Conducting Internal Investigations: A Primer
It All Begins Here
By Michael Missal and Paul Martin
I. Introduction
Internal investigations are an important part of effective corporate governance. An evidence-based, accurate, thorough, timely, fair, objective, and credible internal investigation can have great benefits for an organization facing allegations of misconduct or malfeasance. Executed properly, an internal investigation can help improve organizational efficiencies, enhance the organization’s reputation, and limit or stave off regulatory and civil exposure.
Under certain circumstances, an internal investigation may be required by law or corporate policy. In other situations, an organization may choose to initiate an internal investigation in response to allegations of significant corporate misconduct, to address complaints from whistleblowers, to get ahead of regulatory inquiries or investigations, to respond to negative media stories, or to ensure there are no violations of federal or state law.
This article discusses considerations important to the decision whether to initiate an internal investigation, who should conduct it, the investigative process, including common pitfalls, and the form and content of a final report.
II. Deciding Whether to Conduct an Internal Investigation
A decision whether to initiate an internal investigation may be difficult to make with an organization weighing a number of factors including: (a) whether such an investigation is required by any law, regulation or corporate policy; (b) the scope and severity of the alleged misconduct and potential violations of law and regulation; (c) potential interest or litigation by civil regulators, criminal authorities, and third parties; (d) the risks of not conducting an investigation; and (e) the benefits and risks to the organization and/or its officers, directors and employees of such an investigation. Depending on the nature of the misconduct at issue, an internal investigation can consume significant resources and potentially expose the organization and its officers to liability by setting forth a blueprint for regulatory and private actions. The cost of inaction to an organization, however, could swiftly outweigh any expense and litigation risk associated with a properly conducted internal investigation. Failure to complete the investigation in a credible, timely and thorough manner could also be viewed as an attempt to cover-up wrongdoing.
Not all allegations of organizational misconduct will necessitate an internal investigation conducted by outside counsel. Generally, where the alleged misconduct involves an individual employee and does not implicate potential violations of federal or state law, in-house counsel, often in conjunction with a company’s internal audit department, can investigate the allegations and recommend to management appropriate remedial and personnel actions. However, an internal investigation conducted by outside counsel should be strongly considered where the misconduct is widespread or may involve corporate officers or directors, affect the company’s governance, potentially violate federal or state law, or subject the company to regulatory or prosecutorial investigation and possible enforcement action.
If an organization is aware that it is under investigation or the subject of complaint to a regulatory or law enforcement entity, it should consider initiating an internal investigation. To do so will send an important message to regulators that the organization is diligently and independently seeking to discover the facts and evidence, and take appropriate steps to remedy any misconduct. It will also enable the organization to better understand the veracity of the allegations, the extent of any misconduct and any potential defenses they may have. Proactively initiating an internal investigation allows the organization to stay several steps ahead of the regulators and focus its energies on self-identifying any misconduct while crafting appropriate corrective actions.
Irrespective of any impact on potential civil or criminal liability, sound business reasons exist to investigate proactively reports of significant wrongdoing. On one hand, failure to investigate may send the message that the organization does not take allegations of wrongdoing seriously. By contrast, quick action in investigating and remedying misconduct will help the organization show employees that it expects them to abide by established codes of conduct, while at the same time demonstrating to the government that the company is a good corporate citizen.
III. Who Should Conduct the Internal Investigation?
Internal investigations may take many forms, depending upon the nature of the conduct at issue and the scope of the investigation. If the suspected misconduct is limited, an internal investigation may be conducted by the organization’s in-house counsel, compliance department or internal audit department. However, if the suspected misconduct is significant, or involves senior management, key employees, or the board of directors, the investigation likely should be conducted by outside counsel.
If the organization intends to engage outside counsel, the next decision is whether to use outside counsel with preexisting relationships to the company. Outside counsel with longstanding relationships will have insights into the organization’s operations and personnel that could prove invaluable in undertaking an investigation, as well as a track record of effective working relationships with in-house counsel. However, the deeper the prior relationship between the company and counsel, the greater the risk to the independence and objectivity of the investigation.
