Is tape or e-recording essential for validity of board meetings via tele/video conferencing?

Sometime in August 2001, the ACCRA Law Offices, through its then Managing Partner, Victor P. Lazatin, requested for an opinion from the Securities and Exchange Commission ("SEC") as to whether or not the requirement that directors should be present in board meetings may include presence via telephone or video conferencing.

Section 25 of the Corporation Code provides that directors must be "present" in board meetings and they cannot attend or vote by proxy in said board meetings. In an Opinion dated Sept. 10, 1993, the SEC opined that Section 25 requires actual physical presence. Any form of presence other than by actual presence, including teleconferencing, was deemed unacceptable. The SEC stated that "like any other form of electronic machines, telephone conversation is hard to prove by admissible evidence because telephone and voice messages can also be easily dissimulated."

The ACCRA request for opinion was predicated on the argument that the Corporation Code does not specifically require "physical" presence. It merely requires presence of directors in the board meeting, without distinguishing between physical and electronic or virtual presence. ACCRALAW argued that the strict interpretation given by the SEC of Section 25 has been overtaken by rapid developments in the field of electronic communications. ACCRALAW cited the Electronic Commerce Act ("ECA"), enacted in June 2000, which was passed to facilitate domestic and international dealings done through the medium of electronic communications. The law firm also cited, as an example, the General Banking Law of 2000 which expressly recognized tele/video conferencing as a medium for attendance in board meetings for banks and other institutions covered by the law. It also cited foreign jurisdictions which recognize presence in directors’ meetings by way of telephone or video conferencing call.

In response, the SEC, in a letter dated Aug. 9, 2001, replied favorably, stating that it was modifying its previous opinion requiring "actual presence" of directors and trustees and allowing presence of directors via teleconferencing or video conferencing. The SEC added, however, that tele/video presence may be deemed acceptable only if adequate safeguards are put in place. Meetings of this nature should be properly recorded and the appropriate tapes and discs properly stored for safekeeping.

Subsequently, the SEC promulgated SEC Memorandum Circular No. 15, series of 2001, which prescribes detailed safeguards for telephone or video conferencing. The Circular requires the secretary of the meeting "to record the proceedings" and "store for safekeeping and mark the tape recording/s and/or other electronic recording mechanism as part of the records of the corporation." The Circular likewise prescribes that the secretary shall require all the directors who attended the meeting, whether personally or through tele/videoconferencing, to sign the minutes of the meeting to dispel all doubts on matters taken up during the meeting."

The question has been asked: Is the recording of the entire proceedings by tape or other electronic means essential to the validity of board meetings conducted through video or telephone conferencing?

In a letter opinion to the Siguion Reyna, Montecillo and Ongsiako Law Offices dated May 23, 2002, the SEC ruled that "recording of the tele/video conference proceedings of the Board of Directors should be a condition sine qua non since there is no tangible proof that the Director/s electronically attended the Board meeting." The SEC cited a provision in the ECA that there must be "appropriate security procedure" for electronic data messages. The SEC also pointed out that "mere reliance on the minutes of the Corporate Secretary may give room to abuse, manipulation and/or alteration of the electronic data message". The SEC further stated that "[w]ith the advent of e-technology, changes in record keeping must be introduced to cope up with inevitable modern technological developments in addition to the traditional mode of minute taking.". Lastly, the SEC pointed out that "[e]lectronic or tape recording of the proceeding enhances the transparency, authenticity and reliability of the video conferencing."

The SEC opinion raises a number of questions. Does it mean that if there is no tape or electronic recording of the tele/video conferencing, only the tele/video conferencing aspect of the board meeting is void? Or is the entire board meeting invalid? This appears to be so because the SEC requires that the "entire proceedings in a Board meeting" be recorded by "electronic or tape recording". If so, can the SEC expand the requirements of existing law for the validity of board meetings? Is it not that administrative legislation is prohibited by the principle of separation of powers under the Constitution? Is electronic or tape recording the "appropriate security procedure" contemplated by the ECA for authenticating electronically-transmitted information? Is a tape recording not an electronic information that must itself be authenticated? Why did the SEC not consider the Rules on Electronic Evidence ("REE") which provide different modes for authenticating electronic information? The REE even has provisions on authenticating or proving ephemeral electronic communications. These refer to telephone communications, text messages, chat room sessions, streaming audio, streaming video and other forms of communications the evidence of which is not recorded or retained. Is electronic or tape recording not meant to assist the secretary of the meeting to accurately prepare the minutes of the proceedings or a piece of evidence in case of dispute? If so, why should they be considered a substantive requirement for the validity of the board meeting? Why did the SEC not distinguish between a substantive requirement and evidentiary requirement of the law? Why confuse one with the other? Assuming that the SEC opinion is correct, what happens to board meetings where the tape recording had been destroyed because all the directors present had already signed the minutes? Are the meetings void? If so, does it mean that all contracts approved in said meetings are void? Will there be unwinding of the transactions? If so, what would happen to third parties who in good faith acquired rights under said contracts?

Whatever the questions are, the fact of the matter is that the SEC has rendered the opinion. The opinion is entitled to respect and has persuasive effect on our courts of law, the SEC being the administrative agency tasked by law to enforce the Corporation Code. Until the SEC modifies the opinion or the same is overruled by the courts of law, it would be prudent to comply with it.

(The author is a Senior Partner and the Co-Managing Partner of the Angara Abello Concepcion Regala & Cruz Law Offices or ACCRALAW. He may be contacted at tel: 830-8000.)