I am always surprised when something I believed to be true turns out not to be--that Abner Doubleday invented baseball comes to mind. I'm still being surprised.
For example, I learned recently not only that many state corporation statutes do not require a non-profit organization to maintain minutes of board meetings, but also that the failure to keep those minutes is not a serious legal problem. It turns out the ordinary statutory requirement "to maintain good and correct records" does not necessarily include the detailed minutes of board and committee meetings.
But that doesn't mean corporate counsel are off the hook if their records are less than perfect. The IRS, with its new Form 990, is getting into the act. Every year you now have to answer the following question from Line 8 of Part VI: Did [your non-profit organization] contemporaneously document the meetings held ... during the year by: (a) the governing body, [and] (b) each committee with authority to act on behalf of the governing body? Nobody wants to wave a red flag in the IRS's face by answering that question in the negative. This is the IRS's passive-aggressive way of encouraging, if not enforcing, good governance practices.
My first thought about this "encouragement" was what does "contemporaneously" mean here? Most meeting minutes are taken through the course of the meeting itself. That is as contemporaneous as you can get. I'm pretty sure that will satisfy the IRS. It probably wants to discourage the lazy corporate secretary who routinely reconstructs last month's meeting from memory just in time to submit the minutes for approval at the next. But how could it tell? If made-up-from-memory minutes are submitted and approved, there isn't any evidence of the lazy secretary's malfeasance and no one is the wiser until something goes wrong. Still, the question on the Form 990 probably achieves its aspirational purpose. Now if the IRS made contemporaneous minutes a full-fledged regulation with enforcement teeth, that would be different. But it has not.
My second thought about this was from the perspective of the attendees of the board (or committee) meeting. Let's say the meeting was documented immediately but they weren't asked to approve the minutes until the beginning of the next meeting three (or more) months later. Is that contemporaneous enough? After all, memories fade and political biases can intrude to complicate the usually rote approval of the minutes. It seems to me a contemporaneous requirement should also require that the minutes be reviewed and corrected by the attendees promptly after the meeting when memories are fresh and other events have not intruded to affect them. Formal approval could wait until the body meets next. But a mere question on the Form 990 does not offer any guidance on this point.
I learned something else new about corporate minutes thanks to the bitter lawsuit involving former Disney chief Michael Eisner and former Disney president Michael Ovitz. When he was fired after only 14 months on the job, Ovitz claimed he was owed a $130 million termination benefit. When he got it, the shareholders objected and claimed the board had violated its duty of care to them. As it turned out, everything hinged on the minutes of the meeting during which Ovitz's employment agreement was approved. The case would have been dismissed at the outset, but the minutes were not a clear enough documentation that the board had done its job. Lengthy and expensive litigation ensued.
Ovitz got his money because evidence other than the minutes showed the Disney board had good enough reasons for approving the Ovitz agreement. The benefit to the rest of us is there is now clear direction as to how minutes should be written and documented.