3 Ways To Trim Self-Inflicted Harm in Internal Probes
When not conducted carefully, internal investigations cancause more harm than good. Deciding to investigate a suspected problem is onlythe first of several key determinations. The responsible executive must planand execute the investigation deliberately to avoid self-inflicted harm. Anorganization can protect itself—while still conducting an investigation that isconfidential, full and fair—only by carefully thinking about how best touncover the alleged wrongdoing or compliance issues. Here are three rules for acompany to keep in mind to minimize self-inflicted injury from an internalinvestigation.
1. Keep itConfidential: Make a Plan
Creating a clear plan at the outset is critical. That planshould include the steps necessary to establish and maintain the protections ofthe attorney-client privilege for the entire investigation.
To establish the privilege, the investigation must be led byan attorney—preferably one who is retained and not employed. Choosing anoutside attorney reduces the risk because an in-house lawyer’s work could befound to include both legal and business functions—the overlap of which wouldjeopardize the privilege. It is also important that both the plan and anyreport it produces confirm that the purpose of the investigation is to obtainlegal advice.
To maintain the privilege once it has been established, anattorney should direct the work of all consultants, who should report anddeliver their findings directly to the lead counsel team. An attorney should bepresent for all witness interviews and inform each witness: (1) that theattorney represents the company and not the witness; (2) that the investigationis being conducted on behalf the company and at the direction of its agents;and, (3) that the attorney-client privilege belongs to the company and not thewitness. Employee interviews are privileged only when witnesses are properlymade aware that they are being questioned so that the company can obtain legaladvice. Further, an organization should weigh the benefits and risks ofcommissioning a written report, which increases the risk of disclosure ofunderlying information. In the alternative, providing informal oral updates toin-house attorneys and oral presentations to a special committee of directors,formed for such a purpose, makes it easier to protect the information fromdisclosure.
A plan to preserve the privilege must be tailored to thecompany’s unique circumstances. Part of preserving the privilege wheninterviewing employees is being careful what to disclose to them, and sometimesit is appropriate to have them sign a confidentiality agreement. Butconfidentiality agreements will not always be enforceable againstwhistleblowers. Further, when investigating possible securities violations, acompany must not be so strict with witness confidentiality requirements that itruns afoul of Dodd-Frank whistleblower protections. SEC Rule 21F-17 barscompanies from doing anything to impede employees from communicating with SECstaff about possible law violations, “including enforcing, or threatening toenforce, a confidentiality agreement . . . with respect to suchcommunications.” Recently the SEC has begun enforcing or threatening to enforcethis restriction, and confidentiality agreements in internal investigations areprime targets.
Bottom line: Have a plan, and make sure that plan includesestablishing and maintaining the privilege.
2. Be Diligent:Confront Bad Facts
Investigations sometimes reveal inconvenient facts about howan organization and its employees conduct business. When an organizationignores or—far worse—affirmatively hides those facts, it can neither manage itsrisks nor improve its procedures. Doing an internal investigation poorly islikely worse than not doing one at all. One recent example of an organizationdeliberately blinding itself to bad facts is the Fédération Internationale deFootball Association, (FIFA), soccer’s international governing body.
Beginning in 2013, FIFA conducted an 18-month internalinvestigation concerning whether there were improprieties in the bid processesto host the 2018 and 2022 World Cups. FIFA commissioned a 350- page report onthe findings of the investigation, but refused to publish it. Instead, FIFAreleased only a 42- page investigation summary in November 2014, stating thatno serious wrongdoing had been found. Even the attorney who led theinvestigation publicly criticized FIFA for publicizing only certain excerpts fromhis report while hiding the rest.
Then in May 2015, the U.S. Department of Justice coordinatedthe arrests and indictments of more than a dozen FIFA officials and sportsmarketing executives related to a separate bribery scandal allegedly involvingthe sales of television broadcast rights. Immediately following those arrests,Swiss authorities began investigating possible criminal activity involvingalleged bribes paid during the bidding process that was the subject of the18-month investigation.
Admittedly, FIFA’s deliberate attempts to hide criminalactivity and to whitewash its problems with an internal investigation areextreme examples. But FIFA’s decision to limit its investigation, both in depth(how much its investigator could do and then reveal to the public) and breadth(limiting the investigation to the World Cup bid process, when related problemswere alleged with the sale of television rights, etc.), highlight problems thatcompanies routinely face in internal investigations. Investigators must beencouraged to go wherever the facts lead.
The paradox is that an organization can actually suffer moreharm by glossing over problems, or leaving them unexamined, than by diggingdeeper. By burying facts or defining the scope of the investigation toonarrowly, a company only preserves the illusion of protecting itself. In theend, the results can be more severe and widespread than if the company allowedinvestigators to be diligent throughout the process.
Bottom line: Don’t shy away from bad facts; arm yourselfwith them to manage the risk and make improvements.
3. Be Fair: Sometimesthe Best Offense is a Good Defense
When an investigation implicates a person as the culprit,that person often will respond by attacking the process of the investigation,the credibility of the sources and the wisdom of the conclusions. For thosereasons, an investigation must be done carefully and in a way to withstandindependent scrutiny. Often that means that an investigation must not only beobjective, but also fair to the different parties involved.
The National Football League’s “Deflategate” investigationinto the New England Patriots, who were suspected of using deliberatelyunderinflated footballs during the first half of their AFC Championship victoryagainst the Indianapolis Colts last January, is a recent example. The NFL hiredan outside firm to conduct an investigation. The inquiry implicated Patriotspersonnel and quarterback Tom Brady in a plan to secretly deflate footballsafter they had been approved for use by NFL referees. Following the release ofthe commissioned Deflategate report in May 2015, the Patriots and multipleindependent groups— including, most recently, the American Enterprise Institutethis month—came back firing, disputing the NFL’s key conclusions and accusingit and its outside lawyers of relying on bad science and sloppy calculationsthat could not be corroborated. That problem was avoidable.
Especially given other recent examples—like the New OrleansSaints’ “Bountygate” and the Ray Rice domestic abuse scandals—where the NFLappears to have botched investigations, the NFL should have anticipated thespecific attacks on its Deflategate report. While the NFL’s investigationcertainly collected unflattering text messages from within the Patriotsorganization and reliable evidence that the Patriots were using underinflatedfootballs, it appears that their scientific testing may not have been reliable.
Those problems do not entirely negate the findings of theinvestigation, but they distract from the purpose of identifying and addressinga perceived problem, and they harm the NFL’s reputation. Bottom line:Sloppiness will be interpreted as an attempt to skew facts to reach apre-determined solution.
Approach the decision to conduct an internal investigationas carefully as any other material organizational initiative. The company’streasury and reputation may hang in the balance.