Legal Definitions - SLC

SLC stands for Special Litigation Committee.

A Special Litigation Committee (SLC) is an independent committee formed by a corporation's board of directors. Its primary purpose is to investigate allegations of wrongdoing made against the corporation's own directors or officers, particularly in the context of a shareholder derivative lawsuit. When shareholders sue on behalf of the corporation, alleging that its leaders have harmed the company, the board often forms an SLC to impartially review these claims. The SLC then determines whether it is in the best interest of the corporation to pursue the lawsuit, settle it, or seek its dismissal.

The key characteristic of an SLC is its independence. Its members are typically directors who are not implicated in the alleged wrongdoing and are often newly appointed or chosen for their impartiality and lack of prior involvement with the accused parties. This independence is crucial to ensure that the investigation and subsequent decision are made objectively, free from conflicts of interest, and solely for the benefit of the corporation.

• Example 1: Investigating Executive Misconduct

  Shareholders of "TechInnovate Inc." file a derivative lawsuit against the company's CEO and CFO, alleging they approved several questionable acquisitions that resulted in significant financial losses for the company. Rather than having the full board, which includes the accused executives, decide how to respond, TechInnovate's board establishes a Special Litigation Committee. This SLC is composed of three newly appointed, highly respected independent directors who have no prior business or personal ties to the CEO or CFO. The SLC hires its own independent legal counsel and forensic accountants to thoroughly investigate the acquisition decisions, review all relevant financial documents, and interview key personnel. After months of investigation, the SLC recommends to the full board whether the company should pursue the lawsuit against its CEO and CFO or move to dismiss it, based on what the committee determines is in TechInnovate's best financial interest.

  This example illustrates how an SLC is formed to independently investigate serious allegations of financial mismanagement against top executives, ensuring the corporation's response is unbiased.

• Example 2: Addressing Allegations of Board Member Self-Dealing

  A group of minority shareholders in "Global Pharma Corp." files a derivative lawsuit, claiming that two long-standing board members used their positions to steer lucrative research contracts to a private company they secretly owned, constituting a conflict of interest and self-dealing. To address these serious allegations, Global Pharma's board forms a Special Litigation Committee. The SLC consists of two independent directors who were not involved in the alleged transactions and a retired federal judge brought in specifically for this role. The committee's mandate is to conduct an exhaustive investigation into the contracting process, review all financial records, and assess whether the accused board members breached their fiduciary duties. The SLC's findings and recommendations will then determine whether Global Pharma pursues legal action against its own board members or seeks to dismiss the shareholders' claims, ensuring the decision is made objectively and in the corporation's best interest.

  This example demonstrates an SLC's role in investigating allegations of self-dealing and conflicts of interest involving board members, highlighting its function in maintaining corporate integrity and accountability.