IV. The Investigative Process
A. Identifying the client and scope of investigation
In some cases, the investigation will be overseen by management of the organization, while in other situations, the investigation will be controlled by the company’s Board of Directors, a standing committee of the board (such as the audit committee) or a special investigatory committee formed to assume responsibility for the investigation. Such committees may be required in the context of derivative lawsuits, or warranted where senior officers or board members are subjects of the investigation. In such cases, a special committee can help protect the investigation from being controlled or unduly influenced by individuals with conflicted interests in its outcome.
Regardless of who is conducting the investigation, the identity of the client and the scope and purpose of the investigation should be specifically identified in writing at the outset. An investigation should not be so narrowly circumscribed as to undermine its legitimacy. Because investigations are, by their very nature, generally initiated at any early stage of a client’s knowledge of the extent of misconduct, it may be necessary for counsel to re-evaluate its scope throughout the course of an investigation.
B. Preservation of Evidence and Records
Failure to preserve relevant documents immediately after an investigation is initiated can seriously hamper an internal investigation. At worst, it can result in charges of obstruction of justice where government investigations have been initiated or are anticipated. In large investigations, a document preservation notice should be issued to the organization’s relevant employees informing them of the investigation and directing them not to destroy any documents or information potentially relevant to the subject matter of the investigation. Identifying relevant employees may be difficult as the scope of the conduct to be investigated may not be known at the outset. The notice should give sufficient detail so that employees will understand what documents need to be preserved, but not so detailed that it provides a roadmap of the investigation. Further, all automated data destruction or deletion processes should cease. Particular care should be taken to preserve all electronic communications and documents, including emails, images of relevant employee hard drives, laptops, and cell phones.
C. Preserving Privileges
Both the investigative record and the documents and data created in the course of the investigation are typically protected by the attorney-client privilege, the work product doctrine, or both. These protections are critical to maintaining maximum control over the results and underlying documentation of the investigation. While there are situations in which the organization will choose on its own to waive some or all of these protections, that decision may not be reached at the beginning of the investigation. Failure to maintain the privilege may leave the organization’s most sensitive information, including the findings and report of the investigation, in the hands of regulators, litigation opponents, and even competitors.
Although the organization may choose to disclose the results of an investigation, management and counsel should take every precaution to ensure that disclosure remains a viable option and not a forced circumstance based upon failure to protect privileges during the course of the investigation. All personnel involved in the investigatory process must be strictly warned about the importance of confidentiality and the need to avoid any disclosures about the nature or conduct of the investigation, except as deemed necessary by counsel. Management should take particular notice that preliminary investigations conducted by management, as opposed to in-house counsel, will not receive the benefits of privilege protection, even if the company subsequently retains outside counsel to conduct a full investigation. It is therefore advisable that company management elicit the oversight (rather than mere peripheral involvement) of attorneys at the earliest possible stage of any investigatory effort.
The protections of the attorney-client privilege apply to employee communications with counsel if:
the communication was made for the purpose of securing legal advice;
the employee making the communication did so at the direction of his corporate superior;
the superior made the request so that the corporation could secure legal advice;
the subject matter of the communication is within the scope of the employee’s corporate duties; and
the communication is not disseminated beyond those persons who, because of the corporate structure, need to know its contents.
Consequently, counsel conducting internal investigations should be careful to document that the investigation is being conducted at the client’s request and is undertaken for the purpose of providing legal advice. That fact should be documented by the engagement letter and should be repeated wherever appropriate, including during interviews and in any written summaries of interviews with employees.
Although the attorney-client privilege will not attach absent the involvement of an attorney, the privilege may extend to non-attorney personnel who are carrying out investigatory tasks as agents of the attorney(s) with oversight over the investigation. Consequently, the services of knowledgeable employees or experts may be used to assist with the investigation provided proper steps are taken to document that the investigatory efforts are being carried out at the behest of counsel in performance of legal services. Additionally, experts may be retained to assist with technical issues related to the investigation. Any privileges belonging to the internal investigation team can be better protected by clearly establishing that such experts were retained directly by counsel.
Attorneys can maximize the potential for work product protection by integrating legal analysis into documents rather than merely recounting facts. For instance, if counsel chooses to prepare a record of an employee interview, the record should not be a substantially verbatim transcript or summary of the interview, but should instead incorporate the mental impressions of counsel about the substance of the interview, and should prominently state that it does so on the interview memorandum.
