Shira Forman

Your client’s computer system was broken into by a hacker. An employee accused her supervisor of sexual harassment. A member of the company’s board of directors is suspected of insider trading.

Each of these scenarios—and countless others faced by all types of organizations—can give rise to concerns about criminal action, reputational damage, and costly litigation, among other headaches. But before any action can be taken to correct mistakes or minimize damage, it is important to figure out exactly what happened. This is the role of the all-important internal investigation, and it often falls to outside counsel to spearhead the investigation and ensure its effectiveness. If conducted properly, an internal investigation can prove helpful in handling whatever comes next.

Every internal investigation must be tailored to the events and issues involved, so there can be no one-size-fits-all checklist. That said, the following guidelines and considerations are worth keeping in mind as you shape your investigation.

Choosing the Investigators

Before the investigation can get underway, there are a number of key questions to answer. First, who should conduct the investigation: in-house counsel or outside counsel? In-house attorneys are intimately familiar with the organization and its players, and often have an existing rapport with potential witnesses. There is also a cost advantage to keeping the investigation internal. Outside counsel may be a better choice if, for example, the scope of the investigation is too large to be managed internally. They may also bring fresh eyes to the facts and players involved. Often the decision comes down to the seriousness of the allegations and who in the organization is implicated. While a discrimination complaint from a single employee may be suited to a straight-forward inquiry by Human Resources or in-house lawyers, an investigation into accounting fraud by the CEO may demand attention and resources from an outside legal team.

Determining the Scope

When the U.S. Department of Justice issued guidance last year on how it evaluates the corporate compliance and investigative functions of companies, one of the criteria it listed as important was “how has the company ensured that the investigations have been properly scoped.” For example, an investigation launched in response to an anonymous tip reporting alleged insider trading by a high-ranking executive can focus only on the executive or it can take a broader look at ethics and compliance policies in the company as a whole. Whatever the scope of the investigation, it is important to discuss expectations at the outset, so that the investigators know exactly what their task is.

Witnesses

If you are outside counsel coming into your client’s workplace to interview witnesses, it is imperative that your client’s employees understand your role. In all dealings with your client’s employees, take steps to make clear that you represent the corporate entity and not the individual employees. You should also inform each employee at the start of the interview that his or her statements are being taken in the course of an investigation and should not be considered confidential. These two critical pieces of information should form part of a script that you include in every witness interview.

Be Exhaustive

The documents you review and the witnesses you interview will give you answers, and will often also lead to more questions. Follow these new leads and be diligent about collecting information. Don’t let the typical hurdles in any organization—reluctant witnesses, hassles of document collection—deter you from learning everything you need to know. When you encounter inconsistencies in statements or emails, keep asking questions until you have a clear grasp of the facts.

Attorney-Client Privilege

Most attorneys are familiar with the general rule that counsel’s work product derived from an internal investigation in protected by the work product privilege. While this is true, recent court decisions have made clear that the privilege can be waived when an organization selectively discloses certain investigation-related materials. For example, in one recent federal case brought by a terminated employee against his former employer, the district court held that the employer, in handing over certain investigative materials to the government at its request, could not then assert the attorney-client privilege over the same documents in the context of a private lawsuit. In another recent case, a federal district court held that interview memoranda from an investigation launched by a company two years after litigation was threatened could not be said to be “in anticipation of litigation,” and were therefore not protected by the work product privilege. In that case, the privilege had been further undermined by the fact that the company had publicly released a report containing references and citations from the interview memoranda. The lesson here: Act carefully and deliberately when it comes to asserting attorney-client and work product privileges over investigation-related materials.

Final Product

When it comes time to produce a written report of your investigation, find out from your client what they are looking for. A report of investigation can mean anything from a high-level summary of your findings to an in-depth recounting of every witness interview. Often, clients request specific additional information, such as a discussion of potential liability based on the alleged conduct at issue or survey of recent cases with similar fact patterns. Regardless of the level of detail in your report, it should be clear and concise in laying out your key findings and related advice for your client.

Shira Forman is an associate in the labor and employment practice group at Sheppard, Mullin, Richter & Hampton.