Outside Director Lessons #11: Committees Need Rules

At Livedoor, I soon proposed that we set up committees of the board to oversee the granular matters in areas such as M&A, finance, and so forth, thinking that this would allow us to specialize to some extent, so that not all of us would have to oversee minor details. But since there was little trust between the new outside directors, everyone immediately wanted to be a member of all committees, and it was impossible to deny anyone that opportunity. The end result was simply to make it unnecessary to reflect some important discussions in the formal board minutes, because the “committee” meetings were not actual “board” meetings.

I had not intended that, – something which reflects my own inexperience at the time, way back in 2007. I realized then that unless you agree in advance on a “Charter” (defined role and duties) for the board, and on rules for record-keeping and other procedures, there may be little record-keeping at all. Or, even if records are kept, it will be on a selective basis, the topics and items chosen by whomever is keeping the records. It was too late to ask for this. As we say in English, “the cat was out of the bag”. In this way, I learned the downside risk of forming “optional” committees that are not required to to make minutes that everyone agrees upon.

Here is another example of what can happen when there are no minutes. Once, months later when we set up a “special committee” to handle a particularly sensitive internal matter, I was suddenly asked by one of the other directors, “why can’t Company Y buy company (subsidiary) XYZ?” Not only was that not the subject of the meeting, but the very question implied a violation of our policy to sell all assets having significant value by way of competitive auctions. I responded, “Company Y can buy XYZ any time it wants, as long as they are the highest bidder in a competitive auction.” That response completely silenced the other director.

In retrospect, I learned that if there had been a rule that at all committees had to produce and agree upon minutes or a record, I probably would never have been asked that question.

Nicholas Benes
(writing in his personal capacity and not representing any organization).

Note: I can write about what happened on Livedoor’s board only because the company no longer exists. Normally as a director, one owes a “duty of confidentiality” to the company, and this duty continues until one dies. But since Livedoor no longer exists, there is no longer any corporation to which I owe a duty.