | PerkinsCoie.com

Recordkeeping Minutes should be promptly drafted and circulated for review Once approved, secretary should sign minutes and file in minute book (depending on the company’s circumstances, some practitioners recommend having two individuals sign) Minutes should be stored in secure location, although it does not need to be in hard copy Note: • •

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Primarily due to litigation concerns, many practitioners recommended only final approved minutes be retained, along with any accompanying materials, and any draft / other meeting notes be destroyed Also, any ancillary documents attached to minutes as “exhibits” are generally considered incorporated into the minutes and therefore accessible through an inspection of books and records. This should be considered when deciding whether or not to note materials as “exhibits” or otherwise keep them in the minute book. In general, clean copies of all materials presented to the board should nonetheless be retained by corporate secretary

Is there a standard practice in Alaska? Perkins Coie LLP | PerkinsCoie.com

Executive Sessions Considerations Executive sessions provide an opportunity for directors to discuss matters outside presence of management Generally held at end of board meetings for convenience Minutes are generally not kept in order to preserve confidentiality and promote candidness, but minutes should reflect that executive session took place, names of participants and duration If quorum is present and action is taken during executive session, presiding director should make sure action is properly recorded in meeting minutes Note: Companies listed on the NYSE or Nasdaq must hold regularly scheduled executive sessions. NYSE also requires listed companies to disclose name of presiding director

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Attorney-Client Privilege Considerations Attorney client privilege protects certain communications with attorneys from compelled disclosure -- i.e., privilege protects communications between attorney and client (or potential client) made in confidence and kept confidential, and is for purpose of providing legal advice Presence of third parties (including board observers) can defeat privilege because discussion may not be deemed to have been made in confidence

Minutes should note only that a privileged matter was discussed and include name of attorney who provided legal advice and who attorney represents (i.e., company, board, etc.) Minutes for privileged discussions can be kept separately, if having more detailed minutes is necessary or advisable Perkins Coie LLP | PerkinsCoie.com

Definition and Scope of “Books and Records” Overview and considerations • State corporate laws require that companies keep accurate books and records and provide shareholders the right to inspect • In many states, certain records, such as shareholder meeting minutes and a shareholder list, may be inspected by shareholders without the need to show a “proper purpose,” while certain other books and records may be accessed only for a proper purpose and at reasonable times • Type of documents and information covered by phrase “books and records” varies from state to state • Alaska code 10.06.430 requires that companies “keep correct and complete books and records of account, minutes of proceedings of its shareholders, board, and committees of the board, and a record of its shareholders, containing the names and addresses of all shareholders and the number and class of the shares held by each”

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Definition and Scope of “Books and Records” – Alaska (cont’d) Companies must make books and records (or certified copies) “reasonably available for inspection and copying at registered office or principal place of business” • Shareholder who wishes to inspect books and records must make written demand and state “with reasonable particularity the purpose of the inspection” • Inspection “may be in person or by agent or attorney, at a reasonable time and for a proper purpose” • Scope of inspection is limited to books and records “directly connected to the stated purpose of the inspection” • Court may compel production if shareholder proves demand for a proper purpose was denied and there is a statutory fine for non-compliance • Some states are very specific about the books and records that may be inspected

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“Books and Records” – Confidentiality Agreement Confidentiality agreements may be appropriate in some circumstances • If minutes a shareholder requests to inspect contain confidential or proprietary information, company may want to require shareholder to sign a confidentiality agreement before permitting inspection • Publicly traded companies are prohibited from selectively disclosing material, nonpublic information when reasonably foreseeable that recipient would trade on basis of that information. An exemption applies if recipient enters into a confidentiality agreement. Thus, if shareholder’s inspection would contain material, nonpublic information, company should require shareholder to sign a confidentiality agreement. Perkins Coie LLP | PerkinsCoie.com

Recent AK Supreme Court Case: Pederson v. Arctic Slope Regional Corporation Background: A shareholder attempted to exercise his right to inspect books and records related to executive compensation and an alleged transfer of equity in subsidiaries to executives Company required a confidentiality agreement, which shareholder refused to sign Company released only annual reports, proxy statements and relevant minutes (no detailed compensation information) Shareholder filed suit, claiming constructive denial of his inspection right Key Alaska Supreme Court holdings regarding shareholder’s right to inspection include: •

