Running effective executive sessions: when should they be held? How long should they be? Who should lead them? These are among the questions boards must consider to make their executive sessions successful.

• Author: Koppes, Richard H.
• Position: Board practices

SECTION 404 seems to have received the lion's share of press on corporate-reform efforts stemming in part from passage of the Sarbanes-Oxley Act of 2002. A less-publicized result of these efforts has the potential to affect significantly the culture of the boardroom. Both the New York Stock Exchange and the Nasdaq Stock Market have added to their respective listing standards the requirement that boards meet in "executive session" without management.

Specifically, the NYSE's Rule 303A.03 provides that in order "to empower nonmanagement directors to serve as a more effective check on management, the nonmanagement directors of each listed company must meet at regularly scheduled executive sessions without management." ("Nonmanagement" directors are all directors who are not executive officers, including directors who are not independent by virtue of a material relationship, former status as an executive officer, or family membership, or for any other reason.) The Nasdaq's Rule 4350(c) requires, in part, that "[i]ndependent directors must have regularly scheduled meetings at which only independent directors are present."

The impetus for such requirements is based in part on legend--or, at least, the "legendary" power that Roger Smith, former chairman and CEO of General Motors Corp., wielded over the GM board in the late 1980s and early 1990s. At that time, boards such as GM's had no power to meet in executive session. In order to discuss who would come after Smith as CEO, the GM board supposedly met in secret executive session without Smith's "permission" or knowledge.

Times have changed since then. In today's corporate environment, thanks in part to the reaction to "imperial" CEOs like Smith and many others, corporate boards have the opportunity to wield real power over management through executive sessions. The requirement that boards meet in executive session, without management, may emerge as the reform that most shifts the power in the boardroom away from management and to the directors, consistent with the corporate stewardship concepts rooted in state corporation law.

The basics to focus on

Such power should not be treated cavalierly, however. Indeed, boards should carefully consider how they want to handle executive sessions. In order to maximize the effectiveness of executive sessions, boards should consider carefully the following questions:

* How Often Should Boards Meet in Executive Session? Boards must assess how often they should...