After a long day of meetings, many directors would prefer to adjourn rather than continue on to executive session. Executive sessions are nothing more than a shapeless time slot at the end of the regular board agenda, right?
No. Executive sessions are an important part of good corporate governance. But executive sessions are only worth having when directors take the time to do them right. Below are nine considerations to keep in mind to maximize this time.
1. Executive sessions should be a priority, not an afterthought. Lead independent directors should always include a time slot on the board meeting agenda for executive sessions. They should also take the time to stress to the directors the importance of staying for and participating in executive sessions. Many companies fail to hold effective executive sessions because they don’t leave enough time for them, so make the time.
2. Lead independent directors should use the agenda effectively. Staying in touch with the management team between meetings is useful. Independent directors should use those discussions to compose a short-form agenda for each executive session.
Executive sessions are not simply a time to talk about the management team members in their absence. Executive sessions provide a valuable forum for open discussion on a host of topics on independent directors’ minds.
3. The CEO should be included (and then excluded) from executive sessions. At the onset of an executive session, the non-CEO management team members should recuse themselves. It can be very useful to include the CEO in the first portion of the executive session. And it can be just as useful to exclude the CEO for the rest of the session.
4. The board of directors should adopt a formal executive session policy. The policy should set forth how executive sessions should be conducted. Having a formal policy can eliminate ambiguity, foster trust and make the sessions more productive.
5. Lead independent directors should always keep minutes of the executive sessions and make sure the board gets credit for holding the sessions. The minutes should only generally indicate that the session occurred and summarize the topics discussed. When making a formal decision, the director should keep more detailed minutes.
The director should maintain the minutes appropriately. Inherently, sensitive topics may be discussed in executive session. Knowing this, many companies ask their independent lead director or outside legal counsel to serve as the custodian of executive session minutes to preserve the confidentiality of the matters covered.
6. Post-meeting reporting should be done regularly. After each executive session, the lead independent director should report back out to the CEO on any matters that warrant the CEO’s attention. This reporting-out mechanism ensures there will be follow up to important workstreams and helps to build, rather than erode, the management team’s trust.
7. Leverage all resources. As with any meeting, directors meeting in executive session benefit from having all resources at their disposal. Independent directors should always consider asking management to prepare materials on the agenda’s topics. Using outside presenters is an effective way to bring other expert perspectives to the session.
8. Participants should be encouraged to collaborate but never to conspire. The CEO and the management team should be included in helping the independent directors give shape to the executive sessions and in assisting the directors in following up on the sessions.
Take measures to make clear to management that the sessions are not merely gossip time for the directors to discuss the management team. Rather, the sessions are another forum for independent directors to develop consensus to guide the company for the benefit of all its constituents.
9. The lead independent director and the CEO should follow up on the key executive session discussion points. Follow up can include board training, policy changes and management presentations – even a topic that makes its way onto the agenda of the next regularly scheduled board meeting.
Finally, and maybe most importantly, directors do not need to meet in executive session for a long period of time when there are not any matters that warrant their extended attention. However, it is important to take the time to initiate an executive session to offer up the opportunity for candid discussion, regardless of the topic.