X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Richard Cooper is a partner at Williams & Connolly in Washington. He can be reached by e-mail at [email protected]. In general, an “internal” investigation addresses possible wrongdoing by an organization’s employees, officers, and/or directors. It is undertaken, at the organization’s request, by outside counsel chosen by the organization. Organizations commission such investigations in response to a preliminary indication of wrongdoing, whether or not known to outsiders. Counsel commonly review documents, interview witnesses and submit a written or oral report to some appropriate representative(s) of the organization. Employees of the organization commonly are required to cooperate, under threat of discharge or other discipline. An investigation may be simple, small and brief or complex, large and lengthy. A self-respecting organization that receives credible information suggesting that the organization may have been involved in wrongdoing generally cannot properly or safely disregard that information, but must commission an adequate and credible investigation and, once the investigative report is received, take appropriate action. Failure to do so may allow violations of law to continue, and may constitute a cover-up. As a practical matter, an “internal” investigation sometimes is unavoidable-despite its cost and the unpleasantness of its potential consequences. The first important point: They’re really not internal The very point of an “internal” investigation is that the report it produces be credible to the organization’s outside constituencies if it is ever presented to them. That is why it is conducted by outside counsel rather than by in-house counsel, who might be considered less independent of management. Recent corporate scandals and heightened scrutiny of organizations have enhanced the importance of the credibility of such investigations and reports. The relative independence of those conducting the investigation, however, creates a situation quite unusual in attorney-client relations. To serve the client, an outside attorney investigates the client itself or some operations or personnel of the client, as to matters that may expose the client and its personnel to liability. Once the client has defined the scope of the investigation, any attempt by the client to steer its course or to influence the substance of the resulting report presents a risk of undermining the purpose of the investigation. Thus, unlike a lawyer representing a client in a transaction or in litigation, a lawyer conducting an “internal” investigation operates without instructions from the client on critical issues. The value to the organization of the outside counsel conducting the investigation depends, in large part, on the counsel’s reputation for integrity and competence. Particularly if the counsel’s report is likely to be examined critically by outsiders in a position to assess it (e.g., prosecutors, regulatory or procurement officials, a court, the press), the counsel will have a strong incentive to avoid professional embarrassment by making sure that the investigation uncovers all wrongdoing within its scope. The client’s interest, however, is in achieving credibility with minimal disclosure or wrongdoing. Thus, the interests of client and counsel are not identical. Once the investigation has begun, an attempt by the client to limit its scope may lead to a statement in the final report about constraints on the investigation. Such a statement may reduce the credibility of the report. The client may also be unable to exercise the usual control over an investigation’s cost. The Wall Street Journal reported on June 10 that two “internal” investigations of one bankrupt corporation for less than a year cost $49 million (including forensic accounting fees). The client may also not be able to preserve the confidentiality of the investigative report or work papers. Prosecutors increasingly are demanding disclosure as part of the price for an organizational plea bargain. Disclosure to a regulatory agency may also be a practical necessity. Waiver of the attorney-client privilege as to one outside party may well be deemed a waiver as to all others, including lawyers for plaintiffs making civil claims against the organization. Indeed, an investigative report may be disclosed to the press. The two reports on the bankrupt company noted above have become public documents. Although a client organization has little control over the course of an “internal” investigation once undertaken or over the text of the final report-usually it appropriately can and should-exercise some control. The first opportunities are in selecting counsel and defining the scope of the project. An investigative report may identify wrongdoers (sometimes including members of management) and establish grounds for claims against them. To minimize conflicts of interests, those who act for the organization in selecting counsel and setting the ground rules for the investigation should be outside the zone of suspicion. Should the investigation be led by an outside lawyer who has done other work for the organization, and thus is familiar with it, or by someone new? Other things being equal, outside constituencies are likely to perceive a lawyer new to the organization as more independent, and the resulting report as more credible. Indeed, new counsel could be selected mainly on the basis of reputation with the relevant constituencies. The reputation of regular organizational counsel, however, may be good enough. Regular counsel may also have advantages-e.g., knowledge of the organization’s activities and culture, acquaintance with relevant individuals and a relationship of trust with organizational leaders who are not under suspicion. If it is clear that the investigative report will be disclosed to outsiders and, thus, that the privilege will be waived, the scope of the waiver may be minimized by selecting new counsel and limiting that counsel’s work for the organization to the particular investigation. Alternatively, an investigation by regular counsel should be clearly separated from other work the counsel performs for the organization. If the likelihood of disclosure and waiver is small or uncertain and if it is expected that investigative counsel will, if necessary, advocate for the organization, regular counsel may have an advantage over new counsel. Because constraining an internal investigation after it has started may be very difficult (and may appear incriminating), it is critical that the client think through, define and secure the investigative counsel’s agreement to the scope of the investigation and final report before the investigation begins. The scope can be approached in a variety of ways-e.g., by subject matter(s), duration, classes of documents to be reviewed and individuals to be interviewed, staffing (including accountants or other experts) and cost. The client can insist on presumptive adherence to limits agreed to in advance. If developments during the investigation suggest a need to expand the scope, the expansion should occur only with the approval of the client. The constraints on the investigation (including any refusal by the client to agree to expand it in light of new information) are likely to be set forth in the final report. Therefore, the constraints must withstand scrutiny. Because the outside counsel has a personal interest as to those constraints, the client will need independent legal advice about them (in most circumstances, from its in-house counsel). Pay attention to the degree of documentation Attention should be given by the client and the investigative counsel at the outset to the degree of documentation-interview notes, work papers, final report-that should be created. The likelihood of an eventual waiver of privilege and its consequences should be factored into decisions about documentation. Because in many situations a waiver is likely, all participants in the investigation should be cautioned about possible disclosure even of oral communications and, especially, e-mails. Where the attorney-client privilege will apply, at least initially, the usual precautions should be taken to preserve the privilege from waiver. Witnesses interviewed should be told that the organization’s privilege applies but might be waived (and that the organization’s lawyers do not represent them as individuals), and should be cautioned against improper disclosures. Distribution of investigative documents should be properly limited. Procedures for interaction between the investigative counsel and the client organization during the investigation and report-writing should be specified and agreed to in advance. If it is known that the report will go to government officials, their concurrence with the procedures might be sought. In general, it is appropriate for counsel to disclose to the representative(s) of the client information as it is obtained during the investigation. The client may need such information in order to take prompt corrective action. Such information should also be reviewed with respect to disclosure obligations under the securities laws or other laws. Of course, disclosures by counsel to the client must not compromise the integrity or adequacy of the investigation. In general, it also is appropriate for counsel to share with the client drafts of the investigative report and to take into account the client’s comments on the drafts. It is prudent that there be a paper trail of such sharing and commenting, so as to demonstrate that no improper influence was exercised. The lawyers who sign a final written report are responsible for it; therefore, they must remain free to reject or modify comments by the client. The client, however, is the ultimate party in interest. Under the intense contemporary pressures that lead to “internal” investigations and to disclosure of some of them, a client organization needs to think carefully about how to protect its legitimate interests at stake in such investigations.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.