CHAPTER 01 Special Committees: Governance Safeguards for Conflict of Interest Transactions and High-Stakes Situations
The following are 10 recommended best practices to assist a special committee in best discharging its mandate and limiting its members’ liability: 1 Establish and maintain independence. Members of the special committee and the committee’s legal and financial advisers should typically be kept independent from the corporation’s management and from any interested proponent in the transaction or situation. Doing so can be critical to enabling the committee to formulate its recommendation to the board free of any perceived bias. – The special committee should have separate closed meetings. Directors other than the committee members, representatives of the corporation’s management and representatives of any proponent of a potential transaction or situation should not be permitted to attend meetings, except at the request of the committee and then solely to provide information requested by the committee. The special committee should not be given instructions or directions by any interested persons. 2 Obtain all relevant information. The special committee must be able to demonstrate that it has gathered all relevant information relating to its mandate. The committee should not rely exclusively on the corporation’s management to provide information as a matter of course. The committee, with the assistance of its advisers, should form its own views about the information it requires in order to discharge its duties, should insist that such information be provided and should probe the information received. 3 Diligently review all information and documents. The special committee and its advisers should conduct a thorough and diligent review of all information and documents relevant to its mandate. Members of the committee must be given a reasonable amount of time to do so. All documents and information should
be delivered to the directors as far as possible in advance of any meeting and adequate time should be taken during the meeting to facilitate their thorough consideration. – Courts in both Canada and the United States have been particularly critical of decisions that have been made by boards or special committees without taking reasonable time for deliberation in circumstances in which there was no crisis or urgency to justify haste. Committees can protect themselves from criticism by ensuring directors have sufficient time to fulfill their duties. 4 Consider alternatives. A special committee should not restrict itself to considering one particular course of action, but instead review all reasonably available alternatives to determine which is in the best interests of the corporation. The committee should consider steps that may be appropriate to pursue to create or develop alternatives potentially more desirable from the corporation’s perspective. Courts in both Canada and the United States have been particularly critical of decisions that have been made by boards or special committees without taking reasonable time for deliberation in circumstances in which there was no crisis or urgency to justify haste.
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