Pens in the Board Room

“But these are my personal notes ….” Virtually every litigator has heard this plea from an executive responding to discovery. It is an almost reflexive reaction stemming from the popular myth that “personal” somehow equals “protected,” and often comes from the most sophisticated of corporate directors and high-level management. Too often lawyers hear executives boast about their note-taking prowess while pointing to rows and rows of historical notebooks that they assembled over the years. Many executives learn too late that very little of their “personal” board meeting notes are privileged, and the privilege that might attach to some portions does not even belong to them. More and more frequently in this post-Enron environment, privileged materials are being disclosed by the owner of the privilege ' the corporation ' due to stricter standards for company cooperation in government investigations, particularly in civil investigations by the U.S. Securities and Exchange Commission (SEC) and criminal inquiries by the U.S. Department of Justice (DOJ).

The likely discoverability of personal meeting notes can create serious and unexpected litigation exposure. In response to this risk, directors are becoming increasingly reluctant to take any notes at all during meetings. This zero-sum response, however, may not be the best response for directors who want to personally document their diligence or who simply take notes out of personal preference and habit. Counsel can help satisfy these goals while also minimizing unnecessary litigation risks by creating and enforcing a controlled note-taking and Board minute policy for Board meetings.

Privilege Parameters

The crucial line between truly privileged materials and those that contain merely sensitive or confidential information often is dangerously blurred in directors' minds. This is particularly so with respect to personal notes taken during board meetings because such notes often contain detailed summaries of both privileged conversations with counsel and other non-privileged communications among board members. The presence of some privileged information does not provide a protective shield over the entire document, and the writer's personal thoughts and impressions that are not directly tied to legal advice may be ripe for discovery. Of course, the presence of an outside party at the meeting, such as an auditor, usually eliminates the ability to claim privilege over any communications during the meeting.

Corporate Scandal Fallout: More Privilege Waivers

Directors should understand that even their privileged notes are not immune from disclosure, and they should take notes with the expectation of disclosure. The post-Enron era of increased governmental scrutiny and more stringent guidelines for crediting company cooperation has led the government to essentially require privilege waivers before giving full cooperation credit. For example, the Thompson Memorandum, a 15-page document drafted by Deputy Attorney General Larry D. Thompson in 2003, provides guidance to federal prosecutors in determining whether to pursue criminal charges against corporations. According to this memorandum, the DOJ evaluates the nature and extent of a company's cooperation in part by the company's agreement to waive attorney-client and work product protections: “One factor the prosecutor may weigh in assessing the adequacy of a corporation's cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel.”

The Thompson Memorandum not only lists the waiver of attorney-client privilege generally but also specifically addresses privileged communications involving directors. This emphasis puts more pressure on a company to expose such materials as directors' personal meeting notes in which conversations with counsel may be summarized in an effort to demonstrate compliance and cooperation with the government's investigation.

The SEC provides its own guidelines in determining the extent and nature of any enforcement actions against the company. On Oct. 23, 2001, the SEC released a Report Of Investigation Pursuant To Section 21(a) Of The Securities Exchange Act to encourage cooperative efforts by public companies and others. The SEC identified 13 non-exclusive criteria that it agreed to consider in determining whether, and how much, to credit self-policing, self-reporting, remediation and cooperation before deciding whether any enforcement action is necessary and, if so, what type of action should be instituted. Chief among the 13 criteria is the extent of the company's voluntary waiver of applicable attorney-client and work product protections. The waiver of privilege, while not technically required, in practice is one of the most important factors required by the SEC. Companies are under tremendous pressure to comply with government waiver requests to demonstrate their full cooperation.

Litigation Exposure

The chief risk raised by waivers as to the government is that they may be extended to the shareholder class action and other lawsuits that accompany many investigations. There is a large risk in several jurisdictions that a voluntary waiver of privilege during a government investigation, even under a confidentiality agreement, may result in a complete waiver of the privilege as to all third parties. Companies are faced with the difficult decision to cooperate with the government to the fullest extent possible while at the same time increasing the risk of liability on the class action front where directors' notes and related materials will provide plaintiffs' counsel a playground of information.