Several additional steps can be taken to prevent the inadvertent waiver of privileges. First, and most simply, all privileged and work product documents should be clearly labeled “Confidential,” and should note which protection applies. This will help to demonstrate the intent to maintain the confidentiality of the documents. Further, any disclosures, even to the government, should be subject to a “non-disclosure agreement” (or something similar), restricting the right of the receiving party to share the information with third parties. Such agreements may be seen as evidence of the continuing efforts to maintain some degree of confidentiality and may be helpful in limiting the scope of any waiver that has been affected by the disclosure.
To the extent that information is shared with other parties, such as current or former employees, care must be taken not to inadvertently effect a waiver. A joint defense or common interest agreement may be formed between parties as part of an effort to set up a common defense strategy, and will generally create a joint defense privilege that acts as an exception to the rule that disclosure to a third party will act as a waiver of privileged communications.
D. Document Preservation
From the outset of any investigation, counsel must take steps to ensure that relevant documents are preserved, collected, and segregated. If the investigation was initiated as a result of the organization’s receipt of a subpoena or document request, it is critical that all employees in possession of or with access to potentially relevant documents be instructed to refrain from altering, discarding, destroying or concealing any such documents. Even in the absence of a subpoena, a preservation notice is necessary to ensure that documents are not destroyed or disposed of in the ordinary course of business, so they will be available to counsel in the course of conducting its investigation. The credibility of the investigation will be seriously impaired by a failure to identify and secure relevant documents right from the start. For that reason, the scope and distribution of any document preservation notice should err on the side of over-inclusiveness.
At the start of the investigation, the company should immediately cease the regular deletion of relevant documents, including emails. Similarly, copies should be made or backup tapes pulled of relevant databases or similar resources. If appropriate, counsel or someone working under counsel’s supervision should be sent to search for and retrieve documents from the organization’s offices or off-site facilities.
E. Gathering the documents
In conducting any investigation, the two most important sources of information most likely will be witness interviews and the documentary record. The two are interconnected, and effective management of each is essential to the proper execution of the other. One of the first priorities of investigating counsel is to quickly gather all relevant documents or data, and identify potential witnesses. These tasks will require that counsel promptly understand the nature of the organization’s business, its reporting processes and its policies and procedures.
Time should be spent identifying the various categories of documents that could yield information relevant to the investigation. Careful and thorough review of the documentary evidence is crucial for uncovering the underlying facts of any potential misconduct. Especially where the conduct under investigation did not occur recently, documents are crucial to piecing together a coherent narrative, given that witness recollections may not be fresh.
Counsel will need to be familiar with the types of documents that might be relevant to the investigation, the systems the company uses to produce and store documents and the individuals within the organization available to assist with document-related issues. Counsel will also have to implement an appropriate system for identifying and tracking documents. Finally, counsel may have to manage the simultaneous use of documents for the internal investigation, as well as for production in any parallel civil, criminal or regulatory proceedings.
For larger matters, it is useful for the organization to identify an individual or individuals within the organization who can serve as a coordinator for document issues. This person will often be an in-house lawyer or paralegal who is not otherwise involved in the matters under investigation and who has a good working knowledge of the organization’s document management systems and document retention policies.
Employees should be provided a comprehensive list of the types of documents that they are to search for and provide to counsel. There should be explicit instructions to provide drafts and notes, in addition to finalized documents, as it will often be crucial to the investigative process to be able to track the evolution of particular documents over time. In addition, employees should be instructed to search for potentially relevant documents not only in their offices and workspaces, but also in off-site storage, as well in their homes and on their personal devices. Counsel may want to consider obtaining a written, signed certification from employees stating that they have provided all responsive documents and data. Such a certification will be useful to the company if additional documents from employees are identified in the course of a subsequent regulatory investigation. Efforts should also be made to obtain documents from former employees, even if they have no obligation to voluntarily cooperate.
Careful attention should be paid to ensure the timely and comprehensive retrieval of electronic documents, particularly emails and text messages. Counsel must have access to personnel who understand the capabilities and limitations of the company’s information systems, so that they will know exactly what is available, and how long it will take to retrieve that data.
