This is the third in a series of client alerts focusing on practical solutions to deal with real-life issues facing General Counsel and Corporate Secretaries. The first two focused on when a matter needs to be taken to the Board, and the length and scope of the minutes that are prepared when the meetings are over. The third covers a very different subject: Directors' Use of Corporate or Charter Aircraft To Attend Meetings.

Except in unusual circumstances, Board members will need to travel to attend Board and Committee meetings. If commercial air travel is utilized, there are rarely any issues. From time to time, however, Board members may request access to corporate aircraft or the chartering of aircraft for their travel. Frequently in these cases, the reasons are clear (e.g., travel to or from a location with limited commercial service, health issues, particular time pressures, etc.) and would make sense to a reasonable observer.

The General Counsel or Corporate Secretary may be asked by the CEO whether agreeing to such a request is "ok." In responding to this question, the first issue is whether pre-existing authority is in place to make corporate or charter aircraft available to one or more Board members. That source of authority would be the company's Aircraft Utilization Policy. Putting aside any questions of tax treatment and proxy disclosure, it is simply a matter of good corporate governance to have an Aircraft Utilization Policy that sets out the basic rules as to who (corporate officers and employees, family members, Board members, vendors and/or others) is entitled to use the corporate or charter aircraft and under what circumstances. There is no right or wrong answer as to what the Policy should provide; the company simply should have a Policy. 

In drafting a Policy, the drafter would be well advised to think about the entire range of persons who might use the corporate or charter aircraft, and when. Obviously, personal and family use present the most controversial issues, and this can be the subject of a frank discussion between the CEO and the appropriate Board Committee. Use by Board members to attend Board and Committee meetings and for other company business purposes should not be controversial. It should just be documented so that there is a source of authority to refer to if and when the question arises. In addition to value as a source document, a Policy can be helpful in the event the internal auditors want to audit the use of the corporate or charter aircraft and/or Directors' expenses. The Policy documents authority for the use or expenditure.

One potential issue in connection with an Aircraft Utilization Policy is who or what committee should approve it and any deviations from it. Because most use will be by officers and employees, one suggestion is that the approval be by the Human Resources Committee of the Board. That Committee is comprised entirely of independent Directors and should be comfortable dealing with matters relating to employee use of corporate assets. The Governance Committee of the Board may (or may not) wish to express a view in connection with Board members' use of corporate or charter aircraft, and certainly there is nothing wrong with that.

In terms of approval of deviations from the Policy, these requests will normally be made with an answer being required immediately or in a time frame sufficiently short that Director involvement is not practical. As such, depending on the company's culture, one suggestion is for the approving Board Committee to delegate authority to a senior officer, with that officer to report back to the Committee once or twice a year on his or her actions.

Client Alert 2011-003