Your Paper Tracks
Dealers who maintain records documenting their compliance efforts are better equipped to respond to regulatory inquests.
Way back when, in my first-year contracts class in law school, a professor whose name I cannot recall uttered a sentence I will never forget.
His topic was corporations, and the point he was trying to make was that, if you are operating your business in the form of a corporation, you need to pay very close attention to documenting things. (Similar concerns arise with a partnership, but the terms are a bit different.)
The professor said, “Corporations are paper animals, and they must leave paper tracks.” He was referring to the corporation’s formative documents — its charter and bylaws — but he was also focusing on the records of corporate actions, typically minutes of meetings of the board of directors and, if the corporation has one, the board’s executive committee.
What does this have to do with compliance, you ask? Keep on reading.
Minute by Minute
Assume that a state or federal regulator decides, for whatever reason, that two dealerships are misbehaving, violating state and federal compliance laws. The regulator wants to determine whether those suspicions are warranted, and subpoenas corporate records going back five years.
The first dealership, Sharp Motors, responds by providing copies of minutes of its board of directors for the period. Unfortunately, Sharp’s board has met only twice in that five-year period, and the minutes of its meetings deal with a few corporate matters, a couple of tax items, the golf resort selected for the next meeting and raises for the board members. The minutes make no mention of any compliance issues.
The other dealership, Buttondown Autos, turns over quarterly board minutes for each quarter of the period in question. The minutes follow an