Presenting a live 90-minute webinar with interactive Q&A Conducting Internal Investigations Amid Heightened Government Scrutiny of Corporate Practices Evaluating Whether to Investigate, Determining Scope, Selecting Investigators, Managing Privilege Issues, and More TUESDAY, MARCH 10, 2015 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Fritz E. Berckmueller, Partner, Calfee Halter & Griswold , Cleveland Theresa L. Davis, Partner, Reed Smith , Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Conducting Internal Investigations Amid Heightened Government Scrutiny of Corporate Practices 5
Presenters Fritz E. Berckmueller Partner Calfee, Halter & Griswold LLP (Cleveland) Theresa L. Davis Partner, Financial Industry Group Reed Smith (Chicago) 6
Agenda • Evaluating whether to conduct an internal investigation • Planning the investigation/ pre-investigation strategies • Conducting the investigation • Post-investigation strategies 7
I. EVALUATING WHETHER TO CONDUCT AN INTERNAL INVESTIGATION 8
What triggers an internal investigation? • Data breach • Civil suit or arbitration • Government • News article inspection, visit, call - • Competitor complaint routine? • Hotline/Anonymous tip • M&A due diligence • Disgruntled employee • Stock transaction • Accounting irregularity • Auditor’s comment • OSHA, environmental, • Subpoena federal contract, grant • Employee misconduct 9
Is an internal investigation necessary? • Ask: if true, would the conduct • Violate the law? • Violate company policy? • Violate duty to shareholders, creditors, etc.? • Pose a risk to health or safety? • Trigger any reporting disclosure duty? • Better if disclosed voluntarily, not involuntarily? 10
Is an internal investigation necessary? (continued) • Was it an isolated incident, or ongoing? • Did internal controls catch it, or miss it? • Is the subject peripheral, or at heart of the business? • Is the amount at stake material to shareholders? • What harm would result from public disclosure without investigation? • In short, what is the risk level? 11
What are the benefits to conducting an internal investigation? • Earn credit with investigating agencies • Get to the bottom of critical issue and make needed changes • Have the facts first in event of litigation • Send clear message that illegal activity will be dealt with and not tolerated 12
Who is your audience? • Could be obvious • If not, consider who ultimately will need to hear about and resolve the issue • Different audiences have different needs and make different demands on the company • Senior Management • Employees • The Board • Media • Regulators • Shareholders • Law enforcement • Customers 13
• Caution: an internal investigation, to be credible, must be independent. • That means the problems it exposes may be as bad as, or worse than, the original problem you set out to investigate. • Consider whether the company can the scrutiny. 14
Example: GM Ignition Switch Recall: Investigation, Report, Fallout • G.M. hired Jenner & Block to investigate failure to fix a faulty ignition switch • Reviewed millions of documents • Interviewed 230+ people • Result: 325-page report to federal regulators, made public in June 15
GM GC Milliken Got a Mulligan Barra: “There were silos, and as information was known in one part of the business, for instance the legal team, it didn’t necessarily get communicated as effectively as it should have been to other parts, for 16 instance the engineering team.”
GM (continued) • Cleared CEO Barra, lieutenants of wrongdoing • Found no deliberate cover-up of switch problems. BUT • DOJ is now investigating GM, including in-house attorneys, for hiding evidence 17
II. PLANNING THE INVESTIGATION: PRE-INVESTIGATION STRATEGIES 18
Components of an Effective Internal Investigation: Necessity • What is the issue? • Simple or more complex? • One employee or several? • Single incident or repeated pattern? • Minor, moderate, or major significance, such as regulatory violation or disclosure violation? 19
Components of an Effective Internal Investigation: Planning 1. Confidentiality is essential 2. Is formal investigation required? 3. Who should conduct the investigation – internal/external? 4. What policies, work rules, or laws apply? 5. What relevant documents may assist investigation? 6. When and where to conduct investigation? 7. Who should be interviewed? the complaining and accused employee(s) and their supervisors observers/witnesses, anyone with relevant information authors of relevant documents 8. What time and place are best for interviews? 20
Components of an Effective Internal Investigation: Planning • Control the Documents • Get originals (make a copy if you need to add notes) • Establish a chain of custody • Maintain each document for at least the applicable statute of limitations period, or longer as required • Obtain and review relevant personnel file, company policies, and other possibly relevant documents • Seek all documents, including those on computers, hard drives, cloud storage, and e-mail, all drafts and file notes • Review all files in similar cases 21
Who Should Conduct Investigation? Three Main Choices o In-house Counsel o Regular outside counsel o Independent outside counsel Combination of investigators 22
Components of an Effective Internal Investigation: Selecting the Investigator 1. Familiarity • Knows policies, personnel, context and significance 2. Unbiased • Beware of partiality perception 3. Trained • Need grows in proportion to severity of the allegation 4. Timely • Must the investigator juggle other assignments? 5. Professional • Must obtain information from nervous and unwilling witnesses. • Consider presentation: assess how investigator would “come across” 23 to a jury.
Who Should Conduct Investigation In-house Counsel or Human Resources o Typically, better acquainted with company’s history, procedures and operations o Employees may speak more openly o Privilege Issues – What hat is in-house counsel wearing o Internal relationships – must always maintain objectivity and appearance of neutrality Independence Influence/control 24
Who Should Conduct Investigation Outside Counsel o Increased objectivity o Experience/expertise o Preservation of privileged information 25
Who Should Conduct Investigation o Next issue: Regular outside counsel v. special investigation counsel o Strategic and efficiency considerations o Special expertise o Avoidance of conflicts o Avoidance of privilege issues o Independence/objectivity o Potential disadvantages Deputized government agents Expensive Slippery Slope 26
What is the Scope of the Investigation Work Plan o Nature of report o Potential involvement/culpability of employees Document collection, review and analysis o Document preservation notice Use of Additional experts o Ethical and legal standards/considerations o Privilege considerations United States v. Kovel , 296 F.2d 918 (2d Cir. 1961) 27
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