There are a number of unpleasant tasks that in-house counsel must perform on occasion. Probably near the top of the list is participating in/leading an internal investigation. The reason it’s such a crummy deal it because it means that the company’s own employees or management have potentially engaged in some type of wrong doing. That wrong doing can range from breaking the company’s business ethics policy to engaging in some type of criminal behavior. Whatever the case may be, it’s going to take time that could otherwise be spent on more productive matters and it may mean the end of someone’s employment with the company – or worse, someone you know may get to wear an orange jumpsuit when it’s all over.
While unpleasant, when the circumstances arise, in-house lawyers owe a duty to their client – the company – to ensure that any internal investigation is performed properly and done in a manner that is defensible and as bullet-proof from attack as possible. That is not an easy task. There are many ways an internal investigation can go sideways. A poorly conducted investigation can lead to more problems and cause more damage than the behavior under investigation in the first place. This is why it’s so important for in-house counsel to “get it right” from the get go. I was part of a number of such investigations in my career and hindsight gives me the ability to look back and realize there were, of course, many things we could have done differently. Those “lesson’s learned” form the basis for this edition of “Ten Things” where we take on the fundamentals of a proper internal investigation:
1. Don’t rush it. Regardless of how the problem reaches you (hotline, email, phone call from the CEO) you first instinct when hearing about potential internal wrongdoing is to “get going.” While you certainly don’t want to dawdle, it is worth your time to just stop and think. There is a lot on the line potentially, and rushing into an investigation without thinking it through can cause more harm than good and you may add to your problems vs. solving them. Here are some things to think about:
- Is the government involved or likely to get involved? The DOJ, for example, notes that a proper internal investigation will go a long way in determining how the company might be punished.
- Is the alleged activity criminal? Can people go to jail?
- Is there already a lawsuit or will this likely lead to a lawsuit?
- How many people know about the allegations? Who?
- Could this materially affect the reputation of the company? The stock price?
- Who is involved with this problem and are there corporate politics that you might trip over?
- Is this domestic or international or both in nature?
- Will this be something the C-Suite or the Board of Directors may get involved in?
- Will people get fired? Can you get fired if this gets botched (or if you make the wrong people unhappy)?
- How best do I document the steps I took to ensure a proper investigation and outcome in the event my actions are ever called into question? Think about your own paper trail.
As you can see, there are a lot of things to consider before you even begin to ramp up. Spending time upfront thinking through these and other issues will lead you down the right path when you actually begin the investigation. Also, resist the urge to fly solo here. Talk with other lawyers in the department who have experience with internal investigations or outside counsel if necessary.
2. Create/Use a repeatable process. Once you have determined that an internal investigation is needed, hopefully the legal department has already created a “repeatable” process in terms of how you will conduct the investigation. By this I mean simply that there are written procedures that set out how the investigation will proceed, including forms and templates for such things a witness interviews, reports, “Upjohn” warnings, confidential/communications, and so forth. Likewise, a list of “who to call” or “who gets involved” along with contact information is also important. The goal is to have an off-the-shelf process, so each and every investigation is handled in the same manner and pursuant to the same rules. Otherwise, you will quickly see a wide variation in how investigations are handled and reported. Some really well, some not so much. Having a road map will ensure consistency. If not available, it’s never too late to start. You can, ideally, work to put such procedures into place before they are needed but if you find yourself in the unenviable position of being “first,” then you can document and create your procedures as you go along – meaning you will take extra care because you know you are blazing the trail for any investigations to follow. And like with any plan you need to ensure that review it (and your standard documents/templates) at least once a year to determine if you need to refresh anything. Similarly, after any investigation do a post-mortem to determine what worked well and what can be improved.
3. What are your goals? One key building block of the process is determining the goals of the investigation. Once you know your goals, you can put a work plan into effect. Your goals will likely become part of the “repeatable process” because many of the goals will be present in every internal investigation. But, that is not always true and there will be times when you are dealing with something new and you may need to create a new goal as well. Here are the core goals of practically all internal investigations:
- Fairly and objectively develop facts and evidence.
- Determine the extent of wrong doing, if any.
- Assess the company’s policies, processes, and procedures.
