Corporations Beware: Board of Directors’ Minutes are Subject to Shareholder Review

In Cain v. Merck & Co. Inc., the New Jersey appellate division recently ruled that the New Jersey Business Corporation Act (N.J.S.A 14A:5-28(4)) allows shareholders with a proper purpose to inspect the minutes of the board of directors and executive committee of the corporation.
The question in the case was whether the reference to the term “minutes” in Section 14A:5-28(4) includes board and executive committee minutes (A shareholder may “compel the production for examination by such shareholder of the books and records of account, minutes, and record of shareholders of a corporation . . . .”).  The court concluded that the reference to “minutes” in N.J.S.A. 14A:5-28(4) refers to minutes of shareholder, board and executive committee meetings, rather than only shareholder meeting meetings.
A shareholder’s inspection rights are governed both by the corporate statutory and common law rights.
Under Section 16.02 of the Model Business Corporation Act, which generally follows the common law, shareholders of a corporation are specifically entitled to inspect excerpts of the minutes of shareholder, board and committee meetings.   The New Jersey court’s recent interpretation of the New Jersey statute is in line with the Model Act.
The Delaware corporate statute does not specifically provide that shareholders are entitled to inspect the minutes of the corporation.  Section 220 of the Delaware General Corporation Law provides that stockholders have a right to inspect “the corporation’s stock ledger, a list of its stockholders, and its other books and records.”   There is no mention of the corporation’s minutes, as in the New Jersey statute.  However, it is not clear whether the Delaware courts would find that “other books and records” include board and executive committee minutes, or whether they would determine that, notwithstanding the Delaware statute, a shareholder has the common law right to inspect the corporation’s board and committee minutes.
Accordingly, corporations and their board members should be aware that minutes of board and committee meetings may be subject to shareholder inspection, regardless of the state of incorporation.