Independence from the people involved
If senior management may be implicated, the investigation usually reports to the board, the audit committee, or a special committee of independent directors rather than to management. Outside counsel without a regular relationship with the people involved adds credibility. Executives under review should not direct the inquiry, set its scope, or control access to documents. Employees who are interviewed should be told that counsel represents the company, not them, and that the company may decide to share what they say with authorities. The scope should be written down and revisited as facts develop.
Whistleblowers and retaliation risk
Many investigations start with a report from an employee, and that person may already have contacted a regulator. Federal and state laws protect whistleblowers from retaliation, and agreements that discourage employees from reporting to regulators can create problems of their own. Treat the reporter's concerns seriously, keep them informed in an appropriate way, and avoid steps that could look like punishment, such as abrupt changes in duties. Employment decisions about the reporter should be kept separate from the investigation and reviewed with counsel. Where the person who reported is also implicated in the conduct, those two tracks need especially careful handling.
Reporting, discipline, and remediation
As facts emerge, the board will face decisions about whether to report to authorities, how to handle the executives involved, and what controls to change. Prosecutors and regulators often give credit for voluntary self-disclosure and cooperation under their published policies, but the decision has lasting consequences and depends on the facts. Disciplining or terminating an executive may involve contract rights, indemnification, and advancement obligations. Public companies must also consider whether the findings affect financial reporting, disclosures about internal controls, or certifications already made. Our first discussion covers the allegations, the governance structure, and the immediate steps that protect both the evidence and the company's options.