- How to fix any problems going forward/remediate issues going backward.
- Respond to any government investigation or any lawsuit (reduce surprises).
- Show the company’s response was appropriate in light of the issues presented.
- Protect shareholder value/limit damage to the company’s reputation.
- Ensure officers and directors have performed any duty owed to company and shareholders.
- Limit the company’s exposure to lawsuits, fines, or other sanctions.
- Control the story (internally and externally).
- Ensure everyone feels they were treated fairly during the process.
4. Put a plan in place. Any internal investigation worth doing should have a written work plan in place. The work plan will use the goals from No. 3 above to create a road map of how the company (i.e., you) will conduct the investigation. You should expect that if there are ever questions about the investigation, the work plan document will likely need to be turned over to outsiders to review. Keep that in mind when drafting. The first item in your work plan: that the investigation is being performed by legal counsel for the purpose of obtaining legal advice for the company. Having counsel run the investigation is the best way to maximize the availability of the attorney-client privilege. If the attorney-client privilege does not apply to your investigation, written materials produced during the course of the investigation may become fair game for disclosure in litigation or in the case of a government investigation. You written plan should also set out:
- The reason for the investigation and the objectives.
- The “scope” of the investigation – what is the mandate? The budget for the investigation (and a process to revisit the budget if necessary so there is no question about the level of resource dedicated to the investigation).
- Who has directed that an investigation take place (e.g., the CEO, Board of Directors, GC) and to whom the investigative team will report.
- A mandate to preserve confidentiality and privilege including who will have access to any materials and reports, along with instructions for proper labeling of privileged materials.
- A directive to preserve evidence (electronic, hard copy, etc.), including that a “hold” be put on destruction of records relevant to the investigation.
- How the team will gather evidence (including what types of evidence and how).
- How often the team will report out preliminary results and the final report and whether those reports will be oral or in writing.
- Who will make up the investigation team.
5. Preliminary issues. There will be a number of preliminary issues you will face at the beginning of the investigation. Unfortunately, sometimes there is no “right answer” and you have to feel your way through. This means you may go in a different direction than you initial felt warranted under the facts as you knew them at the start. This is an area where outside counsel can be very helpful. Here are a few things that I always considered to be very important:
- Do you need to immediately suspend the employee(s) under investigation? Are they a risk to the business, likely to destroy evidence, etc. Likewise, do you need to suspend their access to company systems? You need proceed carefully here. Work with your HR team as you think through this part.
- How do you best “lock down” the scene? You need to ensure that evidence is preserved and available, especially when the location is outside of headquarters. For example, what if the company permits “bring your own devices?” How do you preserve evidence on that employee’s lap top or smart phone? All of this may occur even before you put out a formal “hold” notice. Your IT team will be very important here.
- Can I keep an open mind? Sometimes the evidence of wrongdoing might seem overwhelming, or you may think there is no way your buddy in Marketing could have ever done such a thing. It’s important as an investigator to keep an open mind until all the evidence is in. You need to hear all-sides of the story. Don’t pre-judge anyone’s innocence or guilt as doing so will almost surely lead to some type of bias in how you conduct the investigation. Stick to gathering the facts and not being the judge, jury, and executioner. If you cannot do this, you should probably not be part of the investigation team.
- Do I notify law enforcement or regulators and if not now, when? Or at all? Again, this is a decision fraught with peril and one where the advice of outside counsel can be extremely valuable.
