Are you using in-camera meetings?

Feb 25, 2014
<p>More companies are encouraging candid exchange among independent directors without management present</p>

As corporate boards face more complex and difficult decisions, they may want to consider increasing the use of in-camera meetings to get more ‘realistic’ opinions from directors before moving forward with corporate strategy.

In-camera meetings, as they are called in Canada – or executive sessions, as they are referred to in the US – are special meetings where independent directors or committees of the board convene separately from management to have candid, off-the-record discussions about matters that are important to the company. 

The term ‘In camera’ derives from Latin and refers to ‘in a chamber’ which is a legal term meaning ‘in private.’ During these meetings, independent board members are free to challenge each other and speak their mind freely because minutes are generally not taken. Such meetings could be held to discuss and clarify the board’s position on issues that may produce opposing views between management and the board or to deal with issues that could involve conflicts of interest with management, such as CEO compensation. 

‘In-camera meetings allow directors to talk about their view of matters without management present,’ says Jo-Anne Archibald, president of DSA Corporate Services. ‘They can talk about anything related to the company and they don’t have to worry about it being written down anywhere.’

Typically, in-camera meetings are used when circumstances arise which may call for frank or confidential discussion of sensitive issues such as:

- Personnel matters, including leadership succession planning, executive performance reviews and executive compensation

- Securing the safety of assets, personnel or property of the company

- Litigation or potential litigation involving the firm

- Proposed or pending transactions of the company or its subsidiaries

- Matters involving commercial business and confidentiality agreements with third parties

- Personal matters relating to directors, officers, employees or other individuals connected to the firm.

Minutes are not taken when these sensitive issues are discussed ‘because minutes could be used in a lawsuit,’ Archibald says. Also, board members want to feel comfortable that their criticisms and observations won’t come back to haunt them later. They are, after all, tasked with asking difficult questions to protect the interests of the company and its shareholders. 

Jo-Anne ArchibaldThe independent board chair generally decides when an in-camera meeting is to be called, as he or she sets the agenda with the corporate secretary prior to the meeting. The chair should review the agenda with management prior to the board meeting and also have board members agree to agenda items, including issues that might cause the need for an in-camera discussion. The chair can then announce that all of those matters can be discussed in a single in-camera session to be held at an appropriate time, as outlined on the agenda. 

The in-camera session is often held after the general board meeting is over, but Archibald, whose company provides outsourced corporate secretary services to Canadian issuers, says ‘some companies hold it at the beginning, so you’ve got directors talking about agenda items before management comes to the meeting.’ This pre-meeting discussion can help directors clarify things and enable them to go into the board meeting with unified positions on the most difficult topics.

Sylvia Groves, president and creative director of Governance Studio, says that if the chair holds the in-camera at the end of the board meeting, ‘it gives the chair a chance to look back on the meeting and assess: did that go the way that we wanted it to go? Did we get the information we were looking for? Are we comfortable with the decisions we made?’ 

Committees within the board should also use in-camera meetings when appropriate. Archibald says an in-camera with the audit committee and the auditor to talk about how management is handling things should be standard practice. 

Should the corporate secretary attend?
While there are generally no minutes being taken in an in-camera session, this doesn’t mean nothing from the meeting should ever make it into the official board minutes. Groves points out that sometimes important decisions are made during these in-camera sessions that may require attention. 

‘There might be something procedural that comes out of it, or there might be a resolution,’ she notes, explaining that the directors might resolve to have a committee furnish additional information in order to move a proposal forward.

‘Typically what I like to see is the chair and the corporate secretary having a little debrief after the in-camera session. The chair can simply advise the corporate secretary that there wasn’t anything talked about that needs to go in the minutes, or that the directors talked about a couple of things and want to ask a committee to deliver a new report. In cases where an in-camera meeting is held to pass a resolution, like approving CEO pay, make sure you get the resolution passed and then give the corporate secretary the details so they can be included in the minutes.’

As the corporate secretary generally manages the affairs of the board, keeping the directors informed and taking board minutes, many firms consider having him or her sit in on the in-camera meeting. Archibald advises clients against doing this, however – as does Groves.

‘Having the corporate secretary there can be bad from the directors’ perspective because it might impede the discussion, but it’s also tough for the corporate secretary because he or she then becomes privy to these discussions that management would be interested in knowing about,’ Groves explains. ‘As he or she works for management and is paid by management but bound not to say anything about the discussions, it puts corporate secretaries in quite an awkward position.’

Good for governance
Whether an in-camera meeting is held before or after the board meeting, most governance professionals view it as a governance best practice. ‘In Canada it is totally a best practice to have the in-camera as part of the board and committee meetings,’ says Archibald.

Management may not agree. ‘A lot of management teams don’t like in-camera meetings because they know the directors are talking about them,’ notes Groves. ‘That is what is happening, but it’s not always negative.’

Groves explains that directors could be challenging each other in support of management, or simply reviewing whether the board is comfortable with the chosen successor set to take over the company if the current CEO were to be suddenly hit by a bus. 

‘If you have a management team really kicking against [in camera meetings], there is probably a reason for that. It may make people uncomfortable, but in the long run it really is about getting the most value out of the board and making sure the board is effective.’

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