In this post-Enron age of whistle-blowers and widespread panic over the prospect of receiving a phone call from Eliot Spitzer’s office, perhaps the most significant decision a general counsel will be forced to make is whether or not to launch an internal investigation in response to an allegation of corporate wrongdoing. Perhaps the second most important decision is whether or not to hire outside counsel to conduct the investigation.
In considering whether or not to investigate, the general counsel must first understand that, in today’s corporate environment, the consequences of failing to investigate a credible allegation of misconduct are especially dire. For example, both the Securities and Exchange Commission and the Department of Justice now routinely expect to see a meaningful internal investigation by a company as they determine whether civil or criminal charges may be appropriate against that company. In its October 2001 Section 21(a) report in the Seaboard matter, the SEC explained that a prompt and thorough internal investigation is a key factor in assessing whether regulatory action against the company is appropriate. Similarly, Justice Department guidelines for prosecuting corporate entities issued in a January 2003 internal memorandum (known as the “Thompson Memo”) also stress the importance of an effective internal investigation in determining whether a company should face criminal charges.