6. In-House vs. Outside Counsel – who leads? One of the first things you will do is put together the “team” that will conduct the investigation. Typically, this will involve people from the legal department, compliance, finance, internal audit, communications, and HR. There be others depending on how your company is structured and some roles may wear two hats. You may also have outside vendors, including public relations, forensic accountants, and outside counsel. One of the most important choices you will have to make as in-house counsel is whether or not to bring in outside counsel. Typically, the decision hinges on several factors, including the seniority of the employees under investigation, whether the government or law enforcement is involved or not, is there potential criminal exposure, will the Board of Directors be involved in reviewing the investigation, and so forth. Two additional factors to consider when deciding whether or not outside counsel should be involved: will in-house counsel be able to dedicate the time warranted by the issues under investigation (and it can be a huge time suck if the problems are series and/or widespread), and what is my confidence level that the company can preserve the attorney-client privilege if the investigation is handled solely by in-house counsel? This has become a real decision point recently as courts frequently look at assertions of privilege by in-house lawyers with a suspicious eye. Not that it’s warranted, just that it’s true. The use of outside counsel can really help harden the silo around privilege (which should be a top consideration going into the investigation). Likewise, the work product of outside vendors hired by outside counsel (e.g., media, accountants) stands a better chance of being privileged as part of outside counsel’s work. An additional consideration is that regulators, law enforcement, and even the media will tend to view outside counsel as more independent and objective than in-house counsel in terms of the final conclusions and decisions made when the investigation closes. Finally, when hiring outside counsel for an internal investigation, be sure that you really know the lawyers you will be hiring and believe they will conduct the investigation in a manner that fits within the culture of your company. Their behavior and conduct will reflect directly on you (good or bad). If the C-Suite and Board of Directors will be involved for example, think hard about the counsel you will hire. On the flip side, if the investigation involves relativity low stakes and low risk, there is probably no need to bring in outside counsel so long as in-house counsel properly runs and supervises the investigation. That said, in-house counsel will play a key role whether or not outside counsel is involved or not.
7. Communications. Establishing a proper protocol around communications is critical during an internal investigation. Your work plan should set out in detail how communications will be handled, especially with respect to things like witness interview reports, summaries, marking for privilege designation, review of all substantive communications by counsel, etc. Another important part of communications planning deals with media and employee communications (as you may have to address both audiences during the course of the investigation). Typically, you will want everything done at the request of legal counsel (in-house or outside) as part of the overall work plan to provide legal advice to the company so as to maintain privilege. Just know that with respect to public relations, whether or not the privilege applies is very fact intensive and you should plan on the likelihood that communications with the PR team may not be privileged and draft accordingly. Likewise, you should craft a “holding statement” early in the process in the event there is a leak and outside media (including social media) becomes aware of the investigation and begins to inquire/write about it. While most investigations do not rise to the level of catching the media’s attention, you never know and you should be prepared to respond quickly just in case. You now have minutes to get your act together, not hours. Finally, it is worth considering having everyone on the investigation team sign a confidentiality agreement as a way to underscore the importance of confidentiality and as an added precaution against leaks. Leaks not only hurt the company but are unfair to any of the employees involved in the investigation (victims, alleged wrongdoers, etc.) as they deserve confidentiality during the investigation stage regardless of how things may ultimately turn out.
8. Witness Interviews. Documents and witness interviews will form the factual foundation of your investigation. Document gathering is a fairly standard practice now, especially with the advent of “intelligent” document review where machines can sift through masses of documents and find the key documents in a fraction of the time human reviewers can (though do not dismiss the need for humans to review documents). More critical in my opinion are the witness interviews. This is where the real action occurs. Here are a number of things to keep in mind:
- Schedule preliminary interviews with key witnesses as soon as possible. You will likely need to interview them again once you get the document review completed, but getting their statements early in the process can help direct and focus the investigation.
- Have two people present at every interview – always have a witness as to what was said. Likewise, be sure counsel is present at every interview to help preserve privilege. If you are using outside counsel, having an in-house lawyer present can be very helpful in putting the witness at ease with a familiar face in the room.
- Properly prepare for every interview – prepare an outline to guide the questioning and review key documents (to the extent you have them). While an outline is important, don’t become overly attached to it – if the witness takes you down an unexpected path, go with it and explore it. You can always come back to the outline.
- Schedule the interviews at a time and place convenient for the witness. Do everything to put them at ease – you will get much more information this way.
- Put all witness interview summaries into similar form and style – use a template. Each summary should give the reader the same basic information in the same format.
- Keep things pleasant and professional. You’re not the Star Chamber. If you go into an interview with guns blazing and have pre-judged the witness, it will likely be a very unproductive session. It’s amazing what a calm, professional demeanor can do in terms of getting a witness to cooperate and become talkative.
