Internal Investigation Trap – When Does “Oversight” Turn into Control
Corporate boards face a number of risks. In the face of a high-stakes or important internal investigation, corporate boards, a designated committee, or a special committee often are assigned the important role of authorizing and monitoring the investigation. Board supervision is reserved for important internal investigations, especially when an investigation focuses on potential senior management misconduct or other high-risk issues.
Law firms welcome these assignments because they are often interesting, lucrative and complex. But there are significant risks for the investigator.
The investigators have to navigate an often controversial issue, maintain independence and objectivity, and avoid internal and external pressures. In many cases, these investigations involve parallel government investigations. As a result, the investigators have to interact and report to government prosecutors on the progress and results of the investigation. Government prosecutors and regulators have their own expectations and can be demanding as to the pace of the investigation, the issues being reviewed, and the extent of cooperation by the company. Numerous articles, webinars, white papers have been written on the subject of interacting with the government and all the dos and don’ts.
Investigators face daunting internal pressures when conducting an investigation. Subjects of the investigation are often concerned about their exposure. Aside from the worries of persons under investigation, senior management often expresses concerns over potential implications of the investigation, possible changes and accountability for failures to lead or supervise bad actors. To complicate matters even more, senior managers can get involved to advance an internal faction or specific group that is motivated by a desire to institute changes in direction or personnel inside the company. These issues are often cloaked by subjects, witnesses and other persons who may be involved in the investigation.
CEOs who are worried about their own position and standing may seek information or attempt to influence the direction and focus of an investigation. These occurrences are often subtle and CEOs or senior executives may not leave fingerprints on their subtle attempts to influence the scope and focus of an investigation. On occasion, investigators may uncover evidence of attempts by CEOs and senior executives to influence a potential witness. Sometimes these attempts border on blatant obstruction and other times they reflect the individual’s concerns about the impact of an investigation.
When it comes to board committee or special committee oversight, investigators often face a delicate dance. Board oversight should be conducted in a straight-forward manner – support the independence and progress of the investigation. Depending on the circumstances, this is easier said than done. Board members can fear the consequences of an internal investigation, especially if the investigation focuses on potential board miscues on oversight of an issue under investigation. Investigators have to be sensitive to these kinds of influences.
In most cases, board oversight is handled well, often with a board counsel to ensure that the board committee exercises its oversight powers properly. Of course, this is not always the case. Internal disputes can become obstacles and even reasons for board bias. This is a real risk and can undermine an organization’s attempt to conduct a meaningful independent investigation.
Board members can take small steps to cabin an investigation, avoid possible leads, or constrain the focus of the investigation. Small steps can become larger once the pattern is set. And investigators have to push back on attempts by board members to influence, expedite or otherwise limit a proper investigation.
Investigators have to prevent these situations from occurring. A key aspect to this is to provide regular and fulsome reports to the board committee on investigative plans, reasons for certain steps, and updating of scope and tentative findings along the way. In many cases, a board member who is kept well informed will find it more difficult to influence or push an investigation in a specific direction. Such efforts will be evident in the context of a robust reporting practice.