F. Document Review
It is crucial for both the investigative process and for the credibility of the investigation that documents be carefully tracked throughout the investigation. An individual or team should be designated as responsible for managing documents as they are collected. For each document, a log or electronic identification system should be used to identify its source, who possessed it, where it was found and the date it was collected. It may be helpful to use an electronic numbering system for each of the documents, so they can be tracked as they are used during the investigation. The document coordinator should retain all original documents, so there are no chain-of-custody issues in any subsequent litigation.
When documents are first received, they should be reviewed for relevance and privilege. Any documents determined to be privileged should be segregated immediately in order to prevent inadvertent waiver of the privilege. Access to privileged documents should be limited to counsel and its agents. A privilege log should be maintained, in which each document number should be noted, as well as the date, the author, the recipients, and the basis on which privilege is being claimed. Regulators or civil litigants will frequently request such a log, and counsel will benefit greatly if it has tracked that information from the outset, rather than attempting to recreate it later in the investigation.
If possible, a preliminary list of potential interviewees should be developed early in the investigation to allow reviewers to assemble sets of documents that are relevant to particular interviewees. It is often the case that the most informative witnesses are ones that were not known to the investigators at the outset of the investigation. In addition, documents should be identified and assembled by subject area.
It is important that “hot documents” be identified and circulated to relevant personnel on the investigation team as soon as possible. In addition, the document coordinator should keep copies of all witness and topic binders, so that it is easy to determine what documents were shown to particular witnesses during their interviews. Counsel should take care to use numbered versions of the relevant documents in these binders, so that they may be easily cross-referenced with documents used in other contexts.
The document review team will also be responsible for assembling and maintaining a detailed chronology of the events under investigation. This chronology should be cross-referenced with available documents, and continuously updated over the course of the investigation. For each event, the chronology should list, at a minimum, the date, the event and the source. If the source is a document, the chronology should note the author, any known recipients, and the source from whom the document was obtained.
The success of any internal investigation may be dependent on the extent of cooperation provided by current and former employees, as well as third-party witnesses. Given that subpoena power is not available in internal investigations, cooperation cannot be compelled by law. Moreover, confidentiality and business considerations may limit investigating counsel from contacting and interviewing third-party witnesses. However, the company may be able to link cooperation by current and former employees to continued employment and/or indemnification for legal fees and expenses, assuming there are no contracted or legal rights to indemnification.
G. Interviews
While considerable information may be gleaned from documents, interviews of current and former employees and others are indispensable in helping investigators evaluate facts and assess credibility. Because they assume such importance in an investigation, particular care must be given to planning for and conducting witness interviews.
In many situations, it is beneficial to begin interviews at an early stage of an investigation, even before a significant number of documents have been reviewed. This will allow investigators to obtain a greater understanding of the facts as quickly as possible and will “lock-in” the story of significant witnesses before they are influenced by other events. This strategy may be advisable if the investigators will have more than one opportunity to interview a witness.
It may be advantageous to schedule interviews with lower-level employees before speaking with more senior officials in the organization. In some situations, counsel will have only a single opportunity to interview senior officials, so it is best to do so at a later stage in the investigation. Wherever possible, it is helpful to interview employees with information on similar subject matters in close proximity so that witnesses do not share information with each other before they are interviewed.
However, counsel will not always be able to follow these strategies. For instance, government requests, employee resignations or disciplinary action may force counsel to interview some officials earlier than might otherwise be preferable. The persons to be interviewed, and the order of those interviews, should be frequently reassessed. Counsel should also be prepared to conduct follow-up interviews, particularly where the initial interview took place at an early stage of the investigation, before counsel had an opportunity to review and digest many relevant documents.
Wherever possible, interviews should be staffed by two lawyers. Having two people present enables one individual to focus on conducting the interview while the other takes notes. Moreover, interviews should generally not be recorded to better protect the entire interview from being disclosed to third parties and to avoid intimidating a witness.
Given the significant potential exposure faced by individuals in internal investigations, it is increasingly common for employees to retain their own counsel. Retention of individual counsel should normally be allowed unless it unnecessarily delays or impedes the investigation. The organization may be contractually or statutorily obligated to pay for counsel for an individual, and should evaluate whether it has such obligations at the outset of the investigation.
At the beginning of every interview, counsel should provide what is commonly known as an “Upjohn warning.” This warning, at a minimum, specifies that counsel has been retained to conduct an investigation, that the information obtained during the interview is privileged, that counsel does not represent the witness, and that the decision whether or not to waive any privilege belongs solely to the entity that retained counsel to conduct the investigation.
