When a board of directors considers a transaction in which some of the directors have a conflict of interest, it frequently creates a special committee of independent directors to evaluate the proposed transaction. Courts have encouraged the creation of these committees by applying a more protective standard of judicial review for “conflict” transactions that are approved by a special committee. However, courts have cautioned that only a truly independent and properly functioning committee would provide this benefit.
Because “conflict” transactions cut to the heart of directors’ legal duties and liabilities, special committees require experienced legal counsel. We regularly advise boards of directors on the need for, and creation of, special committees, and we regularly represent special committees once they are created.
We draw upon the skills of several of the firm’s departments, especially the Corporate & Financial Services and Litigation Departments. Our corporate lawyers assist special committees in analyzing and negotiating proposed transactions, advising such committees on their fiduciary duties and other legal issues relating to proposed transactions, and work to ensure that courts will view them as properly functioning committees. Our litigators work closely with our corporate lawyers to protect the independent directors and, if necessary, to defend them in any adversarial proceedings arising out of the matter.
Our work for special committees covers a broad array of matters, including: “going-private” transactions by controlling shareholders; issuances of stock to, and commercial transactions with, directors, officers and controlling shareholders; and efforts to explore strategic alternatives where insiders may be expected to present one of the alternatives.