This is the fourth in a series of Client Alerts on thorny issues faced by General Counsel and Corporate Secretaries in the context of Board and Committee meetings. Previous Alerts focused on when a matter needs to be taken to the Board, the length and scope of Board and Committee minutes, and Directors' use of corporate or charter aircraft to attend meetings. This Alert covers a subject frequently faced when planning for Board meetings:
Who Should Be in the Room?
One point to note on the subject of who should be in the room is that while the General Counsel and/or Corporate Secretary may have input on this issue, he or she is not going to be the decider. This is a subject on which Board members will have feelings (perhaps strong feelings), as will the CEO and other members of senior management. That does not mean, however, that General Counsel and Corporate Secretaries cannot offer insightful guidance.
To state the obvious, Directors (both independent directors and officer/directors) are "in the room" for Board meetings (except for matters on which an individual Board member may have a conflicting interest, and except that "inside" Directors will not attend executive sessions that are only for "independent" directors).
Different companies will likely have different corporate cultures on the subject of attendance at Board meetings by video or telephone. If the Board is holding an emergency meeting on a Sunday afternoon in response to a crisis situation, certainly attendance by video or telephone is not only appropriate but likely necessary as well. However, for normal meetings, the question can be more difficult. Permitting attendance by video or telephone will likely promote higher attendance at a particular meeting, but if done as a regular matter, will very likely lead to more and more Directors deciding they just "can't make" this month's meeting and instead will participate by video or phone. Over time, this trend has the potential to seriously erode Board collegiality because of the loss of interpersonal contact. In addition, there are some countries around the world from which participation by video or phone can present serious security concerns. Therefore, promoting a policy under which attendance in person is expected except in extraordinary circumstances will serve a company well.
In addition to Board members, the General Counsel and Corporate Secretary are frequently "in the room," as may also be a senior staff person who is responsible for ensuring presenters are available when their presentation time arrives, presentation materials correctly appear "on the screen," etc.
Practices can differ, however, as to whether non-director senior officers (e.g., the chief financial officer, chief risk officer, director of HR, business line leaders, etc.) are "in the room" for all or part of the meeting. One school of thought says that a Board meeting is a meeting of Directors, and no senior officers should be in attendance except when they are making a presentation. This school would say that the presence of senior officers chills Board discussion and produces a less frank give-and-take, especially if the company is experiencing problems. The other school of thought would say that the presence of senior officers enhances discussion because the people who are most familiar with the issues are "in the room." As a result, informal, non-agenda give-and-take can occur in response to Board members' interests and can result in a meaningful exchange. If there is any perceived chilling effect, this can be resolved by having a Board discussion on the sensitive subject during the executive session. There is no right or wrong answer here, and most likely, corporate culture will determine the answer. It would seem, however, that having senior officers present for most of the meeting with the Board and then having an opportunity for a frank discussion during the executive session represents a "win-win" solution. Even if this approach is adopted, however, senior officers should not be "in the room" when the Compensation Committee report is presented or other personnel matters are discussed.
While not physically "in the room," one person who may be "virtually" in the room is a technology person whose job is to monitor the technology being used during the meeting and make sure it is operating properly. If such a person is needed to ensure the smooth conduct of the meeting, he or she will inevitably be privy to highly sensitive material, and it is critical that this person be a trusted employee who understands the need to handle this material with utmost confidentiality. If the company has publicly traded securities and some of the material is "market moving" (e.g., quarterly earnings, a dividend change, a major acquisition or disposition, etc.), it would be useful for this individual to have received education and training from the Legal Department on the rules prohibiting trading on and tipping material, non-public information. When the material being discussed is highly sensitive personnel material, it may be best to ask this person to leave his or her post and simply take the risk of a technology failure.
The subject of a company's "who should be in the room" practices is a natural one to cover in the annual Board self-assessment, and should produce candid answers that can guide future action.