US$237 Settlement by Boeing Directors Further to Boeing 737 MAX Safety Issues

The media reported this weekend that directors of the Boeing corporation just settled a lawsuit by shareholders, in connection with the massive problems of the Boeing 737 MAX, a debacle that included planes literally falling from the sky.

As we were reminding everyone recently, sitting on a board of directors isn’t all cocktails and schmoozing, it’s also real important work that can entail very real liability. In the case at hand, the liability at issue resulted in a settlement of US$237M which, to say the least, isn’t pocket change.  This is a good example of the reality that, yes, being a director entails exposure to eventual lawsuits, including by shareholders who may be impacted by bad decisions by the corporation’s board.

Here, the shareholders sued, based on the alleged directors’ failure, in their fiduciary responsibility, to adequately monitor safety issues of with the new model (then) being developed by Boeing. According to the shareholders’ claim before the courts, the lack of discussions and monitoring of safety issues by the board amounted to negligence. For example, the shareholders demonstrated that the Boeing board has created no specific committee to monitor safety issues which, in turn, allowed the corporation’s adoption of “unsafe business practices”.

This case also serves as a good reminder that, generally speaking, any potential director would do well to make sure he/she will be covered by adequate E&O insurance, before accepting to sit on the board of any corporation. Of course, it goes without saying that the coverage of those policies should be adapted to each case, being understood, for example, that acting on the board of a local business that runs restaurants does not entail the same level of risk and exposure as sitting on the board of a multinational aerospace company.

Yup, the reality is that being a director may have you sued down the line. Expect it, plan for it, including by taking your role seriously and making sure that the minutes and resolutions do reflect discussions and the work done by the board, over time. You never know when that evidence may come-in handy, to avoid liability. Failing that, decent E&O insurance coverage may be your best ally, make sure it is in place.

Drafting Minutes: More Art Than Science?

I attended a worthwhile webinar on Friday about what may seems like a boring subject but that’s actually (legally) an important topic: the drafting of minutes for meetings like board of directors meetings. The speaker was Sylvia Groves, founder of Governance Studio, a firm that specializes in helping organizations like corporations handle and prepare good meeting minutes.

The truth is that most most lawyers and paralegals who often handle these tasks just learn about doing this as they go. As a result, the style and quality of minutes we see in minute-books vary considerably.

To start, I agree with the speaker that anyone who draft minutes should start by remembering why we’re doing it and what function meeting minutes have, legally, namely to provide with a prima facie evidence that such and such decisions were taken on this particular day by this particular group.

We should also remember that a ancillary goal is to provide evidence that certain decisions haver been formally taken, but also how these decisions were arrived at. We often forget that the goal of these minutes is partly to shield deciders (like directors) from eventual claims that they either did not exercise due care or that they failed in their fiduciary duty to protect those they were supposed to protect. Well prepared minutes should (ideally) protect those involves in an official capacity from such eventual claims.

To do this, Sylvia Groves, recommends minutes that are neither too long, nor too short, including avoiding minutes that limit the description of any point to the conclusion/decision to which the group arrived at. Rather, adequate minutes should provide a summary of the discussions about any given point and that allow us to know what the group considered, how, and based on what information and documents. What you want, is to make sure a trace is kept about the fact that the group was diligent about considering any issue it considered, along with the rational it applied in reaching the conclusion that culminated in any given decision.

Other pieces of advice for anyone preparing minutes include the following:

  • Remember that the main goal is to provide a record that a given decision was taken by the group, in accordance with requisite formalities – the minutes should of course reflect who attended and any vote submitted to the group, including the outcome of that vote, who may have abstained, etc.;
  • The goal is not to reflect every word that was uttered during that meeting -Avoid minutes akin to a mere transcription of what specific individuals said and how – the minutes should reflect that a group discussion was held, not generally who said what specifically;
  • Minutes should also generally avoid naming individuals, except when a specific person is reporting on something further to an assignment for the group (it’s a “team sport”, to use Sylvia Grove’s expression);
  • You should, of course, avoid minutes that fail to reflect what actually transpired during a meeting, including by claiming certain points were discussed or decided upon but that were not actually part of the meeting (yes, even if it was an oversight);
  • As with other legal documents, precision and terminology do matter – don’t use terms of art, acronyms, business lingo and buzzwords without first defining them;
  • Be consistent in your drafting (form-wise) and do use the correct names and titles of individuals (for example, don’t talk of the Comptroller if her title is actually Vice-President, Finance, etc.);
  • Ideally, do get rid of drafts and meeting notes once the minutes have been prepared, approved and signed -in case of eventual litigation, leftover documents like these could become a problem if they reflect something not reflected in the minutes .

Though 95% of board and shareholder formal decisions for small and medium-sized businesses (SMBs) are presented in written “resolutions”, several of the above-mentioned advice does apply. Definitely worthwhile points to keep in mind when drafting resolutions and minutes.

BTW: Governance Studio (which I have not relationship with) has several books on governance, including a short (free) one entitled 10 Secrets Directors Must Know About Minutes). Thank you Sylvia!