Executive Sessions

One demonstration of a board’s independence from management is the practice of holding executive sessions. These regular sessions with limited or no management participants are considered private, which enables directors to speak among themselves in candor. The ability to speak freely in this setting can “empower non-management directors to serve as a more effective check on management,” as stated by the New York Stock Exchange (NYSE) Listed Company Manual (section 303A.03).

The NYSE mandates at least one executive session per year for the boards of NYSE-listed companies, and Nasdaq-listed company boards are required to meet in an executive session at least twice annually. While not required, many private companies and nonprofit organizations also hold executive sessions. In addition to full boards, committees may hold executive sessions, too, especially the audit committee.

The term "executive" in this context refers to the decision-making function of the company, rather than specifically to executives in the corporate sense.

Purpose and Practice of Executive Sessions

The main purpose of board executive sessions is to discuss sensitive matters that require privacy and discretion. These sessions allow decision-makers to consider critical issues candidly while protecting sensitive information. Such matters include, but are not limited to, these topics:

• Personnel: executive compensation, executive performance, disciplinary actions, CEO succession
• Strategy:  consideration of long-term goals such as mergers and acquisitions, market positioning
• Finance: budgets, investments, annual audits
• Crises or emergencies: response strategies and related communication plans
• Legal matters: pending or potential litigation against the company or the board, legal strategies, contracts
• Board operations and performance: conflicts of interest, evaluations, election of officers, board culture (see Board Culture as an Emerging Topic)