- Be sure to begin each interview of company employees with an “Upjohn” warning. It is critical that you/outside counsel tell the employee that you represent the company and not them, that the discussion is privileged but the company controls the privilege and whether to waive it or not. Ideally, the warning will be reduced to writing and signed by the employee so there is no issue as to whether it was given or not.
- If it becomes apparent during the interview that the employee and the company may have conflict of interest with respect to the investigation or that the employee may be exposed to personal liability, you should advise them of the potential of hiring their own counsel. This is more likely to arise when there is the potential for regulatory (criminal) or law enforcement involvement. This doesn’t mean that the company and the employee are necessarily adversaries, only that the employee’s personal interests are potentially better served by having their own lawyer. The company may pay for that counsel based on indemnity or contract (though will have no control over the defense) and, if separate counsel is needed, consider entering into a written joint defense agreement with the employee so that the company and the employee can properly coordinate a defense.
9. Reports. The final piece of the puzzle will be the report prepared at the end of the investigation. In recent years, we have seen these final reports become oral presentations vs. written documents handed out to senior management or the Audit Committee of the Board of Directors. This is because of the fear that a written report may not be privileged (despite best efforts otherwise) and will need to be handed over to the other side in litigation (plaintiff, regulators, law enforcement). While I understand the need for caution, one must wonder whether the failure to produce a written report is ultimately more harmful on its face than what might be contained in the report itself. For example, Baylor University is facing almost daily pain in the news cycle over its refusal to release a written report about its investigation into the sex/rape scandal involving its football team. To outsiders, the refusal to issue a written report and the fact that no written report was allegedly prepared is damning in itself, while the facts about what occurred come out in drips and drabs refreshing the scandal almost daily. Whether or not to draft a final written report will depend on the circumstances and consideration of the “white wash” effect, and is something to discuss with outside counsel. My leaning is that a smartly written final report is almost always the right way to go.
Assuming you will produce a written report, consider the following:
- The report should be prepared by counsel for the purpose of providing legal advice.
- To whom does the report go? CEO, Board of Directors? This should be part of the work plan.
- The report should follow a standard template. The company should have a repeatable process in terms of the report format and the information provided, for example:
- The allegations or reasons for the investigation.
- A summary of the work plan and the efforts made to investigate.
- Background facts.
- What was found – key documents, witness statements.
- Outline of the policies/laws/regulations at issue.
- Application of the evidence found to the policies/laws/regulations.
- Set out any remedial measures taken or that counsel recommend should be taken.
10. Resources. There are many helpful resources on internal investigations available to in-house lawyers. Here are just a few that I like and that will get you started as you build you own file/plans around internal investigations:
- Outside counsel – identify who you think your “go to” counsel is on all or certain types of internal investigations and work to partner with them on training and planning around what to do if the need for such an investigation ever arises.
- Practical Law – requires a subscription, but this Thomson Reuter’s service has a tremendous amount of resources on internal investigations included subject matter memos, templates, checklists, etc.
- Corporate Internal Investigations – Jones Day
- Conducting Internal Investigations – KL Gates
- How to Protect Attorney-Client Communications During Internal Investigations – Latham
- Internal Investigation Check List – Richard Hurford
- Evaluation of Corporate Compliance Programs – Department of Justice Memorandum
As always, there is much more to internal investigations than I can set out in a blog post like this. For example, this post is written from the viewpoint of the USA. If you need to investigate in a foreign country, different rules will likely apply. But, the above are the essentials and every in-house lawyer (located in the USA or elsewhere) can use them to understand the basics of what is required to conduct an investigation. At a minimum, you should now be in a position to go back and review your company’s readiness for such an investigation and take steps to put a plan into place (with standard guidelines and templates) or update the plans and documents you already have. Similarly, identifying “go to” outside counsel can be very helpful, especially since they will likely help you with training and other basics for free. All you need to do is ask (and if they will not, time to find different “go to” counsel). Finally, if faced with an important internal investigation be sure to breath deep, take your time thinking about what the investigation will look like, and don’t fly solo – there are lots of people in the department, in the company, and outside counsel ready, willing, and able to make the process much easier and ensure that you take the necessary steps.
March 20, 2017
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