Balancing Transparency with Prudence: Appropriate Use of Executive Sessions

Many nonprofit organizations in Indiana have either a duty or a policy of disclosing minutes of board meetings upon the request of certain stakeholders and allowing stakeholders to attend board meetings.  Often, this duty arises under state law, such as the general Non-Profit Corporation Act, if applicable, or the specific act under which the organization is organized, such as the Rural Electric Membership Corporation Act codified at Ind. Code ch. 8-1-13 (the “REMC Act”).  Transparency is generally a good thing.  It fosters open dialog among stakeholders and it leads to a more accountable board.  However, the organization must also protect its competitively sensitive information, as well as the privacy and dignity of its employees and stakeholders.

Therefore, the board of any nonprofit organization should understand how to effectively use Executive Session to balance the policy of transparency with need to protect sensitive information.  The board must also understand how to appropriately document and maintain a record of the discussions that do occur in Executive Session.

The board should use Executive Sessions for robust discussion of matters that should not be discussed in a public forum.  So what matters should not be discussed in a public forum?

1. Discussions about competitively sensitive business planning activities, such as:

  • Future procurement or construction contracts;
  • Proprietary research, analyses, or studies prepared internally or by 3rd party consultants;
  • Future development plans; and
  • Business opportunities;

2. Discussions that involve names and private information about employees or members; and

3. Discussions that involve pending or anticipated litigation or agency proceeding.

The board should not use Executive Session to discuss matters that are controversial or as a means to avoid having a discussion in front of stakeholders if the matter does not involve the type of information described above.

Once a board determines that an Executive Session is appropriate, the board should excuse non-essential personnel from the room.  The board should take separate minutes during the Executive Session to document the nature of the discussion.  The board should include the factors it considered in reaching a decision and include those factors in the Executive Session minutes.  However, unless the board action itself constitutes competitively sensitive information or by its nature discloses private information about an employee or member, the board should take the official action in regular session, and document the action in the regular minutes of the board meeting, taking care not to include the proprietary or private information in the regular minutes.  Finally, the board should establish a policy to govern who will maintain minutes of the Executive Sessions to ensure that: (1) Executive Session minutes are maintained and can be located if necessary; and (2) to ensure the minutes are not accessible to persons (other than counsel) who were not present during the Executive Session.  Many organizations ask their general counsel to maintain the minutes of Executive Sessions.

The board of a nonprofit organization must constantly balance the interest of transparency with its obligation to protect competitively sensitive and confidential information.  Executive Sessions are one important tool boards can use in this balancing act.

 

Erin Borissov is a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson, LLP with offices in Indianapolis and Lebanon, Indiana. She advises utilities and business clients in the areas of utility regulatory law, electric cooperative law, easement and right-of-way law, commercial transactions, corporate governance, and corporate compliance.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.