Everyone has tips on how to conduct internal investigations. The how-to articles present advice on how to conduct an internal investigation. Unfortunately, the reality is far more complex and risky.
Behind many of the FCPA settlements reached between companies and the Justice Department are intriguing twists and turns in every investigation as the facts are gathered. In some cases, the “truth” is never actually revealed, and in others the investigation reaches a roadblock.
Recent reports of corporate intrigue have dramatically underscored how an internal investigation can be derailed or even shut down. In many cases, directors or senior managers may oppose or resist considering an internal investigation. Board members or senior managers may resist such steps not necessarily because they involved in the illegal conduct but sometimes because they do not want to embrace the inevitable change resulting from an internal investigation and enforcement action.
Given the Justice Department’s use of broad enforcement theories of liability, board members and senior managers who may fear their own liability will put up roadblocks. This is what we call a complete corporate governance failure. This is when the board and senior managers become complicit in the cover-up and obstruct an internal investigation in the hope that the allegations will never see the light of day. Believe me, it happens, and it is not as rare as you think.
Companies have to be extremely careful when considering allegations of misconduct and deciding whether to initiate an internal investigation. Such a decision is rarely unanimous. From the beginning, support may waver – sometimes these attitudes can reflect culpability and sometimes a general resistance to change. It is important to try and nip resistance in the bud. This requires careful political maneuvering and alliance building. An outside counsel, or internal investigator, who conducts the investigation with scare tactics and a heavy hand are often unsuccessful because they do not take the time to understand the political factions or how to build alliances inside the company.
In an even more problematic scenario, the culpable players are involved in the supervision of the internal investigation. They can obstruct the investigation by restricting the focus and authority of the investigation. When this happens, outside counsel’s engagement and investigation is in serious jeopardy. Factions within the company may struggle and the victor may be the wrongdoers, or the obstructionists, themselves.
If the factions on the board or in management are at odds, the situation can break down very quickly. Individual board members and senior managers may obtain their own counsel. Allegiance to the company can break down into individual actors seeking to protect themselves.
If a board member (or group) fears their own liability, they may inform the other board members of their disagreement. If they are not satisfied with the response, they may be forced to resign. For the remaining board members, this record makes it even more risky for them if the investigation reaches the board’s actions or inaction.
Senior officers of the company can frustrate an investigation by blocking an independent investigator from reporting to the board, seeking additional authority from the board or providing a status report. Senior managers may seek the ouster of the investigator/outside counsel and replace the investigator/outside counsel with someone more loyal to the officers. The outside counsel always walks on very thin ice and is frequently at risk as these internal struggles play out. Along the way, outside counsel has to adhere to ethical rules and professional integrity. No engagement is worth the risk of compromising professional or ethical integrity.