There are few aspects of the chief audit executive (CAE) job that are more anxiety inducing than the executive session of a board or audit committee meeting. Audit leaders can often find themselves pulled in different directions, questioning their loyalties, and put in the precarious position of having to discuss things that could show their fellow C-level executives in an unflattering light. While never easy, some important considerations—particularly what not to do—can help internal audit leaders navigate these treacherous waters.
While some tension can stem from the dual reporting role that many CAEs inhabit, most consider it the best structure for internal audit leaders to fulfill their vital responsibilities. This dual reporting relationship—one administrative, and one functional—allows internal audit leaders to work along side the executive management on a day-to-day basis, while still providing the necessary avenue to elevate serious concerns to the board level. The administrative relationship provides for a day-to-day senior-level manager to get expense reports approved, obtain feedback and coaching, stay connected with the organization, and generally feel a part of the organization. The functional relationship helps establish internal audit’s independence, elevates internal audit as part of the organization’s governance structure, and provides for the approval of audit plans, CAE performance evaluations, and CAE compensation.
While both reporting relationships are critical and require some deft navigation on the part of the CAE, the CAE’s functional reporting relationship includes executive sessions of audit committee or board-level meetings that require a professionalism, insight, integrity, and communications acumen that can test even the most experienced CAE.
What Is an Executive Session?
An executive session affords the CAE an avenue for unfiltered communications with the audit committee. The meetings are scheduled periodically, as part of the committee’s meeting agenda, typically at or near the end of the regularly scheduled meeting. All other company personnel attending the meeting are excused so the CAE has time alone with audit committee members to discuss things in private.
This is a two-way dialogue, during which the audit committee members may have something they want to say to, or ask of, the CAE, and the CAE may have things they want to say to, or ask of, the committee. In most circumstances, the discussions are confidential and not recorded in the official minutes of the meeting in any detail.
What Might Be Discussed in an Executive Session?
Executive session dialogues between the audit committee and the CAE can differ from company to company and from meeting to meeting; they may even differ depending on the composition of a company’s committee. The committee may seek the CAE’s perspective, in an unfiltered and unbiased way, on one or more topics. In turn, the CAE may raise issues or advise committee members in a confidential and unrestricted setting.
I have personally had executive sessions in my career where we have discussed such topics as: whether or not the disaster recovery plan will actually work, the relative competence and capability of an executive officer of the company, the relative truthfulness of what was being presented by a company officer, the general morale of the organization’s employees, and how well the company was adhering to its values and espoused ethics. These extremely sensitive topics required the savvy and political acumen to share both facts and opinions regarding the topic at hand.
What Can Go Wrong During Executive Sessions?
If not handled smartly, a lot can go wrong during executive sessions with the audit committee or full board. Some pitfalls to avoid include:
Responding to a topic when you are not confident about your answer: While it is great that many audit committees often look to the CAE for their knowledge about almost anything going on in the organization—and you are probably confident on a wide range of topics—you cannot know everything. Never bluff your way through an answer if you do not know. It would be better to say that you would like to investigate it, or that you would like some time to think about it. Using discretion if you are unsure is much better than speaking off the cuff or with a shaky set of facts and end up being wrong.
Surprising the audit committee chair: As is often said, no one likes surprises—especially bad news. While a topic you raise to the audit committee may be unexpected by the committee members, it is generally not a good idea to surprise the audit committee chair. If you plan on raising a topic in executive session, be sure to discuss it with the committee chair in advance. Then, the chair will not be surprised during the meeting and can guide you in the best way to raise the issue. It never hurts to have the full support of the committee chair, and advising them of an issue in advance goes a long way toward gaining their support.
Having nothing, ever, to discuss in executive session: Some audit committees allow for an executive session with the CAE at every meeting, and some do it less frequently. Holding these important private sessions at least once or twice a year should be acceptable in most organizations. But what if the CAE never has anything to share? At some point, the committee may stop asking, or may start to lose confidence in the CAE given their silence. They may even question if the CAE is being sufficiently candid about what is really happening inside the organization.
Having something to discuss in every executive session: As much as never having something to discuss in executive session is problematic, always having something to discuss could be equally troubling to audit committees and boards. The committee members may begin wondering why the CAE always waits until the private session to raise issues, or begin thinking that everything must be an issue with this person.
Ignoring the fact that anything you say might be repeated outside the meeting: Yes, the executive session is supposed to be private and confidential. If you are discussing something rather controversial or significant, however, audit committee members might feel obligated to follow up on the matter on their own. And, if they do . . . watch out. It will be rather obvious that they learned about the topic from the CAE. Whenever possible, cover your bases and consider giving the CEO, the CFO, or other applicable executives a confidential “heads-up.” Of course, there may be instances where this is not possible or practical, but always consider doing it, nonetheless. CEOs and senior executives hate surprises just as much, or maybe even more so, as board members do.
Allowing the executive session to run too long: Most often, the executive session with the CAE is at or near the end of the committee meeting. At the appointed time, all non-committee members leave the room and the CAE is alone with just the non-executive directors who comprise the committee. The other executives and staff that left the room are, in most instances, waiting outside the room for the executive session to conclude. How awkward is it when the executive session goes on for an exceptionally long time? I would suspect the people waiting outside the room begin to wonder: “what in the world are they talking about?” The longer the session goes on, the more curiosity will build around what was discussed and the more awkward it will be.
Be Strategic When Navigating Executive Sessions
Just like any executive position, the CAE must be strategic and thoughtful when going about their work. How you, as the CAE, handle executive sessions with the audit committee is no exception. Know how to leverage the people, personalities, politics, and culture to strategically utilize these sessions in the best interests of what needs to be accomplished for the organization over the long term. If you do not have a good rapport with the members of the committee, and especially with the chair, then you need to invest time in building these relationships. Having a base of strong rapport with the committee members, you can best position how you handle these important, yet challenging, interactions to the fullest advantage of the organization, the committee, and the entire board.
These sessions are a powerful tool, but like any powerful tool, they need to be wielded carefully and skillfully. 
Hal Garyn is Managing Director and Owner of Audit Executive Advisory Services, LLC based in FL.
Very good advice! Executive sessions are very unique!