Corporate Governance

2018 Corporate Governance & Execution Compensation Survey

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Page 25 of 109

Shearman & Sterling LLP 24 | Board Oversight of Sexual Harassment and Misconduct Claims FORMING A SPECIAL COMMITTEE While Delaware law permits special committees comprised of as few as one director, it is preferable to have at least three disinterested directors serve on an investigative committee. In identifying special committee members, the board should balance the need for active and robust discussions of the issues and a desire for diversity of viewpoints against the need for a prompt and efficient adjudication of the facts. Special attention should be paid to the backgrounds and perceived independence of the special committee members: whether they have long board tenure or if they have a close personal relationship with the party under investigation or the party making the allegation. Gender composition of the committee should also be considered as well, which can be challenging for less diverse boards. The ability of any potential member to devote a meaningful amount of time to the work of the special committee in short order should also be part of the selection criteria. Finally, a committee chair should be appointed to preside over the proceedings, and special care should be afforded to his or her selection as the chair may become the "public face" of the investigation. In establishing the special committee, the board should determine at the outset whether the special committee has authority to make final determinations, or whether the full board retains such authority. SEEKING LEGAL COUNSEL It is advisable, and now commonplace, for special committees to turn to outside advisors for assistance in addressing allegations of sexual misconduct in the workplace. Outside legal counsel can add much needed experience and resources to the investigation. Although, typically, their work would be protected by privilege and the attorney work product doctrine, in a highly publicized scenario there will be great pressure on the company from shareholders, the media and, potentially, regulators to release the results of the investigation. The special committee and its outside legal team should remain in very regular contact, and the special committee should actively oversee the status of the investigation. Independence also needs to be considered in selecting legal counsel, and such counsel generally should not be a firm commonly involved in defending the company or its executives in discrimination or harassment cases. A special committee's use of the company's regular outside legal counsel may, on later review, weaken an argument regarding the committee's independence, depending upon the extent of such legal counsel's relationships with the company generally and the executive under investigation in particular. This should be thoughtfully considered by the special committee on a case-by- case basis. The board should also decide whether special committee members, and the chair, will receive an additional fee for these extraordinary services, given the amount of time potentially involved and in light of market practice and current director fee packages.

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