Inside investigations

Regulatory scrutiny of public corporations has intensified incredibly in recent years. From governance critics, prosecutors, SEC investigators and civil litigants, companies are under constant threat of legal action. For many large firms, lawsuits are simply a fact of life.

Of course, any legal action against a company means an internal investigation. And even when no legal or regulatory action is pending, companies may still be investigating something, either formally or informally.

Taking up time and money, investigations are stressful for everyone involved and use resources that could be better spent on running the business. The primary objective of any investigation, as discussed by a panel of experts at the National Directors Institute, is to find answers to whatever prompted the investigation in the first place, and of almost equal import, to retain legal privilege in the process.

Kirk Forrest, vice president, general counsel and secretary at Minerals Technologies, gives some simple yet important advice about conducting investigations: ‘Control as much as you can yourself and be careful what you record, not just in writing but also via email or even on the phone. Conduct interviews relating to sensitive matters in person. It is very hard to break privilege of a conversation.’ This isn’t a guarantee, but it is a good start.

This may not always satisfy the plaintiff. As explained by Dawson Horn III, assistant general counsel of Altria, there is a natural tension, especially when federal prosecutors are involved: ‘If the government is looking over your shoulder and you are involved in a litigation or investigation, then there should be a definite pro-resource bias. Spend what it takes and do what it takes. This is not the time to be cheap.’ Amy Jones, internal audit director at McDonald’s, agrees: ‘We all know investigations can be extremely expensive but the first objective is to get to the bottom of the situation.’

Another important part of keeping the government at bay is to maintain transparency. ‘The best way to keep the government off your back is to keep them informed about what is going on and who is involved,’ Horn explains. ‘If they believe the investigation is being handled well, then they are less likely to feel the need to get involved themselves.’

Additionally, in-house counsel are under constant pressure to control costs since overages can cost them their jobs. The NDI panelists agree on the need to consider carefully involving outside firms. Most general counsel can anticipate what lawyers will cost, but may have less of a handle on the price of auditors, data collection specialists and other consultants. Before letting any of these people in, it is important to provide strict instructions on the scope of their work, and how and to whom they will report. Left to their own devices, auditors and consultants will find no end of work and in the process could seriously jeopardize the privilege.

Eversheds partner Peter Kiernan notes the variances in privilege across jurisdictions: ‘Local counsel rarely fully understand US privilege issues and this can get you into a lot of trouble because it is very easy to lose privilege. One question you need to consider is where is the impact going to be felt. This should give you a good idea as to whether the investigation should be run locally or by the US general counsel office.’