COVID-19: 10 considerations for UK directors: virtual board meetings

Our 10 virtual board meeting considerations for UK private companies are:

• Is a board meeting required?
• What flexibility is there to hold board meetings?
• Can you hold a virtual board meeting?
• How to ensure a quorum is present?
• What about alternate directors?
• What notice needs to be given?
• What details should be included in the notice?
• What is the location of the meeting?
• Can you circulate soft-copy board papers?
• What about a director of a FCA/PRA regulated business?

Board decisions made now still need to be robust and effectively made. Those decisions may be challenged after the crisis and need to be made as well virtually as they were when physical meetings were possible.

Given the challenges presented by COVID-19 and the fact that boards will often need to make material judgments and decisions to address those challenges, the manner in which board meetings are conducted is likely to come under even greater scrutiny than normal. The quality of the information presented to the board, the way in which it is made available, and the manner in which meetings are run will be more important than ever.

As we start moving to a 'new normal', this will also pose many challenges for businesses. Regular and efficient board meetings are vital to enable businesses to try and address the immediate and long-term challenges arising from this crisis.

See also COVID-19: 10 corporate governance points for UK directors.

Is a board meeting required?

Can certain decisions be taken by way of written resolution, or perhaps by a smaller board committee instead of by meeting? Generally written board resolutions can be passed electronically and in some circumstances decisions can be made after email discussion. Always consult the company’s articles of association (articles) to see what is permissible. Points to watch include tax (depending on the location of the directors) and formalities.

Whilst mitigating the need for full board meetings may be sensible, companies’ boards should avoid reaching decisions (whether by email or otherwise) without formally passing a resolution. Any informal decisions that are taken should be followed by a written resolution. You could also consider having full board approval of board committee decisions if thought useful as a way of the full board maintaining its overall supervision of the relevant matter.

What flexibility is there to hold board meetings?

UK boards have a significant amount of flexibility and autonomy about how they conduct their meetings, subject to the articles. The UK’s private company model articles (Model Articles) provide that the directors may make any rule which they think fit about how they take decisions, and about how such rules are to be recorded or communicated to directors. This recognises the business reality that boards often need to meet at short notice to deal with urgent business matters quickly and decisively.

Can you hold a virtual board meeting?

In light of social distancing measures, directors may no longer be able to meet together in a physical location to transact business. But, boards may be allowed to hold board meetings by video, telephone or other electronic means.

The Companies Act 2006 generally allows e-communications but the articles should also be checked for any provisions on telephone or video conferencing. Even if a company’s articles do not expressly allow board meetings to be conducted electronically, we think it will generally be legally effective.

If a virtual board meeting is held, each director present must be able to engage effectively in the meeting and speak to all of the other directors and to be heard clearly by those present.

Company secretaries should engage in active dialogue with directors to plan sufficiently in advance of any virtual meeting to ensure effective participation.

The art of chairing a virtual meeting requires additional skills including keeping people focussed, regularly checking that the participants are comfortable with the pace of the meeting, making sure breaks are taken (as attention spans may well be shorter) and ensuring that it is clear when a decision is being made and what the decision is as opposed to a point merely being noted.

See also the Chartered Governance Institute’s recent good practice for virtual board meetings.

How to ensure a quorum is present?

No business can be transacted at a board meeting unless a quorum of directors is present. The articles usually specify the quorum requirements for board meetings and, generally, no business will be validly transacted at a board meeting where there is an insufficient number of eligible directors participating.

In the Model Articles the quorum is two directors, unless there is only one director, in which case, it is one.

During these challenging times, boards must ensure that sufficient measures are in place so that board meetings are quorate. Unfortunately, the reality of COVID-19 may give rise to circumstances where one or more directors will not have the capacity to participate. If this arises, the meeting may not be quorate and then any business transacted may be deemed to be invalid.

What about alternate directors?

Directors should therefore think about appointing an alternate director to attend and participate in board meetings where they are unable to do so. An alternate director will count towards the quorum requirement, provided that their appointing director is not also present (and their appointing director would have been entitled to form part of the quorum at the meeting).

But, a director can only appoint an alternate director if the articles provide for this, as there is no inherent right to appoint one just because you are a director. And, the Model Articles do not allow for the appointment of alternate directors unless they have been amended to include this.

What notice needs to be given?

Notice must be given to each director, but need not be in writing. The form of notice for a directors' meeting depends on the articles and on any shareholders' agreement. If the articles are silent, the form of the notice is a matter left to the board and verbal notice may be enough depending on the circumstances.

If the articles don’t specify a notice period, the notice period is also a matter for the board. But, the notice given should be reasonable in the context of the company, the business to be transacted and the directors who are entitled to receive the notice. Unless there are extenuating circumstances, directors should receive adequate notice of board meetings to ensure that they can prepare for, attend and participate.

What details should be included in the notice?

Again, this is usually determined by the articles. The Model Articles state that notice must indicate the proposed date, time and location of the meeting. If it is anticipated that not all of the directors participating in the meeting will be in the same location, the notice should also state how it is proposed that the directors will communicate with each other for the purposes of the meeting.

What is the location of the meeting?

This is a usually set out in the articles and the company secretary should check to see if there are any restrictions on the location, for example, if it is necessary for tax, regulatory or other purposes to control carefully the jurisdiction from which the company's management was deemed to take place.

The Model Articles provide that if the directors are not in the same location, they can decide that the meeting is to be treated as taking place wherever any of them is. Alternatively, the articles may say that the location is:

• where the largest group of those participating in the meeting is assembled;
• if there is no such group, the location of the chair; or
• if neither of the above applies, in such location as the meeting itself decides.

Can you circulate soft-copy board papers?

Yes. The timing for the circulation of board papers is usually set by the company secretary or at the preference of the directors. There are no prescribed specifications set by law, however, it is advisable that board papers are circulated in sufficient time for the board to review them so that each director can make a meaningful contribution to the discussions and make informed decisions.

With continued technological improvements, and an increased focus on environmental sustainability and efficiency, there has been an unprecedented shift in demand for board papers to be distributed through electronic means. These systems can facilitate the secure and efficient delivery of board materials, enabling directors to make informed decisions at board meetings. There are various dedicated board portal systems and software packages available, including our own, further details of which can be accessed here.

In the event that boards face increased challenges (including potential litigation) over some of their decisions taken during the COVID-19 crisis, which some see as likely, their meeting processes are also likely to come under scrutiny. For this reason, boards should ensure that they are operating as efficiently as possible and using all the available tools, processes and skills which will facilitate good decision making.

What about a director of a FCA/PRA regulated business?

In addition to general corporate governance considerations, it is important that directors of FCA/PRA regulated firms who are Senior Managers (e.g. Senior Management Function 3 and Senior Management Function 9) ensure that they are taking appropriate “reasonable steps” during this period.

In particular, this includes making sure that (regardless of the format of the meeting) they are receiving the right management information on COVID-19 and the risks it presents to the business (both actual and emerging risks), that they appropriately review, consider and challenge the management information received, that they record such challenge and any key decisions appropriately in board minutes, and that they have appropriately identified a successor in the event they become ill themselves.

We have been advising firms on the SMCR implications of COVID-19.

See the FCA/PRA statements below for more information.

Dual regulated firms - https://www.fca.org.uk/news/statements/joint-fca-pra-statement-smcr-coronavirus-covid-19
Solo regulated firms - https://www.fca.org.uk/news/statements/smcr-coronavirus-our-expectations-solo-regulated-firms

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.