At some point, nearly every company faces a situation in which there are irregularities or other issues that the government—rightly or wrongly—views as having criminal implications. In today’s legal climate, companies that ignore reports about the conduct of their employees do so at their own peril. In such circumstances, the company’s ability to avoid potential criminal liability—or to mitigate the consequences of such liability—may depend in large part on the company’s effort undertaken to identify possible violations of law by its individual employees or managers. Also, the likelihood of an agency declining civil enforcement proceedings—for example, DOJ antitrust enforcement or SEC investigation of violations of the Foreign Corruption Practices Act—is significantly increased by a company’s initiative in determining and disclosing what happened.
Allegations can come from a variety of sources. Many companies have specifically designated “hotlines” for whistleblowing or other legal or ethical complaints. Other allegations may come to light simply because an employee reports something to a supervisor. Whatever the source, it is essential that companies take such allegations seriously, and conduct effective investigations to determine the facts that will guide the company’s decision-making going forward.
The key word here is “effective.” To serve its purpose, an internal investigation must not only determine the facts, but must do so in a manner that will be trusted by those outside of the company and fully protect the company’s litigation interests in the event of civil litigation or criminal prosecution. Those interests may be served by observing a few “best practices” for the conduct of such investigations:
Hire outside counsel to conduct the investigation and report to an unbiased point of contact.
Counsel who are experienced in the handling of internal investigations can conduct an investigation in a manner that preserves and protects the company’s interests in the event of ensuing litigation—including the protection of the investigation itself by attorney-client privilege and work product protection. In addition, the hiring of experienced outside counsel contributes significantly to the effectiveness of an internal corporate investigation. Doing so communicates that the company is taking seriously the allegation that is the subject of the investigation, and also leaves the investigation in the hands of a third party. And by connecting outside counsel with an unbiased point of contact within the company—that is, someone who is not implicated in any way by the allegations under investigation—the company can preserve the assertion that it has conducted a fair and impartial investigation into the possibility of wrongdoing.
Act promptly and follow the facts wherever they may lead.
A company’s timely decision to investigate allegations serves important goals. If an investigation shows that the allegations were not true, a prompt investigation helps to put the episode in the rear-view mirror and allows the attention of the company’s employees and management to return to the business of the company. On the other hand, if the investigation verifies that there have been violations of law, a prompt decision to conduct an investigation may later serve as important evidence of the company’s intent not to facilitate, permit, or cover up the wrongdoing. This all assumes, of course, that the individuals who conduct the investigation are authorized and encouraged to follow the facts wherever they may lead, with no predetermined outcome, and with no limitations on investigators’ ability to gather information.
Communicate clearly with employees and management about the investigation.
It is equally important that the company communicate clearly with its employees and management about the investigation, including its purpose and scope, and the need for full cooperation. If the matter is one that may be covered in the media, or which may come to the attention of law enforcement, it is vital that employees understand the need for the company to speak with one voice regarding the underlying allegations. Employees also must understand the importance of maintaining the integrity of the investigation—for example, by the company issuing a “litigation hold” directing employees to refrain from deleting or destroying any evidence, and by urging employees to refrain from informal discussions among themselves about the allegations. If employees see that the company vests the investigation with importance, they too will view it as important, and are more likely to treat it with the respect it deserves and that it requires in order to succeed.