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“books and records of account” include electronic records, are not limited to annual reports and proxy statements, and include at least monthly financial statements, records of receipts, disbursements and payments, accounting ledgers, and other financial accounting documents, including individual executive compensation and transfers of corporate assets or interests to executives “minutes” means only the record of items addressed and actions taken, not all presentations or reports made to the board A company may condition inspection upon a shareholder signing a confidentiality agreement if agreement reasonably defines scope of confidential information subject to it and is not unreasonably restrictive considering shareholder’s proper purpose and company’s legitimate confidentiality concerns, and company may refuse to release information to a shareholder who refuses to sign In the Pederson case, court found that confidentiality agreement was unreasonably restrictive in light of shareholder’s purpose and failed to appropriately differentiate between confidential and non-confidential information

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Proposed Alaska Legislation Alaska Senate Bill 77 Bill 77 proposes to amend Alaska corporate statute pertaining to books and records by: •

Expressly permitting company to require shareholder to sign a confidentiality agreement and establishing fine for shareholders who violate it

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Permitting company to require shareholder to pay costs associated with inspecting and copying books and records

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Requiring shareholder whose stated purpose is to uncover misconduct to provide evidence demonstrating a credible basis for inferring existence of misconduct

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Allowing company to deny shareholder access if shareholder owes money to company as a result of court action involving shareholder and company, and in which company was prevailing party

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Requiring shareholder who petitions court to access books and records to show, by preponderance of evidence, that he /she is a shareholder, has complied with statutory requirements, has a proper purpose, that the corporation did not comply with its obligation to allow access, and, if stated purpose is to uncover misconduct, to provide evidence demonstrating credible basis for inferring existence of misconduct

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Legislation also adds definitions, including: •

“books and records of account” to mean corporation’s quarterly and annual balance sheets, statement of income, statement of cash flow, and account balances, debt entries, and credit entries in corporation’s financial accounting journal

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“minutes” to mean official record of subjects discussed and actions taken at meetings…, but does not include presentations, reports, and other materials given to board at meetings

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“proper purpose” to mean purpose that is directly related to shareholder’s interest as a shareholder

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Q&A

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Dos & Don’ts for Board and Committee Minutes* 

DO: Distribute agenda, background materials and proposed resolutions well in advance of meeting, reflect in minutes when and to whom materials were distributed and keep materials with minutes

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DON’T: Wait to provide important background materials until directors arrive at meeting

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Ask someone to draft minutes who may not fully understand their purpose

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Ask skilled professional to prepare minutes

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Minutes should reflect any consultation with outside advisors and any relevant consideration of advisors’ qualifications or independence

Delay preparation of minutes until shortly before next board meeting

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Prepare “bare bones” style minutes for meeting at which significant corporate transaction or decision is discussed

Begin drafting minutes before meeting based on agenda, proposed resolutions and background materials

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Rely on informal, undocumented discussions for purposes of informing directors of or having deliberations on any significant corporate issue

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Record verbatim transcripts of board or committee meeting

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Rely heavily on boilerplate language and templates that mask details of what took place at meeting

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Summarize in reasonable detail all topics discussed and reflect types of questions asked

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Prepare draft minutes for each board and committee meeting promptly and circulate draft minutes to directors as soon as possible after meeting

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Once minutes are approved, have secretary (and chair) of meeting sign them

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Prepare detailed minutes of discussions during executive sessions of independent directors

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Use evolving technology to protect integrity of minutes and related materials to prevent tampering

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Allow employees unrestricted access to minute books

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Seek to protect privileged information or material, nonpublic information contained in minutes when responding to thirdparty request to review minutes

Keep notes made during meeting and early drafts of minutes once final minutes have been reviewed

_____________________________ *See Evelyn Cruz Sroufe, Rebecca H. Hoskins and Scott H. Husbands on Corporate Minutes: Best Practices Create Best Evidence Part II: The Art of Preparing Minutes

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Board Meeting Attendance List

See Handout

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