The General Motors Scandal: Risky Issues

by Michael Volkov
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gm1The GM scandal is unfolding and provides important reminders for everyone involved in compliance and how to respond to a corporate scandal.

GM faces a significant set of challenges.  A faulty ignition device has been linked to a number of crashes resulting in over 10 deaths.  GM decided not to recall automobiles to fix the faulty ignition.

GM is now the focus of a Justice Department investigation, congressional inquiries, regulatory investigations, civil litigation, and many more challenges to come.

Once thing is clear – the prior bankruptcy proceeding in 2008-2009 will provide no protection against potential criminal and/or civil liability.   Bankruptcy cannot wipe clean criminal exposure.

GM is facing the usual process – conduct a comprehensive internal investigation, identify the responsible actors who failed to alert company officials or who intentionally decided to ignore the serious safety risks involved in GM’s vehicles.

At the same time, GM has to manage public relations, political investigations, litigation, and a host of related risks.  Corporate actors who ignored these risks will be investigated for criminal offenses.  The stakes will be high for the company and the individuals.

Interestingly, GM has called in two law firms to assist in the handling of this matter.  Both firms have significant existing relationships with GM.  The Justice Department, politicians and others are sure to ask the question – Are they sufficiently independent from GM to conduct a fair and impartial internal investigation?

I am assuming GM considered this issue and resolved it in favor of the law firms.  The Justice Department is sure to review that question.GM

GM has to act fast and with care – a wrong turn on its initial internal investigation could set them back again.  GM’s quick reliance on its existing law firms could be a serious mistake.

The Justice Department has become more demanding over the independence of an internal investigation.  They are inherently suspect when a company conducts its own investigation.

However, the Justice Department has a level of professionalism where they can build trust with a company when it demonstrates its willingness to let the chips fall where they may.

Aside from its significant external risks, GM has a lot of difficult questions to resolve internally – how did GM ignore this significant safety risk, especially when it resulted in the killing of a number of individuals?

Forget the issue of foreign bribery for a moment, but if your business has serious health and safety risks, those risks have to be managed aggressively.

gm2Corporate governance issues take on a different complexion when failures result in harm to innocent consumers.  Companies recognize this and have to make sure their controls and procedures are designed to match those risks.

We do not know what happened inside GM yet, but we will eventually learn how this happened.  It will be interesting.

 

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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