Amid speculation the government was launching an inquiry into its options granting practices, Monster Worldwide Inc. began conducting an internal probe into the matter in June of last year. The company retained outside counsel and placed a committee of independent directors in charge of leading the investigation. Later that same day, the U.S. Attorney’s Office for the Southern District of New York subpoenaed the company.

Soon after, former CEO Andrew McKelvey resigned. Then on Nov. 22, the company fired General Counsel Myron Olesnycki.

The slew of backdating scandals as well as Hewlett-Packard Co.’s botched internal probe

has put a spotlight on best practices for investigating corporate wrongdoing and putting policies in place to ensure it doesn’t happen again.

“All of the recent financial scandals and highly publicized cases have really driven home the need for an effective compliance program,” said Dan Reinberg, a partner at Foley & Lardner in Chicago. “And in any sizeable organization, it’s almost a certainty that some employee is going to do something stupid and violate the law somewhere. So the question really is what do you do to deal with it?”

Reinberg made this statement at a recent Martindale-Hubbell Counsel to Counsel forum in Chicago titled, “Today’s Decisions, Tomorrow’s Headlines: Managing Compliance and Mitigating Risk.” The forum brought together in-house and outside counsel to share their own best practices for dealing with corporate misdeeds.

Inside Investigations

Attendees at the forum stressed that when managers suspect someone has engaged in serious wrongdoing, the general counsel needs to quickly organize an investigation.

“If it appears that the government has already initiated an investigation or that one is probable, then the case for undertaking an internal investigation is likely to be compelling,” Reinberg said. “It is almost always in the best interest of the company to gather information to enable it to respond effectively to the government’s investigation.”

Yet participants warned that too much involvement on the part of in-house counsel can hurt the credibility of the investigation.

For example, Hewlett-Packard’s former Chairwoman Patricia Dunn placed former General Counsel Ann Baskins in charge of leading its internal inquiry into boardroom leaks to the media. Because Baskins was investigating her own colleagues, she couldn’t guarantee the necessary objectivity it takes to conduct an internal probe. In the end, her involvement hurt the credibility of the investigation and blemished the company’s reputation.

This is why forum attendees advised general counsel to hire outside counsel to spearhead internal investigations.

“Depending on the nature of the investigation, it might be best to go with somebody that historically has no material relationship with the company to bring the imprimatur of independence on the investigation,” said William Von Hoene, senior vice president and general counsel of Chicago-based electric utility Exelon Corp.

But impartiality isn’t the only benefit outside counsel provide, according to forum participants. Installing outside counsel as lead investigators also increases the likelihood of preserving attorney-client privilege.

“While both the attorney-client privilege and the work product doctrine can apply to the work of an in-house attorney, having outside counsel conduct the investigation mitigates the risk that a court will find that a business purpose was the primary purpose behind the investigation,” Reinberg said.

Complete Participation

General counsel at the forum also discussed how legal departments should use internal investigations to ensure the same slip-up doesn’t happen again. To do this, they stressed that at the completion of a probe, in-house counsel need to review training programs and procedures and obtain full buy-in from all employees.

“Worse than not having any training is having training but not implementing and following through on the relevant policies,” said Jeffrey Zuckerman, a partner at Pillsbury Winthrop Shaw Pittman in New York. “You then have a horrible record should something blow up and it’s shown that management was not enforcing its own requirements.”

When Rick Kulevich, senior director, ethics and compliance at CDW Corp., a Illinois-based supplier of computer products and IT solutions for businesses, was having this problem at his former company, he implemented a policy that established consequences for non-compliance.

“We kept saying it was a mandatory program, but some people weren’t doing it,” Kulevich said. “So we created what we called an escalation policy. The first time it’s a warning. The next time you have your salary and bonus at risk. The third time you put your career at risk.”

For a system like Kulevich’s to work, however, counsel must accurately track who has and hasn’t completed compliance and ethics training.

To solve this issue, Bonnie Green, vice president, compliance and assistant general counsel at Sodexho Inc., a food and facilities management service provider based in Gaithersburg, Md., helped her company implement an innovative training module.

“Our training is Web-based, which allows us to track it,” Green said. “We know who’s taking the training and who’s not taking the training, and we can ensure complete compliance. And because it’s online, it’s more convenient. Now the main reason why people don’t complete training is more technical than anything else.”

Swift Action

Finally, forum participants agreed that when all is said and done, and investigators have pinpointed the wrongdoers, it is crucial for the company to punish those involved.

“It’s key these days to make sure that you’re taking prompt disciplinary action against wrongdoers so that you’re not giving the perception that someone is above reproach or that the company as a whole is condoning the conduct,” Reinberg said. “By doing that, you’re sending a message to the world that you are committed to integrity and honesty.”

Even when the guilty party is a corporate executive, companies shouldn’t hesitate to penalize them, according to attendees. Shielding a company head from reproach sends a message to the rest of the employees that some are granted special protections.

“Responding appropriately to scandal can help avoid damage to the company’s reputation,” Reinberg said. “That includes sanctioning a CEO for something he or she did.”