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Insights

Aug. 19, 2021

SLCs and Responding to Shareholder Demands: How to Investigate Alleged Director Misconduct

By Scott N. Sherman, Josh R. Lewin, Edward Glickman

Corporate Compliance Insights

In their second exclusive article for Corporate Compliance Insights, Nelson Mullins partner Scott Sherman and associate Josh Lewin describe the scenarios one can expect to encounter when asked to join a special litigation committee (SLC). The article offers a deep dive into the investigation process, settlements, and the decision to pursue litigation, in addition to considerations such as the role of indemnity agreements and D&O insurance.

The authors write that SLC investigations are designed to “determine whether the claims asserted have merit” and whether a company should take action on such claims. SLC members need to understand how courts will examine their work, the good faith, and reasonableness of the investigation, to determine whether the investigation was sufficient. They also note that “contrary to general belief, many SLCs decide to either settle or pursue derivative claims,” and conducting a formal, well-documented, and extensive investigation is crucial to that decision.