Meeting Practice and Procedure for Business Corporations: Boards and Shareholders

CHAPTER 3

Executive Session

§ 5 Description

Virtually all leading parliamentary references allow for the holding of an executive session for nonprofit organizations, especially for some parts of or all of board meetings. Committee meetings may and sometimes should be held in an executive session. An executive session takes place when a meeting is held in secret. Both discussions in and results of the meeting are held in strictest confidence. However, some or all results (but not discussions) may be publicly reported if the board or committee decides to do so. The meeting minutes are kept confidential.

As described in parliamentary references, entering into an executive session requires an internal rule, established custom, or motion. Any such motion must be passed by a majority vote. Only board or committee members may attend a board or committee meeting, as the case may be, unless someone is specifically invited by a majority of the other attendees or people entitled to attend.1

Sensitive topics may unexpectedly come up during open meetings that call for changing to executive session. The chair or an attendee may sense the need to interrupt an open meeting due to a sensitive subject. In such an event, a motion should be made (and passed by a majority vote) to go into an executive session. A motion is also needed to leave an executive session. When applicable, a meeting agenda may already include entering into executive session.

Executive sessions of board meetings take various forms.2 Parts of a meeting or an entire meeting may be held in an executive session. Specified attendees may be asked to leave and then rejoin a meeting together or one at a time. There should be valid and justifiable reasons to support who is invited and who is excluded. Challenges reported in case law are rare. Most but not all case law that mentions executive sessions is in the nonprofit arena.

Among the principal reasons the case law suggests a corporate board go into an executive session are the following:

• sensitive legal advice from corporate counsel,3
• discussion of sensitive strategic matters, and4
• personnel matters.

Discussions about intellectual property are also sensitive and may be appropriate for executive session. Whether a sufficient conflict of interest exists to justify the holding of an executive session and thus restricting attendance is a question of fact.5 The law may also require that certain corporate meetings must be held publicly.

WHO MAY ATTEND

Questions may arise about who may attend. Some examples and considerations follow.

There may be a perceived or actual conflict of interest between management and nonmanagement directors on certain topics. Management directors may be asked not to attend or to leave a board meeting. For example, employment matters may be discussed.6 Similarly, interests of “independent” directors versus officers of the corporation may require a separate meeting.7 A 2014 California opinion states, “the independent directors met in executive session to discuss [a director’s] options, and the directors’ duties to shareholders.”8

A 2012 Delaware state case mentions that discussion of executive compensation by a compensation committee was done “in executive session,” with nonemployee directors of the company present.”9 A Louisiana case discusses an executive session during which a bank president “discussed Management’s plans for enhancement of the capital of the Bank.”10

When an executive session is called for a board meeting, the board must decide who to exclude from the meeting.11 A 2010 New York case featured a common board meeting held in an executive session that included only “Independent Directors.”12

COMMITTEES

Committees may and sometimes should go into an executive session13 for the same reasons and using the same procedures as boards. Their minutes and other meeting materials are also confidential.

1 Henry M. Robert III, Daniel H. Honemann, Thomas J. Balch, Daniel E. Seabold & Shmuel Gerber, Robert’s Rules of Order Newly Revised (12th ed. 2020) [hereinafter Robert’s Rules].

Disciplinary matters and other matters must be held in executive session. The Standard Code uses the term “closed meeting.” American Institute of Parliamentarians, Standard Code of Parliamentary Procedure 271 (2012) [hereinafter Standard Code]. The Standard Code also lists as appropriate for executive session personnel matters, legal issues, and other highly sensitive matters that could harm the organization if made public.

2 Of course, the use of executive sessions may be affected by governmental or other requirements.

3 In re Tibco Software Inc. Stockholders Litig., No. 10319-CB (Del. Ch. Nov. 25, 2014) (legal advisor present during discussion with Goldman); RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816 n.21 (Del. 2015) (legal counsel discussed with the board a legal holding in another Chancery Court decision); Standard Code, supra note 1, at 108 (stating that pending legal matters and other topics which if made public could harm the organization should be held in a closed meeting).

4 In re Answers Corp. S’holders Litig., No. 6170-VCN, at n.16 (Del. Ch. Feb. 13, 2014) (“Specifically, the Board considered strategic alternatives during an executive session of its . . . meeting; the Board ‘continued to believe it was in the best interests of the Company and its stockholders to explore strategic alternatives such that it would be fully informed’ . . . .”);

See also Jenson v. First Guar. Bank, 699 So. 2d 403 (La. Ct. App. 1997) (involving an executive session called by a bank president at a board meeting to consider “Management’s plans for the enhancement of the capital of the Bank”; the court commented on the executive session minutes).

See also Wilen v. Pamrapo Savings Bank, 429 B.R.152 (Bankr. N.J. 2010) in which an executive session included discussion of extending a repayment date for a line of credit conditioned on a mortgage.

5 Air Products & Chemicals, Inc., 16 A.3d 48, 129 n.61 (Del. Ch. 2011) (finding no conflict of interest in considering an offer was found to justify the holding of an executive session by the independent board members because the stockholders had substantial aligned interests).

For other case examples in which executive session was used, see Memorandum Opinion, In re Anthem-Cigna Mercer Litig., No. 2017-0114-JTL, at 68 (Del. Ch. Aug. 31, 2020), https://law.justia.com/cases/delaware/court-of-chancery/2020/c-a-no-2017-0114-jtl.html (discussing a proposed transaction); Memorandum Opinion, Mehra v. Teller, No. 2019-0812-KSJM, at 36 (Del. Ch. Jan. 29, 2021), https://law.justia.com/cases/delaware/court-of-chancery/2021/c-a-no-2019-0812-ksjm.html.

6 Klaassen v. Allegro Dev. Corp., No. 8626-VCL (Del. Ch. Oct. 11, 2013) (featuring non-management directors and the CEO being asked to leave a meeting so the remaining directors could meet in an executive session to discuss employment matters.

7 In re Massey Energy Co. Derivative & Class Action Litig., No. 5430-VCS (Del. Ch. May 31, 2011) (plan for outside directors to have an executive session regarding open market purchases). See also In re Dole Food Co., No. 8703-VCL, 2015 WL 5052214, at *28 (Del. Ch. Aug. 27, 2015) (executive session for the outside directors with counsel).

8 Cinotto v. Levine, No. B242191, 2014 WL 4604750, at *7 (Cal. Ct. App. Sept. 16, 2014).

9 Freedman v. Adams, No. 4199-VCN, at n.49 (Del. Ch. Mar. 30, 2012).

10 Jenson v. First Guar. Bank, 699 So.2d 403, 405 (La. Ct. App. 1997).

11 Wilen v. Pamrapo Sav. Bank (In re Bayonne Med. Ctr.), 429 B.R. 152, 168 (Bankr. N.J. 2010) (featuring an executive session of trustees from which guests, including the acting CFO and other staff, were excluded);

Klaassen v. Allegro Dev. Corp., 106 A.3d 1035, 1041 (Del. 2014) (involving a board that met in an executive session during which the CEO was removed and replaced; the CEO and others were first asked to leave the room).

12 See, e.g., In re Reserve Fund Sec. & Derivative Litig., 732 F. Supp. 2d 310 (S.D.N.Y. 2010); In re Lear Corp. S’holders Litig., 926 A.2d 94, 104 (Del. Ch. 2007).

A 2018 case out of the U.S. District Court for the Southern District of Indiana featured independent outside directors who held an executive session without company directors. “At the executive sessions, directors discussed concerns and developed recommendations for management.” Levin v. Miller, 900 F.3d 856, 858 (7th Cir. 2018).

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