Committees conducting internal investigations in companies must be independent and this is where external lawyers can add value
In recent years, there has been a dramatic increase in the regulation of businesses, as well as scrutiny from regulators, in an effort to drive improvements in corporate behaviour. This changing landscape has led to significant growth in the number of internal corporate investigations. As a result, board members increasingly recognise that internal investigations can help to correct improper practices before they attract government or market attention. In this sense, it is important that companies establish good relationships with regulators in all jurisdictions around the world. Fostering regular contact with regulators often arises when companies conduct multiple internal investigations. This is one of the reasons that many companies opt to work with external lawyers when conducting such investigations, because international law firms are taking steps to improve, and are investing in, their relationships with regulators.
“A good relationship with regulators is not going to affect directly the resolution of a case, but it is important to be known as independent advisers as it will impact positively when representing clients,” says Mauricio España, partner in the anti-corruption compliance and investigations practice at Dechert. Credibility is crucial when conducting an internal investigation in a company. Regardless of how skilful the investigators are, their findings are not going to be taken very seriously unless the investigators are separate from the people being investigated. That is why it is often advisable for boards to establish a special committee to conduct such investigations, while also retaining external lawyers as advisers. “This committee has to be independent and here is where we add value as we have considerable experience advising such committees on how to lead an investigation” says Héctor González, partner in the litigation, white collar defence and investigations practice at Dechert.
Reducing the risk of future corporate governance breaches involves taking a very proactive approach to investigations as this will ensure that companies stay one step “ahead of the game”. González explains: “There are usually two common reasons why investigations are conducted – some clients act proactively to ensure they comply with the best corporate governance rules, while other clients are reactive.” He adds: “When a company discovers that there may have been some violation of laws or company policies, an internal investigation is needed to determine precisely what happened”.
Due to the fact that many businesses expand in order to establish operations worldwide, it is almost inevitable that investigations will often affect multiple jurisdictions. It is therefore important for legal advisers to be aware of the local risks associated with different markets. “We are seeing an increase in investigations around the world and we are gaining considerable experience in cross-border cases,” says España. “The approach is very similar everywhere as non-US authorities appear to adopt the US model although each country has their own peculiarities and legislation – in the US, corporate internal investigations are protected by attorney-client privilege,” he adds.
Clients are warned that any corporate wrongdoing could ultimately have serious ramifications in the criminal courts. “Most of our cases are fraud and corruption-related,” says González. If a company tries to avoid conducting internal investigations, it can affect its reputation in the market. As a result, prudent organisations take steps to show their clients, shareholders and employees that they maintain high standards of integrity and transparency by adopting good corporate governance practices.
In addition, internal investigations can help to identify steps that should be taken to avoid the reoccurrence of any misconduct, as well as help with the management of the organisation’s on-going risk. Internal investigations can be a profitable source of work for law firms, both in terms of being a ‘stand-alone’ practice as well as a support function for the corporate practice. “In some cases, we already have an existing relationship with corporate clients, and in other cases, clients come to us specifically to ask for help in an investigative process,” explains España. “Meanwhile, there is a significant amount of litigation related to investigations in sectors such as finance and industrial, particularly automotive.”