Executive board sessions were designed as part of the board's risk oversight process. For the most part, board activity should be open, accountable and transparent. Yet, there are certain situations that demand the need for more candid conversations. These conversations may be confidential, sensitive or those where individuals may not feel that they can open up in front of certain other individuals.
Boards customarily use executive sessions to discuss employees or management as their employment relates to policies or compensation. Boards may also use executive board sessions to discuss issues related their own performance or to hash out board director conflicts or disagreements.
The mention of executive board sessions makes some senior managers anxious. No one likes to think that someone may be talking about them behind closed doors. Frequent, impromptu executive sessions may trigger a sense of mistrust among management. Best practices suggest that boards have regular executive sessions to alleviate unrest about private board discussions. Some boards support the practice of including the CEO in on part of their executive board sessions to get information and updates about company operations and financials.
What Happens in an Executive Session?
Every corporation's bylaws should outline information about rules for executive sessions. For example, some boards require executive sessions to be in-person meetings, whereas others allow sessions by teleconference or videoconference. The bylaws usually also detail the frequency of executive sessions and whether the executive committee meets on an as-needed basis or whether they meet regularly. Executive sessions don't have to be lengthy. They only need to be long enough to address any necessary matters. The average executive session is about 30 minutes, but they can be longer, or as short as only five minutes.
Boards have the flexibility to decide who should attend the executive board meeting. If they're discussing executive performance and compensation, obviously, it would be awkward to have the individuals that they're discussing present. If the committee is having a hearing on an employee's behavior, it's acceptable to ask the individual involved to attend the hearing. The board should dismiss the person for other parts of the executive board meeting.
The executive committee is also the proper forum for discussing the board's performance. The board may discuss issues related to policies and the board's performance in executive session. Boards may also use this platform to iron out differences between board members or to resolve conflicts.
Boards may also use executive sessions to address other issues that are privileged, private, confidential or sensitive, such as:
- Succession planning
- Legal issues: considering litigation
- Forming third-party contracts
- Investigating irregularities of senior management
- Adopting or amending employee policies
- Hiring, firing, disciplinary matters of employees
Who Serves on an Executive Committee?
Typically, the executive committee is comprised of the board chair and other officers. According to best practices, there should be as many independent board directors as possible. Committee chairs may also serve on the executive committee. Some structures assign the chief executive as an ex-officio member. The board may dismiss the chief executive if they are discussing the chief executive's performance or compensation.
Most corporate boards, but not all, have executive committees. Some boards give their executive committees some authority to make decisions on behalf of the board. If so, they must specifically describe the authority in the bylaws. Bylaws may also allow executive committees to meet via teleconference or videoconference so that they can convene quickly in emergency situations.
The executive committee may invite various other people to their meetings, including a recording secretary, attorney, third-party vendor or other individual. The philosophy behind giving the board flexibility with the executive committee is to get the right setting for the right people and the right issues.
Boards rely on the audit committee and on strong internal controls to act as checks and balances to prevent internal fraud. The audit committee is usually the best positioned to question situations in which senior management overrode internal controls or deviated from expected standards of conduct. The board may schedule meetings with external auditors without management present so that audit committees can assure the executive committee that no internal fraud is occurring.
For boards that don't hold regular executive board meetings, the board chair or board president may schedule executive sessions as needed. Bylaws usually allow boards to schedule executive committee meetings via email, but not to hold executive committee meetings via email. Boards may choose to hold executive committee meetings a week before the regular board meeting. Some boards like to have their executive committee meetings just after a full board meeting.
Recording Minutes During Executive Session
Boards have varying theories on how to record minutes during executive session. It's advisable to state in the regular board meeting minutes that the executive committee met on a certain day. It's also appropriate to provide a brief summary of the issues that the executive committee discussed, without being too forthcoming with details.
Some boards make a point to record actions that the executive committee takes because they may need to write a resolution afterward and it may be important to refer to their notes.
Notes from executive sessions may be called into court proceedings, so some boards have a policy against directors taking notes during executive board meetings. Scribblings and notes could by cryptic, incomplete or misleading, and could give the court inaccurate information.
Using Board Management Software for Efficient Executive Board Meetings
Diligent created board management software solutions so that executive board meetings run smoothly and efficiently. Boards that use the software for minutes and other applications can easily demonstrate that they are committed to practicing governance principles consistently and with fidelity. Diligent Minutes is an effective tool that executive committees can use, complete with getting rounds of approvals so that minutes accurately reflect board business.
To improve trust with the CEO and other managers, it helps to have an identified communication channel to address any concerns that may arise from executive board meetings. Diligent Messenger is the perfect tool for board communications because it is secure and mobile-friendly.
As with most governance processes, the executive committee has a specific governance function. While boards have some amount of flexibility in how they utilize the executive committee, software solutions can be a huge asset in documenting discussions and actions appropriately and demonstrating the board's commitment to consistency in governance excellence.