Corporate Governance Practices andSupporting your Board

Kristina Veaco, Esq.

April 16, 2015

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Role of the Board

Primary board functions include: Major decision making for the organization

Determination and oversight of the entity’s strategy Risk oversight Setting and overseeing performance goals Approval (or not) of major corporate transactions

Overseeing and advising executive staff, Hiring, compensating and, if needed, firing the CEO CEO succession planning Serving as a “sounding board”

Providing leadership to executive staff and the organization as a whole Setting the “tone at the top” Sharing expertise and sometimes challenging

perspectives

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Director Fiduciary Duties

Duty of Care: Informed decision making, diligence,

reasonable prudence

Duty of Loyalty: Decisions in the interest of the entity, not the

director; disinterested; disclosure of conflicts

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Business Judgment Rule

Presumption that boards and directors have acted reasonably and in the interests of the organization Decided by courts in hindsight More likely to be applied where there is

documentation of sound practices and processes around board decision making

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What Do Directors Need?

Meetings covering matters important to the organization

Intelligible, reliable informationTime to prepare, discuss, challenge,

reflect and considerCulture of openness, inquiry, diversity

in viewpoint, collegiality and respectUnderstanding of the business and

the environmentProcesses which support all of the

above and minimize distractionsLogistical assistance

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How many (bylaws, governance expectations)

Commonly: Bds. 5-7, Audit 4-8, Others 2-5

When (company tradition) Committees sequential vs. concurrent Committees on same day as Board or different

day

Notice needed (state law, bylaws) Annual schedule, courtesy reminders, waivers

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Scheduling Meetings

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Set meeting schedule at least a year in advance

Re-check director availability with Exec. Assts.

Send reminder notices, even if not requiredTrack and communicate with directors re

attendance %s throughout the yearRelationships make a difference; personal

calls can help when attendance vitalConsider limits of human attention span

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Scheduling Tips

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Agenda Development

Boards and committees have a lot (more and more) to do

Annual draft agendas help keep track Based on state law, bylaws, board and committee

charters, regulatory requirements, board fiduciary responsibilities, policies, strategic/critical issues, business cycle, sound governance practices, tradition

Actual meeting agendas require Adjustment from annual draft, as needed Thought as to the best order of items to be

considered Clarity as to action needed Consideration of the limits of human attention span Some annotation for the Chair and CEO Scheduled Executive Sessions

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Materials and Presentations

A well thought out process and set of standards for materials and presentations help ensure directors understand

Templates for all materials and presentations Internal review process Meaningful cover letters or summaries Firm deadlines for delivery Final review prior to distribution Secure distribution at least several days before

meeting Rehearsals for presenters

Problem areas: length, jargon, lack of analysis, lack of clarity in written materials; oral presentations that simply repeat written materials

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Use of board portals for distribution of materials and more

Directors access materials online Use of tablets by directors is increasing in the

board room (may change the dynamic) Some Board rooms may require reconfiguration

or upgrading for new technologies, video conferencing and use of tablets (state law requirements, increasing costs, security, and technological support needs)

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Technology

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Meeting Logistics

More than just administrative: Point is to make it simple, painless, so it is easy to focus on business

Advance scheduling of meetings (1 or 2 years) Official and courtesy notices Handling director travel, lodging, and other

individual requirements Clear, understandable materials Advance delivery of materials Process for meeting room and food

arrangements

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Minutes

Minutes may (or may not) support the applicability of the business judgment rule if board actions are challenged

Minutes are supposed to be a written record of what went on in meetings, documenting action and governance

The facts, without characterization Consistent style and format are helpful (templates) Not a transcript

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Actions Without a Meeting

State law governs Unanimous Written Consent – most common Lawyers differ as to whether email response without

electronic signature or scanned copy of signed document will constitute a vote

Will counsel be able to issue legal opinion or Corporate Secretary be able to certify that action validly taken

UWC becomes effective on date last signature is received or at a later specified date.

File all responses along with the UWC and materials in the minute books.

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Records

Records help guide board action and also support the board’s exercise of due care and loyalty

From a governance perspective, records include: articles, bylaws, committee charters, meeting agendas and materials, minutes and resolutions

Goal is for records to be Organized Searchable Securely accessible Permanent (for the most part) Protected against destruction by fire, etc.

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A Few Important References

• Re the Duty of Care, see e.g., Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), and In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996) and state corporate law statutes

• Re the Duty of Loyalty, see Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1345 (Del. 1987) and various state corporate law statutes.

• For a comprehensive discussion of director fiduciary duties, see Nadelle Grossman, Director Compliance with Fiduciary Duties in a Climate of Corporate Governance Reform, 12 Fordham J or Corp. & Fin. Law 393 (2007)

• Re the Business Judgment Rule, see Aronson v. Lewis, 473 A2nd 805, 812 (Del 1984)

• Re minutes, see In Re The Walt Disney Co. Derivative Litig,. 906 A.2nd 27 (Del. 2006) and also A. Gilchrist Sparks, III & S. Mark Hurd, In re The Walt Disney Company Derivative Litigation, Delaware’s Supreme Court Affirms Defendants Did Not Breach their Fiduciary Duties in the Hiring and Firing of Michael Ovitz -Morris, Nichols, Arsht & Tunnell LLP (June 13, 2006).

• Re the role of the corporate secretary, see Kristina Veaco and Cheryl Sorokin, The Role of the Corporate Secretary: Facilitating Corporate Governance and the Work of Corporate Boards, 96 Corporate Practice Series (BNA)

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Questions?

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Contact Information

Veaco Group Corporate Governance Advisors

www.veacogroup.com

Kristina Veaco, Esq.415 731-3111

kveaco@veacogroup.com

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