General Counsel and Corporate Secretaries are all too familiar with the myriad processes and details that are required for the six-, eight- or ten-times per year set of Board and Committee meetings. Working with the CEO, Chairman, Lead or Presiding Director, and Committee Chairs to create the agendas, making sure meeting times do not overlap, ensuring presenters are available and understand the purpose of their presentations, overseeing preparation of the "books," responding to many substantive and procedural questions, preparing minutes, etc., etc., are all part of the process and, over time, can settle into a certain, if hectic, routine.
A number of troublesome issues, however, recur on an all-too-frequent basis. This is the first of a series of Client Alerts whose goal is to discuss a number of these nettlesome issues and suggest some practical, potential approaches that, if not making the problem "go away," will at least present a way of thinking about the issue that hopefully can provide a framework for resolution. Our goal is to publish these Client Alerts on a monthly basis. Feedback and comment are most welcome, and (on a non-attribution basis, unless you prefer otherwise) will be reflected in future Alerts. The goal is to offer practical suggestions to deal with real-life issues. The issue for this month is "Does That Matter Really Need To Go To The Board?"
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All too often, General Counsel and Corporate Secretaries are on the receiving end of this question from the CEO, and it is obvious what he/she thinks is the right answer. On very few occasions, there are the refreshingly crisp and definitive answers that Board approval is mandated by state law (e.g., a merger) or by some regulatory requirement. These instances are all too rare, however. In some instances, the company's Corporate Governance Guidelines can provide an answer (e.g., when a metric (such as a defined percentage of shareholders' equity) specifies the size of an acquisition or disposition that requires Board approval). All too often, however, the answer is "we did it that way last year" or "it just seemed like a good thing to add to the agenda." These responses will usually produce a request to rethink the issue.
In the absence of any statutory, regulatory or corporate governance guideline requirement, the following may be a useful way of thinking about the issue of whether a particular item or matter needs to go to the Board. If the cost of the item or matter is reflected in the company's annual operating budget that the Board has previously approved, or if the item or matter is in the ordinary course of business (even if large in amount) or is clearly immaterial, then the answer should be clear that no Board approval is required. If not, the next place to look is to precedent-in the past few years, has there been any comparable item or matter, was Board approval sought, and, in hindsight, did that treatment seem right. That will still leave a number of items and matters in a murky, grey zone. One way to think about them is to ask oneself how the Board would react if the proposed item or matter goes forward without Board approval but then turns out poorly. How will management respond when asked by a Board member why the Board had not heard about this matter before? This is essentially a risk and materiality analysis and will frequently bring the debate to a close, as it will be fairly clear whether eliminating the risk justifies spending a few minutes presenting the matter at a Board meeting.
At the same time, raising the matter privately with the Lead or Presiding Director (or Chairman, if the CEO/Chairman functions have been separated) to get his or her reaction as to whether the Board would find the matter a waste of time or useful also can be a helpful approach. At the very least, it sends a strong signal to the Lead or Presiding Director (or Chairman) that senior management is sensitive to the wishes of the Board and is "walking the walk" as well as "talking the talk" on transparency.
At the end of the year, as part of its self-evaluation process, the Board can be asked whether it feels too many "minor" items were presented to it or whether it feels the agenda items were, on the whole, appropriate.