Adam O. Emmerich, Robin Panovka, William Savitt, and Viktor Sapezhnikov are partners at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell Lipton memorandum.
Special committees are often an indispensable tool in conflict transactions. In REIT management-buyout transactions, a well-functioning and well-advised committee can sometimes shield directors and managers from after-the-fact litigation exposure. But special committees are not one-size-fits-all, and can also be deployed to the detriment of a company and its shareholders. Forming a special committee when not required can needlessly hamper the operations of the company and its ability to transact, create rifts in the board and between the board and management, and burden the company with an inefficient decision-making structure that may be difficult to unwind. It is important, therefore, for REITs to carefully consider—when the specter of a real or potential conflict arises—whether a special committee is in fact the best approach, whether it is required at all, and whether recusal of conflicted directors or other safeguards are perhaps the better approach.