Such warnings are particularly important if the interviewee is a current employee and is not represented by individual counsel. Depending on the circumstances, additional warnings may be given. For example, it may be appropriate to disclose to witnesses that there is a related governmental investigation ongoing, that the company is cooperating fully with that investigation, that it may turn over notes of the interview to the government, and may waive any privilege. Failure to make such disclosures could cause the witness to challenge the propriety of the interview and perhaps the investigation.
Documents are indispensable in conducting interviews. Even where investigations are conducted in close temporal proximity to alleged misconduct, documents are often necessary to refresh a witness’ memory. Strategic use of documents may also be helpful in assessing individual witnesses’ credibility. Generally, it is useful to begin by asking relatively open-ended questions of witnesses without direct use of documents, in order to determine what the witness is able to remember independently.
While many of the documents key to an investigation may be collected centrally through a corporation’s information technology and records management personnel, it is critical that counsel ask interviewees whether they have additional documents in their possession not previously made available to counsel. Employees may have files in their office, at their homes or on cellphones, laptops or other personal electronic devices. Witnesses should also be asked if they are aware of any relevant documents that have been destroyed.
Interviews should be memorialized in writing to maximize their utility to the investigation, particularly by promptly sharing key information from the interview with other team members, to assist counsel in identifying any discrepancies in witness statements. Again, interviews generally should not be transcribed or recorded because transcripts or recordings could be discoverable. Counsel’s memoranda of the interviews will be more likely to be protected by attorney-client and work product privileges to the extent they incorporate counsel’s legal conclusions and mental impressions of the interview, rather than a verbatim transcript. The need for accuracy in interview memos is obviously important and counsel should take the necessary time in an interview to make sure the witness’ statements are understood.
To help preserve the attorney-client privilege and work product doctrine, interview memos should be prominently marked “Attorney-Client Privilege” and “Attorney Work Product.” In addition, an introduction to the summary should indicate that the interview was undertaken to render legal advice. The summary should also specify that appropriate warnings were given to the employee and that the summary contains the mental impressions of counsel and does not represent a substantially verbatim transcript of the interview.
V. Final Report of Investigation
One of the most important decisions the client will have to make is what form the final report of the investigation will take. Although decisions about whether and how to report the results of an investigation may be left to the end of the investigation, early consideration should be given to the likely final product. Anticipating the nature of the final product can help ensure that documents and interviews necessary to prepare the final report are obtained during the course of the investigation.
The decision whether to produce an oral or a written report is not an easy one, as there are potentially significant advantages and disadvantages to either approach. The risks and benefits of both approaches should be discussed to ensure that the client makes a careful and informed decision.
In the event that the client chooses to proceed with a written final report, counsel must act carefully to ensure that it is drafted in such a manner so as to protect the client to the maximum extent possible, including by maintaining all applicable privileges.
A. Advantages and Disadvantages of a Written Report
A written report can provide the client with the key facts and legal conclusions in a single document, allowing for informed consideration of any necessary remedial or disciplinary actions. A written report also provides tangible evidence that the client (whether the organization’s management or the board) has authorized a thorough examination of the issues being investigated. Written reports of internal investigations can also be provided to regulators or law enforcement authorities in order to demonstrate cooperation. Finally, organizations frequently use written reports of investigations to refute charges of wrongdoing in litigation.
In some cases, there is no practical choice other than producing a detailed written report. Both the Securities and Exchange Commission and the Department of Justice have issued numerous policy statements that credit may be given to companies that conduct internal investigations. Thus, an organization may feel compelled to turn over the results of an internal investigation in the event of parallel investigations.
However, depending on the circumstances, compelling reasons may argue against producing a written report. A written report will frequently contain findings or information that are potentially embarrassing or even damaging to the organization. Even if the organization does not intend to publicly release the report’s findings, maintaining the confidentiality of a written report can be exceedingly difficult. In addition, while the report may have some usefulness in dealing with regulators or law enforcement, it may provide a roadmap for them as they conduct their own investigations. It may also provide a similar roadmap to civil litigants, who otherwise might not become aware of the issues under investigation. Finally, statements in the written report may be used as “admissions” by the company under the Federal Rules of Evidence.
