The Danger of Corporate Scandals – When CEOs and Senior Executives Circle the Wagons to Impugn a CCO
We all know the scenario. A corporate scandal breaks, heads will roll and criminal investigators have invaded a company to investigate and prosecute the CEO, senior executives and others. It is a toxic environment when this occurs, and not something you ever want to experience, especially as a legal and/or compliance professional.
People can become dangerous when they feel threatened. Corporate leaders, with egos and financial stakes to match, are dangerous when they are implicated or caught in corporate misconduct. Senior executives may circle the wagons to protect themselves and look for common scapegoats. In some cases, the senior executives may be unable to circle any wagon and agree on any common defense, and look for scapegoats among themselves, as well as legal and compliance professionals.
It does not take much for a corporate executive to turn on another person to justify their conduct and explain away potential liability. In some cases, part of the story may very well be true. In other cases, the story is completely false and is nothing other than self-justification for otherwise blatant misconduct.
Legal and compliance professionals are at great risk in these scenarios. Why?
Legal and compliance professionals usually have access or involvement relating to legal compliance issues surrounding a specific set of events or course of conduct. If the government initiates an investigation into that conduct, lawyers and compliance officers are usually involved in some manner. As a result, senior executives often will seek to divert attention to the lawyers and compliance professionals, even suggesting that they (lawyers and compliance professionals) blessed the conduct. Of course, attorney-client privilege issues may come up in this regard, but CEOs and senior executives more often than not will look to lawyers and compliance officers to back them up.
Lawyers and CCOs have to be extremely careful when this situation arises. It does not take much for a CEO or a senior executive to tell the government that he or she engaged in the conduct or failed to act because of advice or direction from the lawyers or compliance professionals.
There is a response to this strategy, and it usually requires the lawyers and/or compliance professionals to produce contemporaneous documentation to confirm their version of events. It is one of many reasons that we advocate that companies, and especially lawyers and compliance professionals, document their actions. Such documentation makes it extremely difficult, if not impossible, for the CEO and senior executives to argue a contrary inference or series of events. I am aware of numerous occasions where such documentation was the difference between further investigation and exoneration.
A corporate criminal investigation is a high-stakes drama and should always be in the back of a professionals’ mind. Taking basic steps to document your work, confirm a piece of advice and that a direction was carried out, can save you from headaches, legal bills and hours of questioning by federal prosecutors and agents.
Also, it is important to remember that today’s CEO or senior executive champion of a lawyer or compliance professional can quickly turn into an enemy when faced with a criminal investigation. There is no honor among thieves, and there is no reason to ignore potential risks from a corporate investigation that may occur.
Lawyers and compliance professionals, as gatekeepers, bear heavy burdens and can quickly become collateral damage or even full-on scapegoats for a corporate scandal.