March 17, 2017

Sandys v. Pincus: Director Independence Practice Points

This Cleary memo recapping its recent “M&A, Antitrust & the Board Room in 2017” event included a discussion of director independence issues in light of Sandys v. Pincus and identified the following practice points for assessing independence:

– At least annually, have directors complete questionnaires drafted in manner that is sufficient to permit an objective assessment of director independence, and consider re-circulating these questionnaires off-cycle if the company has a material transaction on the horizon.

– If these questionnaires reveal relationships and interests that may implicate independence, the inhouse legal department should be asking follow up questions to determine more information about these relationships and interests. It will be important to be obtain information that will permit the board’s evaluation of independence to be sensitive to nuances – e.g., going golfing a few times a year is a different relationship than renting vacation homes together.

– Expect plaintiffs’ counsel to use internet search engines to check for indicia of a lack of independence. Corporations should do the same as a secondary way to check whether directors have relationships and interests that merit further consideration.

– Be willing to have hard conversations with people who have been on the board together a long time to determine whether they can still be independent.

– Consider whether it might be appropriate to set up a standing litigation committee consisting of independent directors to avoid the situation faced in Sandys v. Pincus.

John Jenkins