Planning For When Things Go Wrong: Are You Ready To Investigate Allegations Of Board Member Misconduct?


Let us start our discussion with an area of broad consensus: A company’s board of directors has a duty of care to respond to and investigate allegations of wrongdoing by officers and/or employees of the company. But what happens when a board member is the one in the investigatory hot seat? Do the same investigative rules and techniques apply when, for instance, a director has been accused of insider trading or leaking confidential information? And what are the best practices companies should consider proactively implementing so that they are best-positioned to effectively investigate alleged board member misconduct if and when it occurs? We will try to provide some time-tested, common sense — but oft overlooked — guidance to help you prepare for these not-so-uncommon eventualities.

The Basics: Hire Outside Counsel Carefully, Task Specifically -

Once grounds justifying an investigation have been identified, the company (typically through a special committee of the board headed by uninvolved board members) should, in the board resolution creating the committee and counsel’s engagement letter, clearly define the scope of the investigation and the investigatory objectives so as to avoid any ambiguity concerning what is within the outside investigators’ charter. Companies, moreover, are also well-advised to retain experienced (and probably independent) outside counsel; being able to demonstrate little prior involvement with the company or board members can be a plus. Tasking outside counsel with the job of conducting a full and independent investigation will not only help give counsel’s ultimate investigative findings additional credibility with company stakeholders, but it will also be a factor considered if and when the authorities (such as the Securities and Exchange Commission or the U.S. Department of Justice) step in and review the investigative findings.

Originally Published in Corporate Counsel Weekly Newsletter, 28 CCW 144 - May 1, 2013.

Please see full Article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Perkins Coie | Attorney Advertising

Written by:


Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.