A. Explanation

This Provision discusses the need for IDs and Non-Executive Directors (NEDs) to have private sessions.

NEDs are separate from management, though some management members are on the Board (as Executive Directors or EDs). Some matters are best discussed among NEDs without the presence of management and even the EDs. These include the performance and remuneration of management, dynamics of the Board-management relationship, and objective assessments of management’s ideas and proposals. Most of these matters will, in fact, be brought to the EDs’ attention in due course, usually in the full Board meeting. However, it could be more candid and productive for them to be discussed beforehand in private sessions without management’s presence.

While this Provision supports having these private NED sessions on a regular basis, it does not mean they should occur without the knowledge of the EDs. It is also preferable if they are held regularly as a matter of routine as that will help ameliorate any concerns on what the specific situations may be when they are scheduled on an ad hoc basis.

There are two types of NEDs – Independent Directors (IDs) and Non-Independent Non-Executive Directors (NI-NEDs). Where particular issues relate to independence or IDs, the private session should then involve only IDs.

The Provision indicates that private sessions of NEDs and/or IDs should be led by the Lead Independent Director (Lead ID), whose role is described in Provision 3.3 of the Code.

B. Practice Guidance

• Practice Guidance 2: Board Composition and Guidance.

C. Related Rules and Regulations

• Section 157(1) of the Companies Act: As to the Duty and Liability of Officers.

D. CG Guides

• Board Guide 5.2: General Duties of Directors [Director Duties].
• Board Guide 5.8: Types of Directors [Director Duties].
• Board Guide 5.10: The Non-Executive Director [Director Duties].
• Board Guide Appendix 1J: “Comply or Explain” – Examples of Non-Compliance: 2. Separation of the Chairman and CEO [Corporate Governance].
• NC Guide 3.2: Types of Directors [Nomination and Appointment Process].
• NC Guide Appendix 3C: Types of Directors [Nomination and Appointment Process].
• NC Guide 4.6: The Lead Independent Director [Director Independence].
• NC Guide Appendix 3C: Types of Directors [Nomination and Appointment Process].
• NC Guide Appendix 4D: Sample Terms of Reference for Lead Independent Director [Director Independence].

E. Related Articles

• “Whither the lead independent director” by Adrian Chan. (57KB)
• “Role of non-executive directors in strategic decision-making” by Eugene Kang. (442KB)
• “The lead ID: How is he supposed to lead?” by Adrian Chan. (250KB)
• “The independent director: A cut above or the same as other directors?” by Annabelle Yip. (300KB)