Our Take: Carefully Assess the Need for a Special Committee
Given the increased scrutiny of board and committee processes by courts and regulators, not to mention investors and other stakeholders, we expect the use of special committees to continue to trend upward. Special committees are increasingly becoming important and more prevalent procedural safeguards for boards in a wide range of transactions, as well as in the context of significant litigation, internal investigations, shareholder activism and other high-stakes situations. Consider, for example, the formation of a special committee by the board of CannTrust Holdings Inc. to investigate and oversee the remediation of internal non-compliance with its core licences, discussed in Chapter 9, Governance in a Nascent Industry: Lessons from Canada’s “Green Rush.” While there is no one-size-fits-all blueprint, in an increasing number of cases, the formation of a special committee at the earliest possible stage may be the most prudent approach; in some situations, such as those involving actual or perceived conflicts of interest, it may even be practically required.
However, striking a special committee will not always be the optimal approach. Although the nimbleness of a special committee may sometimes lead boards to favour its establishment – as we saw with many boards grappling to help their companies identify and respond to the varied impacts of the COVID-19 pandemic – in other cases major projects, transactions or situations should be brought before, and evaluated by, the full board. Boards should consult with external legal counsel to determine the best path forward in any particular case. Lastly, the existence of a special committee will not automatically protect the board against an otherwise faulty or flawed process. The board must ensure that the committee has an effective mandate and discharges its duties appropriately. If executed correctly, a special committee provides a strong safeguard of process, mitigating litigation risk or the risk of an adverse ruling before a securities regulator or a court.
20
Governance Insights 2020
Powered by FlippingBook