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Special Committees in M&A Transactions: Formation, Member Composition, Negotiating and Approval Authority

Mitigating Conflicts of Interest and Director Liability: Business Judgment Rule vs. Entire Fairness Standard

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Wednesday, February 24, 2021

Recorded event now available

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This CLE course will examine the use of special committees in M&A transactions where directors or significant shareholders have a conflict of interest. The panel will discuss the formation of a special committee, the committee's role in evaluating and negotiating a proposed transaction, how the committee should interact with the board and third parties, and application of business judgement rule vs. the fairness standard on judicial review.


M&A transactions often involve conflicts of interest, which can result in potential litigation and personal liability for directors and jeopardize the closing of the transaction. Corporate boards often resort to using special committees of independent, disinterested directors to evaluate and negotiate transactions to demonstrate that a fair, arms-length process has been followed. Counsel must pay special attention to the composition and functioning of special committees to withstand judicial review.

A special committee should be formed by a resolution authorizing the special committee to evaluate, negotiate, and ultimately approve or reject a proposed transaction on behalf of minority shareholders. The committee should include disinterested and independent members with industry expertise and a thorough understanding of the transaction. Members should be provided with the same information as the buyer and seller, and the committee should engage its own financial and legal advisers.

Because a special committee adds costs to the deal and can affect company operations, the board should evaluate the nature of the conflict of interest and consider alternatives (such as the recusal of a conflicted director) in deciding whether a special committee is necessary. The directors' goal is for their decisions to be examined under the "business judgment rule" and avoid application of the more onerous "fairness standard," which courts apply to conflict transactions.

Listen as our authoritative panel discusses a special committee's key functional components and the factors that should be considered before forming a special committee for a given transaction.



  1. Directors' duty of care in M&A transactions: the business judgment rule
  2. Conflicts of interest and the "entire fairness" standard of review
  3. Key components of a special committee
    1. Disinterested and independent members with sufficient expertise
    2. Authority to evaluate, negotiate, and reject a transaction in the same manner as a non-conflicted board
    3. Third-party advisers
    4. Reasonable compensation
  4. Deciding when a special committee is necessary


The panel will review these and other critical issues:

  • What kinds of transactions might make the appointment of a special committee necessary?
  • What is the process of creating a special committee? What should the formation resolution say?
  • What factors should be considered in appointing members to the committee?
  • How does a special committee impact a court's decision to apply the business judgment rule or the fairness standard in examining board actions?


Aquila, Francis
Francis J. (Frank) Aquila

Sullivan & Cromwell

During the course of his career, Mr. Aquila has advised on deals totaling more than $1 trillion in value, including...  |  Read More

Langston, James
James E. Langston

Cleary Gottlieb Steen & Hamilton

Mr. Langston’s practice focuses on public and private merger and acquisition transactions and activism defense....  |  Read More

Salameh, Youmna
Youmna Salameh

Houlihan Lokey

Ms. Salameh is a Director in Houlihan Lokey’s Board and Special Committee Advisory practice, where she focuses on...  |  Read More

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