This post comes to us from Joseph M. McLaughlin. Mr. McLaughlin is a Partner in the Litigation Department at Simpson Thacher & Bartlett LLP. The post is based on a Simpson Thacher client memorandum by Mr. McLaughlin.
A properly constituted Special Litigation Committee of disinterested and independent directors (SLC) empowered by the board to investigate and determine whether the prosecution of derivative claims is in the best interests of the company can be a powerful aspect of a board’s management authority. The SLC procedure is of greatest utility in a pending suit in which pre-suit demand on the board has been excused as futile by a court on a motion to dismiss under Rule 23.1. Even where a shareholder plaintiff has survived a motion to dismiss for failure to make pre-suit demand by showing reasonable doubt concerning the disinterest or independence of a majority of board members, that board can properly delegate its authority concerning litigation decisions on behalf of the corporation to an SLC consisting of disinterested and independent directors.