Board Special Committees and Investigations: Selecting Disinterested Members, Establishing Role in Bylaws, Charters

Description

Corporate boards can utilize special committees in certain circumstances. Special committees are recommended when a disputed transaction involves a controlling stockholder, a majority conflicted board, or there is the appearance of a conflict between a majority stockholder and the corporation. A special committee may also be warranted where federal regulatory investigations or whistleblower allegations implicate senior management in compliance and corporate culture failures.

There are no hard and fast rules for determining the directors that should serve on a committee other than being disinterested and independent. If the board of directors currently does not have enough independent directors to serve on the committee, it may add new independent directors to the board. At all times, the board should ensure it complies with the company's bylaws and all applicable state corporate laws. Successful committee members should be available and interested in serving, possess expertise in the subject matter of the investigation, and can work collaboratively and act decisively.

Legal counsel for a special committee must carefully consider the board resolutions granting the special committee its powers and ensure that the board has provided the special committee with sufficient power to carry out its role as arm's length negotiator. Although the authority to negotiate is critical, the special committee may need certain other powers of the board to increase the leverage that the special committee may bring to bear.

When a special committee conducts an internal investigation, the committee and committee counsel must understand their separate roles and responsibilities and how to perform document collection and review. The process may include witness interviews and examination of privileged documentation.

Listen as our authoritative panel provides best practices and procedural advice on establishing a board special committee and conducting an internal investigation when a board issue arises that requires an independent examination of the evidence and a determination on how to move a company forward.