Given this risk, consideration must be given to the costs and benefits of maintaining personal notes. For example, all companies should be preparing formal minutes of board meetings, and discoverable personal notes of those same meetings provide a potential weapon for those wishing to discredit the accuracy of the official meeting minutes and the competence of both the note takers and other officers and directors at the meetings. Multiple sets of personal notes taken by different directors provide fertile ground for plaintiffs' attorneys to compare the notes and memories of multiple directors regarding the same meeting, all in an effort to cast doubt on the credibility and thoroughness of the directors and the Board as a whole.

Note-taking Reluctance and Impact on Fiduciary Responsibilities

In response to these concerns, some directors have become increasingly reluctant to take any notes at all during meetings for fear that they will later be used as a litigation weapon. Some venture capitalists, for example, are well known to arrive at, and leave, board meetings empty-handed. If the right steps are taken, a director's refusal to take notes during a board meeting in reaction to potential litigation risks does not impede the ability to document the directors' fulfillment of their fiduciary duties. A director's duty of care involves making informed business judgments in the interests of the shareholders after careful examination of the available information. A board's official meeting minutes should document the directors' attendance and constructive participation in meetings where difficult questions are addressed and decisions are agreed upon. These minutes should reflect the steps taken by the directors to satisfy their fiduciary duties.

Practical Solutions

Taking notes during meetings is a matter of personal preference and directors should not be forbidden to write during important meetings. Sometimes personally writing on complicated matters can help clarify the issues and serve as a roadmap to ensure that all questions and issues are adequately addressed. There is a point, however, where the notes lose their usefulness or, at the very least, their utility is outweighed by the risks they create. A practical solution is to create a uniform and controlled system of note-taking, whereby directors may take notes during meetings, and may maintain those notes while the formal meeting minutes are finalized and approved by the board. At that point, after each director has reviewed and approved the formal minutes, the personal meeting notes and any draft minutes would be destroyed as a matter of policy. This policy should not be ad hoc but rather written, formally approved, and enforced. Formal board minutes can provide the exclusive record of the proceedings. With this approach, the benefits of note-taking are retained but without unnecessary litigation risks.

“But these are my personal notes ….” Virtually every litigator has heard this plea from an executive responding to discovery. It is an almost reflexive reaction stemming from the popular myth that “personal” somehow equals “protected,” and often comes from the most sophisticated of corporate directors and high-level management. Too often lawyers hear executives boast about their note-taking prowess while pointing to rows and rows of historical notebooks that they assembled over the years. Many executives learn too late that very little of their “personal” board meeting notes are privileged, and the privilege that might attach to some portions does not even belong to them. More and more frequently in this post-Enron environment, privileged materials are being disclosed by the owner of the privilege ' the corporation ' due to stricter standards for company cooperation in government investigations, particularly in civil investigations by the U.S. Securities and Exchange Commission (SEC) and criminal inquiries by the U.S. Department of Justice (DOJ).

The likely discoverability of personal meeting notes can create serious and unexpected litigation exposure. In response to this risk, directors are becoming increasingly reluctant to take any notes at all during meetings. This zero-sum response, however, may not be the best response for directors who want to personally document their diligence or who simply take notes out of personal preference and habit. Counsel can help satisfy these goals while also minimizing unnecessary litigation risks by creating and enforcing a controlled note-taking and Board minute policy for Board meetings.

Privilege Parameters

The crucial line between truly privileged materials and those that contain merely sensitive or confidential information often is dangerously blurred in directors' minds. This is particularly so with respect to personal notes taken during board meetings because such notes often contain detailed summaries of both privileged conversations with counsel and other non-privileged communications among board members. The presence of some privileged information does not provide a protective shield over the entire document, and the writer's personal thoughts and impressions that are not directly tied to legal advice may be ripe for discovery. Of course, the presence of an outside party at the meeting, such as an auditor, usually eliminates the ability to claim privilege over any communications during the meeting.

