The Decisions of Corporate Special Litigation Committees: An Empirical Investigation

This Article examines the decisions of corporate special litigation committees using an original data set gathered from company filings with the SEC. It demonstrates that the prevailing view in corporate law - that special litigation committees uniformly decide to dismiss derivative litigation against manager colleagues - is not accurate. This Article shows that approximately forty percent of the time special litigation committees decide to settle claims or pursue them against one or more defendants. Furthermore, approximately seventy percent of the time cases subject to control by a special litigation end in settlement; only approximately twenty percent of the time is the end result dismissal. What has long been viewed as an engine for having derivative litigation dismissed actually leads to settlements most of the time. The view that special litigation committees behave too predictably has underwritten doubts about the ability of independent and disinterested directors to police conflict of interest transactions generally. The findings presented here show that the prevailing view about special litigation committee behavior is an unsound basis for generalizing about how independent and disinterested directors behave.