CHAPTER 01 Special Committees: Governance Safeguards for Conflict of Interest Transactions and High-Stakes Situations
7 Actively participate in the decision. Courts and securities commissions may be critical of decisions made by special committees that have not actively participated, directly or through their advisers, in reviewing or structuring matters that they have been called upon to consider. This is especially in cases in which the corporation’s management may be interested. 8 Document the process. Minutes should be prepared and maintained, in real time, for all meetings of the special committee. The minutes should be sufficiently detailed to indicate the manner in which the committee fulfilled its mandate and to summarize the advice received. Committee members should be aware of confidentiality and privilege considerations; certain discussions, such as those covered by litigation privilege, may need to be recorded in camera and/or in separate minutes. Special committees established to review material conflict of interest transactions under MI 61-101 should also be cognizant of the OSC’s “real-time” review of those transactions, which may result in a request for copies of the meeting minutes. 9 Present a report to the board. The special committee should summarize its deliberations and conclusions in a report to the full board. The committee’s legal and financial advisers should be available, if not present, at any meeting of the board at which the committee’s report is to be considered in order to respond to any questions concerning the advisers’ recommendations or analyses. – There should be no need for significant additional analysis of any potential course of action by the full board if the special committee, together with its advisers, has created a record demonstrating a thorough analysis.
10 Maintain confidentiality. It is critical that the special committee’s deliberations remain confidential throughout its process. Members of the committee should not disclose or discuss with outside parties any information about its deliberations or its likely recommendations. All comments about the committee’s work should come from a designated spokesperson, whether those comments are made to the corporation’s management, an interested party, shareholders or the media. Ultimately, the duties of directors on a special committee are similar to those that apply generally to directors. The committee’s actions may be subject to legal challenge if it can be established that its decision was not made in the best interests of the corporation; was implemented for an improper purpose, such as to benefit a particular stakeholder at the expense of the corporation; or was not reasonable in the circumstances. With respect to their duty of care, directors on special committees may have greater liability risk for a breach of duty, since they have more information about and are more actively involved in the proposed matter than the other directors. Members of the committee will also have closer contact with the advisers retained to advise the committee and will have a different time frame within which to consider the information presented to them. It is thus prudent for the special committee to consider whether appropriate indemnities and insurance are in place to protect the directors from incurring personal loss as a result of their role on the committee. Special committees established to review material conflict of interest transactions under MI 61-101 should also be cognizant of the OSC’s “real-time” review of those transactions.
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