CHAPTER 01 Special Committees: Governance Safeguards for Conflict of Interest Transactions and High-Stakes Situations
Spotlight: Defining the Special Committee’s Mandate
– Size and composition of the committee. The appropriate size of a special committee will be driven by various factors. Generally, the optimum is to have a sufficiently small group that can act quickly and focus on the matters under consideration, while ensuring the members have the requisite skills and experiences needed to bring proper consideration to the various issues. Typically, members should be both independent and disinterested, as well as have the time and the necessary competencies. There may be circumstances when the committee is not composed entirely of independent directors, but such decisions must be carefully made with the benefit of legal advice. Particularly in the context of a material conflict of interest transaction, it would be rare for a special committee to include non-independent directors. – Committee’s authority and powers. The best practice is for the special committee to review, supervise and, if required, negotiate the transaction and consider alternatives to what is being proposed (including the status quo ). In the context of an internal investigation, the special committee should have a broad mandate to conduct, receive and review the documents and records that the committee deems necessary. The mandate should expressly state that the committee has the authority to engage independent advisers without board approval, external interference or involvement of interested parties.
The mandate of the special committee is an important governance document. Setting out its purpose, scope, duties and powers, the mandate is the committee’s backbone. It is critical that the mandate is broad yet sufficiently precise so that the committee is both empowered and accountable. A committee’s mandate should address the following items: – Process for selecting a chair. In some cases, the board selects the chair, whereas in other cases, the committee itself makes that determination. If there is a concern that the independence of the process might be tainted by the board making the selection, then it may be better for the committee members to decide who should serve as chair. The chair should be independent and have a strong understanding of the business and the proposed transaction. The chair should also have the requisite “soft” skills needed to build consensus and diffuse conflicts, as well as be able and willing to stand firm against interested parties who may attempt to inappropriately influence the committee.
13
Davies | dwpv.com
Powered by FlippingBook