Lawyers like to be dramatic. Litigators love to be dramatic. When it comes to a “bet the company” scandal, the company’s survival will depend not only on the quality of an internal investigation, but the company’s broader “crisis management” skills.
There is no question when the stakes are high; an internal investigation must be conducted in a professional and careful manner so that it can survive scrutiny by the government, shareholders, rival management teams, and the public. The internal investigation, however, is only part of the process which requires public relations, Congressional relations, shareholder communication, and internal changes which are required to remedy internal compliance and control deficiencies.
It is a very tricky environment in which to conduct an internal investigation. At the beginning of the process, the company has to make sure that the proper board oversight structure has been set up. The board has to designate an oversight committee, which can be either the audit or compliance committee, or it can appoint a special committee. Whichever form the supervising committee takes, the board should adopt a resolution outlining the purpose of the investigation, the scope of the inquiry, and any specific procedures which need to be addressed. If a special committee is set up, the board will need to adopt a resolution creating the committee and outlining the scope of the investigation as well as any specific procedures which are required.
The second important step is to set up a Crisis Response Team made up of senior management representatives, including the CEO, Chief Operating Officer, Chief Compliance Officer, General Counsel, Chief Finance Officer, Public Relations/Communications, Human Resources, Information Technology, and Internal Audit. The CRT is the nerve center of the company response to a major scandal and internal investigation.
The third step is to retain outside counsel. In some cases more than one firm may be required, depending on the specific skill set of each. In making such a selection, two important factors must be the examined – independence and interpersonal skills.
In the end, the internal investigation will be doomed if it is viewed as biased. The company cannot use its established firm – it has to reach out and find a new firm with credibility and an ability to conduct a fair internal investigation.
Further, the ultimate ability of outside counsel to persuade a company to make major changes to its operations, which can often mean survival of the company (and management), will depend on the ability of outside counsel to understand the internal company dynamics, to persuade the government of a proper resolution and remediation plan, and to convince the company to make the necessary changes.
The internal investigation team, however, is not complete until a dedicated compliance remediation professional is added. Working in tandem with the internal investigation team, the compliance remediation teas am should develop compliance program enhancements and modifications, some of which should be implemented as quickly as possible and before completion of the internal investigation. The Department of Justice and the SEC have committed to giving companies “meaningful credit” for remediation. As examples, SNC-Lavlin, Wal-Mart, and Daimler each implemented significant changes prior to resolution of their internal investigations.
The internal investigation team and company representatives need to meet often and early with government representatives (and Capitol Hill Senators and Members, if required) to demonstrate the company’s commitment to investigating how and why the conduct occurred, what compliance and ethics program enhancements are needed to prevent the problem from recurring, and to cooperating with the government investigation.
Two important principles have to be protected.
First, the investigation’s independence has to be preserved by “walling off” all subjects of the investigation from internal oversight and supervision of the investigation. If any subjects are improperly involved or obstruct the investigation, the company can lose big, resulting in individuals being prosecuted for obstruction of justice, and the investigation suffering serious damage to its integrity.
Second, the company has to protect its attorney-client and work product privileges. It is not as easy as it appears because of the complexity and operation of the CRT. In some situations, communications involving public relations strategy can be deemed non-privileged even with the participation of counsel in such discussions. Each step in a crisis response can create risks to application of the attorney-client privilege and a company cannot afford to lose such protection.