Corporate Scandal Fallout: More Privilege Waivers

Directors should understand that even their privileged notes are not immune from disclosure, and they should take notes with the expectation of disclosure. The post-Enron era of increased governmental scrutiny and more stringent guidelines for crediting company cooperation has led the government to essentially require privilege waivers before giving full cooperation credit. For example, the Thompson Memorandum, a 15-page document drafted by Deputy Attorney General Larry D. Thompson in 2003, provides guidance to federal prosecutors in determining whether to pursue criminal charges against corporations. According to this memorandum, the DOJ evaluates the nature and extent of a company's cooperation in part by the company's agreement to waive attorney-client and work product protections: “One factor the prosecutor may weigh in assessing the adequacy of a corporation's cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel.”

The Thompson Memorandum not only lists the waiver of attorney-client privilege generally but also specifically addresses privileged communications involving directors. This emphasis puts more pressure on a company to expose such materials as directors' personal meeting notes in which conversations with counsel may be summarized in an effort to demonstrate compliance and cooperation with the government's investigation.

The SEC provides its own guidelines in determining the extent and nature of any enforcement actions against the company. On Oct. 23, 2001, the SEC released a Report Of Investigation Pursuant To Section 21(a) Of The Securities Exchange Act to encourage cooperative efforts by public companies and others. The SEC identified 13 non-exclusive criteria that it agreed to consider in determining whether, and how much, to credit self-policing, self-reporting, remediation and cooperation before deciding whether any enforcement action is necessary and, if so, what type of action should be instituted. Chief among the 13 criteria is the extent of the company's voluntary waiver of applicable attorney-client and work product protections. The waiver of privilege, while not technically required, in practice is one of the most important factors required by the SEC. Companies are under tremendous pressure to comply with government waiver requests to demonstrate their full cooperation.

Litigation Exposure

The chief risk raised by waivers as to the government is that they may be extended to the shareholder class action and other lawsuits that accompany many investigations. There is a large risk in several jurisdictions that a voluntary waiver of privilege during a government investigation, even under a confidentiality agreement, may result in a complete waiver of the privilege as to all third parties. Companies are faced with the difficult decision to cooperate with the government to the fullest extent possible while at the same time increasing the risk of liability on the class action front where directors' notes and related materials will provide plaintiffs' counsel a playground of information.

Given this risk, consideration must be given to the costs and benefits of maintaining personal notes. For example, all companies should be preparing formal minutes of board meetings, and discoverable personal notes of those same meetings provide a potential weapon for those wishing to discredit the accuracy of the official meeting minutes and the competence of both the note takers and other officers and directors at the meetings. Multiple sets of personal notes taken by different directors provide fertile ground for plaintiffs' attorneys to compare the notes and memories of multiple directors regarding the same meeting, all in an effort to cast doubt on the credibility and thoroughness of the directors and the Board as a whole.

Note-taking Reluctance and Impact on Fiduciary Responsibilities

In response to these concerns, some directors have become increasingly reluctant to take any notes at all during meetings for fear that they will later be used as a litigation weapon. Some venture capitalists, for example, are well known to arrive at, and leave, board meetings empty-handed. If the right steps are taken, a director's refusal to take notes during a board meeting in reaction to potential litigation risks does not impede the ability to document the directors' fulfillment of their fiduciary duties. A director's duty of care involves making informed business judgments in the interests of the shareholders after careful examination of the available information. A board's official meeting minutes should document the directors' attendance and constructive participation in meetings where difficult questions are addressed and decisions are agreed upon. These minutes should reflect the steps taken by the directors to satisfy their fiduciary duties.

Practical Solutions

Taking notes during meetings is a matter of personal preference and directors should not be forbidden to write during important meetings. Sometimes personally writing on complicated matters can help clarify the issues and serve as a roadmap to ensure that all questions and issues are adequately addressed. There is a point, however, where the notes lose their usefulness or, at the very least, their utility is outweighed by the risks they create. A practical solution is to create a uniform and controlled system of note-taking, whereby directors may take notes during meetings, and may maintain those notes while the formal meeting minutes are finalized and approved by the board. At that point, after each director has reviewed and approved the formal minutes, the personal meeting notes and any draft minutes would be destroyed as a matter of policy. This policy should not be ad hoc but rather written, formally approved, and enforced. Formal board minutes can provide the exclusive record of the proceedings. With this approach, the benefits of note-taking are retained but without unnecessary litigation risks.