The Decisions of the Corporate Special Litigation Committees: An Empirical Investigation

Using an original data set gathered from filings with the U.S. Securities and Exchange Commission, this Article tests the prevailing view in corporate law that special litigation committees invariably decide to dismiss shareholder derivative litigation. It demonstrates that (1) special litigation committees decide to pursue or settle claims much more frequently than heretofore recognized; (2) special litigation committees do not otherwise let defendants off the hook when pursuing or settling claims, in view of the financial recovery to the company in either scenario; (3) most shareholder claims subject to the authority of special litigation committees end up settled, not dismissed,- and (4) claims subject to the authority of a special litigation committee are resolved faster than standard derivative claims, indicating that the special litigation committee may serve as a form of alternative dispute resolution. Furthermore, the pattern of financial recoveries to companies suggests that special litigation committees may be more responsive to the merits of shareholder claims than has been recognized before. 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 in this Article show that the prevailing view in the corporate law literature about special litigation committee behavior is an unsound basis for generalizing about how independent and disinterested directors behave.