4 Manage potential conflicts of interest. conflict of interest (real or imagined) by key decision- makers on the board or management. To pre-empt, manage or defend itself against such allegations, a company and its board can do the following: Complainants often allege that the impugned action, decision or transaction was tainted by a – Establish and adhere to policies that are set out in writing, have regard to best corporate practices and are tailored to the company’s specific needs. These policies can encompass such matters as the assessment of the independence of directors; board refreshment; and the identification, documentation and disclosure of conflicts by members of the board and management. – In appropriate circumstances, consider establishing a special committee of the board, made up of independent directors, to review and approve material decisions and actions. – In appropriate circumstances, authorize and encourage the special committee to obtain legal and financial advice from independent advisers whose compensation structure is not dependent on any particular action or board decision. Chapter 1 of our 2020 edition of Davies Governance Insights contains a detailed discussion of statutory requirements and best practices for special committees. The term “special committee” may suggest that a real or potential conflict is being addressed. If a temporary committee is created by a board for another purpose (such as more closely supervising a deal negotiation or other project), it may be prudent to use a different term, such as “ad hoc committee” or “strategic review committee” to avoid confusion.
– The minutes should accurately reflect the process that the board or committee followed. – The minutes should cover the topics considered; the scope of discussion, with a fair and accurate summary of the directors’ debate; the issues canvassed; any external advice obtained; and the documents and agreements reviewed. They should also disclose any in camera sessions. – Actual or perceived conflicts of interest should generally be declared, recorded and appropriately managed at the outset. Where appropriate, the minutes should record the exclusion of conflicted directors or management from the discussion. – Minutes should generally list attendees and record the entry or exit of non-directors, such as management, advisers or other parties. Doing so can help establish that the directors devoted sufficient time to considering the relevant issues and did so in the absence of any potentially conflicted parties. – The minutes should not function as a transcript of the meeting, but rather a clear and concise description of it. Any material in the minutes that is potentially subject to solicitor-client, litigation, settlement or other form of privilege should generally be clearly and expressly identified. This practice can be of great assistance if it becomes necessary to segregate privileged from non-privileged matters during the litigation process. It can also limit the risk of the company or its counsel inadvertently producing privileged material. In this regard, it is important to bear in mind that minutes are not necessarily privileged simply because legal counsel is present. While the minutes might record the fact that privileged advice or information was received, it may be prudent in some cases to avoid recording the actual content or outcome of the privileged advice.
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Governance Insights 2022
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