September 18, 2019

Fiduciary Duties: Making Effective Use of Special Committees

This Wachtell Lipton article provides an overview of the issues involved in using a special committee of the board to oversee a conflict transaction.  Here’s the intro:

Special committees often play a critical role in conflict transactions, such as transactions involving controlling stockholders, corporate insiders or affiliated entities, including “going private” transactions, or purchases or sales of assets or securities from or to a related party. Such “conflict transactions” raise complicated legal issues and, in today’s environment, a high likelihood of litigation. A well-functioning and well-advised committee can offer important protections to directors and managers in after-the-fact litigation.

The article also points out that special committees aren’t always the answer, and that forming one in the absence of a conflict transaction can hamper the company’s operations, create rifts within the board and even encourage litigation by creating the perception of a conflict where none actually exists.

John Jenkins