Assuming that a comprehensive written report is not required to be produced, counsel should carefully review alternatives with the client. Two of the more common are either a limited written report or an oral report. A limited written report can include only certain of the issues investigated or be more of an executive summary without significant details (though, of course, it must still be accurate and not misleading). An oral report provides the client with the necessary findings of the investigation without the potential downside of a written document that may be open to misinterpretation or misuse.
Under certain circumstances, the increased flexibility and protections of confidentiality attendant to the choice of an oral report may prove an appealing alternative to a written report. However, this approach contains drawbacks. If the existence of the investigation is already known to the public or regulators, the client’s choice not to receive a written report of the investigation may expose the organization to accusations that it is trying to conceal the findings of the investigation, or prevent particular facts from getting out. Indeed, if the findings of the report do not create a particularly high level of exposure for the organization, it is quite possible that the perception created by a failure to commission a written report could be more damaging to the organization than would the release of those findings. The client will need to assess the relative benefits and detriments of each approach, and make a decision that maximizes the utility of the report, in whatever form, while minimizing the legal and reputational dangers.
B. Content of Final Report
The entire investigation should be conducted with an eye toward preparing some type of final report. By recognizing the likely uses of the report, either by the client or by law enforcement, regulators or private litigants, counsel can prepare the report in a manner that best serves the client’s interests.
Even if it is decided early in the process to prepare only an oral report, counsel should begin assembling an outline of a report at the outset of the investigative process, with facts added or changed as the investigation progresses. In addition, the outline should contain cites of the source of all information so that it can be tracked. What follows is a description of the general subject matters that likely may be addressed by a written or oral report, along with a brief explanation of each.
Background and Mandate
The first section of the report should address the procedural background that led to the retention of counsel to conduct the investigation (e.g., whether the investigation was precipitated by the receipt of a subpoena, a whistleblower letter, etc.). This section should describe counsel’s understanding of the events leading up to its retention. This section will lay out counsel’s understanding of the posture of the matter prior to the investigation, in order to provide context to later portions of the report.
Perhaps most importantly, this first section should also contain an explicit identification of the client (i.e., whether it is the organization, the board, or a special board committee) and a description of counsel’s mandate in undertaking the investigation. The report should state in clear and precise terms exactly what issues counsel was hired to investigate, and what limitations, if any, were placed on counsel by the client. Finally, in order to obtain the maximum protection of the attorney-client privilege, this section of the report should state explicitly that counsel was retained to provide legal advice to the client.
2. Executive Summary
This section should provide a concise summary of the investigation’s findings and conclusions. It is critical that it be accurate, clear, and provide all significant findings. It should provide a roadmap for the full report. Since the written report may be read by persons with different agendas and objectives, an executive summary should be written for readers with a wide variety of perspectives.
3. Investigation Process
The next section should review the steps counsel took in order to conduct the investigation. This section can note the time frame for the investigation, the number and types of documents collected and analyzed, locations visited for relevant documents, the number and identity of the people interviewed, and whether any outside experts were retained. It is also important to identify any witnesses who declined to cooperate or were otherwise unavailable, and the reasons they provided, as well as, to the extent possible, a description of any known documents or data that could not be reviewed. Finally, counsel should provide a narrative assessment of whether they believe they had sufficient cooperation from the client and others to conduct the investigation. Witnesses who are aware that cooperation will be discussed in the report may be more likely to be fully cooperative.
4. Findings
This section should lay out a narrative description of the relevant facts, with its organization depending on the number and types of matters investigated. In some instances, this section may lay out the facts in chronological order, while in other instances it may make sense to group the facts by, for example, transactions, business groups or topics. However organized, this section may include either a detailed recitation of the facts or a more summary-type description.
The contents of this section will serve as the basis for the later legal conclusions and recommendations. To the extent that the report will include significant details, it is crucial to its credibility that counsel identify the basis for each and every statement in this section. If assertions by witnesses are contradictory, or conflict with documentary evidence, that should be stated clearly, but in a non-inflammatory manner, focusing only on the fact of the inconsistency. Any areas where counsel was unable to verify information or where questions as to the accuracy or authenticity of particular documents or information remain should also be noted and explained.
