Dan Dunne, in a Compliance and Ethics Professional article, entitled “Foxes and henhouses: The importance of independent counsel”, said a critical element in any investigation is “fair and objective evaluation by the investigator.” A key component of this fair and objective evaluation is the Who question; that is, who should supervise the investigation and who should handle the investigation? Dunne’s clear conclusion is that independent counsel should handle any serious investigation.
There are three reasons for a company to retain independent counsel for internal investigations of serious whistleblower complaints. First, André Agassi was right, perception is reality. This means that for any corporate ethics and compliance program to be effective, it must be perceived to be fair. If your employees do not believe that the investigation is fair and impartial, then it is not fair and impartial. Further, those involved must have confidence that any internal investigation is treated seriously and objectively.
Secondly, if regular outside counsel investigates their own prior legal work or legal advice, a very large and potentially messy number of loyalty and privilege issues can arise in the internal investigation. It is a rare legal investigation where the lawyer or law firm which provided the legal advice and then investigates anything having to do with said legal advice finds anything wrong with its legal advice. Dunne also notes that if the law firm which performs the internal investigation has to waive attorney client privilege, it may also have to do the same for all its legal work for the company.
The third reason is the relationship of the regular outside counsel or law firm with regulatory authorities. If a company’s regular outside counsel performs the internal investigation and the results turn out favorably for the company, the regulators may ask if the investigation was a whitewash or at the very least, less than robust. If the Securities and Exchange Commission (SEC) or Department of Justice (DOJ) cannot rely on a company’s own internal investigation, it may perform the investigation all over again with its own personnel. Further, these regulators may believe that the company, and its law firm, has engaged in a cover-up. This is certainly not the way to buy credibility.
Mara Senn, Director and Senior Counsel, Global Compliance Investigations at Zimmer Biomet, has explained that it is the lawyer or law firm representing the company that can go a long way towards establishing credibility, noting, “For those of us who regularly appear before the government, we already have credibility, and they understand that the client may or may not agree with recommendations we make, and they know that we’ll be a straight shooter once we’re in front of them, however we get in front of them.” But it is more than the lawyer or law firm that brings credibility; it is the actions of the company as well. Of course, this means the steps the company has taken and its cooperation with the government during the pendency of any investigation.
Despite the fact that using specialized investigation counsel is a best practice that is worth the money, one of the more difficult things is convincing decision-makers of this advantage. This is particularly so when speaking with mid- or small-sized companies that are part of larger supply chains. While General Counsels (GCs) and Chief Compliance Officers (CCOs) may be up to speed on outsourcing critical inquiries, managers in business units often are not and frequently reply that they “got someone” in the company who “takes care of that stuff.” However, such an approach will be costlier to a company in the long run.
Moreover, if there are serious allegations made concerning your company’s employees engaging in criminal conduct, a serious response is required. Your company needs to hire some seriously good lawyers to handle any internal investigation. These lawyers need to have independence from the company so do not call your regular corporate counsel. Hire some seriously good investigative lawyers. This may well mean you need specialized outside counsel.
In a 2010 ACC Docket article, entitled “Risks and Rewards of an Independent Investigation”, Jim McGrath and David Hildebrandt wrote about the use of specialized outside counsel to lead an independent internal investigation as compliance and ethics best practices. This was based upon the US Sentencing Guidelines; under which a scoring system is utilized to determine what a final penalty should be accorded a corporation for a criminal act. Factors taken into account include the type of offense involved and the severity of the offense, as well as the harm produced. Additional points are either added or subtracted for mitigating factors. One of the mitigating factors can be whether an organization had an effective compliance and ethics program. McGrath and Hildebrandt argued that a company must have a robust internal investigation to meet this requirement under the US Sentencing Guidelines.
The authors suggested that in such a situation, a company should engage specialized counsel to perform the investigation. There were three reasons for this suggestion of the utilization of specialized counsel. The first is that the DOJ would look towards the independence and impartiality of such investigations as one of its factors in favor of declining or deferring enforcement. If in-house counsel headed up the investigation, the DOJ might well deem the investigative results “less than trustworthy”.
A second reason came from the company perspective. Many companies have sought protection of investigations behind the shield of the attorney-client privilege and attorney work-product doctrine. If an in-house attorney is utilized, many courts are skeptical of a company asserting the privileges because of the mixed responsibilities of counsel in a corporation; that of legal and business work. Additionally, obstructionist attempts by corporations to improperly assert the privilege have led courts to refuse to allow the privilege to be asserted. However, a company will usually not face these arguments if outside counsel is utilized.
Even if the company is willing to waive its attorney-client privilege, there is a third reason for the use of specialized outside counsel to handle an investigation. If a company’s regular outside counsel were retained to conduct the investigation, the DOJ might feel the results had less than full credibility because the law firm knew “who buttered its bread” and that the law firm would not want to bring bad news to client and endanger the ongoing business relationship between the law firm and the client. The authors end by concluding that by employing specialized counsel comports with the expectations under the US Sentencing Guidelines, gives a company the protections of the attorney-client privilege and the work-product doctrine and, finally, “assures the government of the integrity of the internal investigation.”
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