An executive session is a formal procedural mechanism used by a board of directors to address matters requiring a high degree of privacy outside of the regular board meeting structure. This tool allows the governing body to step away from the full meeting, which may include management, staff, or the public, to deliberate on sensitive issues. This process ensures directors can have open and candid conversations without outside influence, helping them fulfill their fiduciary responsibilities. It is specifically designed to handle confidential business.
Defining the Executive Session
An executive session is formally defined as a closed-door segment of a board meeting, or a separately scheduled meeting, where only a select group of authorized directors is permitted to attend. This procedural retreat serves as a meeting-within-a-meeting, intentionally excluding non-board personnel to create a secure environment for discussion. It is a recognized component of corporate governance, designed to facilitate board independence from the management team it oversees.
The term refers to the board’s “executive” function—its decision-making and oversight role—rather than the company executives who are often excluded. Entering an executive session usually requires a formal motion and a majority vote by the board members present. Once the vote passes, the board retires to a private setting or asks all non-participants to leave the room, beginning the confidential portion of their work. This practice is common across corporate, non-profit, and governmental boards.
The Primary Purpose of Executive Sessions
The central rationale behind holding an executive session is the necessity of strict confidentiality when discussing specific organizational matters. Allowing directors to speak in a private setting enables them to conduct honest, open discussions about issues that could be harmed by public disclosure or external scrutiny. This protected environment allows directors to voice concerns freely and engage in candid assessments, which is a significant component of their duty to the organization.
Who Attends and Who Is Excluded
Attendance at an executive session is strictly limited to maintain the necessary confidentiality and ensure the independence of the board’s oversight function. Generally, the session is restricted solely to the voting members of the board of directors. For publicly traded companies, this often means the independent directors meet without any members of management present, thereby empowering them to serve as an effective check on the executive team.
The majority of company employees, including senior executives, non-board staff, and outside guests, are asked to leave for the duration of the session. There are limited exceptions where certain non-board members may be invited to attend briefly to provide necessary information. For example, the Chief Financial Officer or legal counsel might join to provide context on a financial risk or pending litigation, after which they are excused. The most closed form of the session includes only the independent directors, particularly when discussing the CEO’s performance or compensation.
Common Topics Discussed in Executive Session
Executive sessions are reserved for matters that require a high degree of discretion, often revolving around personnel, strategy, or legal matters. This private setting allows the board to deliberate sensitive issues without external interference.
Topics commonly discussed include:
- The performance review of the Chief Executive Officer, including evaluating annual goals and determining compensation.
- Succession planning for senior management, ensuring continuity of leadership without internal or external speculation.
- Legal matters involving potential or ongoing litigation, which protects attorney-client privilege and the organization’s legal strategy.
- Significant strategic topics, such as confidential merger and acquisition activities or major financial transactions.
- Internal board evaluations, governance conflicts, or disciplinary actions involving directors or senior personnel.
Legal and Procedural Requirements
Boards must adhere to specific procedures when calling and documenting an executive session to ensure transparency and accountability. The decision to retire into a closed session typically begins with a motion and a majority vote of the full board while the open meeting is still underway. Many organizations, especially those listed on major stock exchanges like the NYSE and Nasdaq, are formally required to hold executive sessions at least once or twice annually.
Documentation requirements are unique for these confidential meetings, balancing the need for secrecy with the demand for an official record. While detailed discussions are not recorded, the minutes must note that the session occurred, the time it began and ended, and the names of all attendees. Any formal actions taken or decisions voted on during the session, such as approving a resolution, must also be reflected in the official record. Public bodies subject to “Sunshine Laws” face stricter state statutes dictating exactly when and for what purpose an executive session can be called.
Distinguishing Executive Sessions from Other Meetings
An executive session is a specific, formal procedural adjournment and is not interchangeable with other types of private board gatherings. Unlike a general committee meeting, which is created for an ongoing function like finance or audit, the executive session is a temporary retreat of the full board or independent directors from the main meeting. Committee meetings may include staff or outside members and are often subject to public meeting requirements if they include a quorum of the board.
The executive session is also distinct from an informal gathering or a closed-door management meeting, as it is a formal act governed by the organization’s bylaws and procedural rules. It represents a temporary cessation of the main board meeting to address a specific, sensitive agenda item requiring the deliberation of the full governing body. This confirms its purpose as a tool for independent oversight, separate from the routine work conducted by committees or the management team.