5. Conclusions
This section is significant as it provides an assessment of the organization’s potential legal vulnerabilities based on the facts identified during the investigation. The report should lay out the legal standards used, and should be limited to only those facts that were discussed in the Findings section.
The structure of this section is heavily dependent on the purpose of the investigation. If, for example, the investigation was intended to determine the pervasiveness of a particular practice within an organization, the legal conclusions section may focus on the potential liability of the organization and particular employees for offenses related to that practice.
In laying out its legal conclusions, counsel may want to address not just those laws that may have been violated, or those claims that can be asserted, but also violations or claims that it considered but found lacking in support. This can help the client by providing a framework for analyzing potential culpability should new information come to light. More importantly, a well-reasoned discussion of why the organization’s conduct was not violative of any law or regulation can be used to persuade relevant authorities that charges against the organization or its employees are not warranted.
6. Recommendations
To the extent requested by a client, a final report may contain a section on counsel’s recommendations for actions it believes the organization should take to address the findings and conclusions in the report. The types of recommendations which are generally included in such reports could include:
Personnel actions, such as firing, suspending, reassigning, or otherwise disciplining particular employees;
Structural reforms, such as changes to reporting lines or review structures, the creation of new committees or positions, the elimination of particular business practices, or even the sale of part or all of the organization;
Improvements to the organization’s training or internal control processes;
Description of areas requiring additional scrutiny, whether by the same counsel or as part of a separate investigation;
Legal actions to be taken by the organization, such as a civil suit, regulatory action, or filing for bankruptcy protection.
Careful attention should be given if recommendations are made. If the organization declines to follow the recommended course of action, it may expose itself to scrutiny by regulators or civil litigants. Therefore, counsel should balance the potentially burdensome effects of its recommendations (both individually and cumulatively) with the integrity of the recommendations as it crafts this section of the report.
The elements of an effective final report of investigation will be the same no matter what form the report ultimately takes. Even if no written report is produced, counsel should be prepared to address all of the topics noted above in an oral report. By keeping these elements of the final report in mind during the course of the investigation, counsel will be prepared to conduct the investigation in a manner calculated to maximize its completeness and effectiveness.
C. Disclosure of the Report
After completion of the investigation, the organization will be faced with the question of whether or not to publicly disclose the report or the findings of the investigation, and if so, how it will go about doing so. With respect to the first issue, the answer will depend first and foremost on whether the organization is legally obligated to make such disclosure. Even if no legal obligation exists, the organization may nevertheless choose to voluntarily disclose the findings. Voluntary disclosure allows the company to control the timing, content and manner of any release to the public, which can be of significant advantage to the company in attempting to manage the potential adverse consequences of disclosure. Whether by compulsion or by choice, the disclosures must be handled with recognition of the likely consequences of making public such sensitive information about the internal workings and conduct of the company, as well as with an eye towards maintaining any available protections for information that is not part of the company’s disclosures.
Publicly reporting companies must make a separate determination of whether they are required to disclose in a public filing the findings of an internal investigation. In some instances, disclosure may be required by specific regulations that require public companies to disclose certain facts or events to investors. For instance, evidence of certain environmental compliance issues may require specific disclosure.
If a report is not publicly disclosed, the organization may decide to disclose the results of the investigation to regulatory or law enforcement officials. The organization may seek to forestall potential regulatory action or criminal prosecution by presenting the underlying facts in a manner more favorable to the organization. Such a disclosure can be a means for the company to present to authorities any argument that may dissuade them from taking punitive action against the organization, or to be more lenient in settlement discussions.
VI. Conclusion
Internal investigations are an important tool to enhance effective corporate governance. Although each investigation will be unique and fact-and industry-dependent, all credible internal investigations need to meet basic criteria. They need to be evidence-based, accurate, thorough, timely, fair, and objective. If conducted properly, an internal investigation - whether conducted by an organization’s staff or outside counsel - can have great benefits to an organization facing challenges to its reputation and business practices.
Michael Missal and Paul Martin are the founders of IG Partners, a boutique legal and advisory firm. Previously, Michael was the Inspector General of the Department of Veterans Affairs and a partner in the global law firm K&L Gates. Paul served as the Inspector General of the United States Agency for International Development (USAID) and the National Aeronautics and Space Administration (NASA). Prior to those positions, he was the Deputy Inspector General for the Department of Justice,