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Volume 30, Issue 4

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Tuesday, 03 October 2017 15:27

How Counsel Relationships Can Increase Scrutiny

Rethinking Independence in Internal Investigations

Demonstrating and ensuring independence in internal investigations is a critical issue for corporate counsel to consider, especially when facing or anticipating parallel regulatory probes. How to properly do so is a nuanced process: as this piece explores, it is not as simple as the binary question of whether counsel conducting an internal investigation had a previous working relationship with the company.

For a company under actual or potential government scrutiny, an independent internal investigation performed by outside counsel, sometimes coupled with cooperation with the government, can mean the difference between indictment and a much more palatable result. Often, outside counsel’s “independence” is conflated with “absolutely no prior work done for the subject company.” Indeed, some companies and boards categorically refuse to hire outside counsel to handle internal investigations if the firm has previously performed work for the company; this is out of concern that the government will assume that such counsel cannot conduct an “independent” investigation.

Although there are circumstances in which an entirely new firm should be hired for an internal investigation, imposing this sort of bright-line rule in every case may risk disqualifying a firm that is otherwise best equipped to handle a particular investigation, driving up costs and reducing efficiency while failing to increase credibility. In many situations, investigative counsel can be diligent, objective and independent despite having done some prior work for the client.  Investigative counsel that are familiar with the inner workings of a company from a prior relationship can bring enhanced efficiency and understanding to the investigation that can be extremely beneficial to the truth-finding process, as well as to cost-control efforts. The point at which a prior counsel relationship may defeat independence must be considered on a spectrum.  While hiring a firm with no prior relationship may be useful or even necessary for some types of investigations, in other circumstances, an existing or previous counsel relationship can enhance effectiveness with minimal – if any – threat to the investigation’s credibility.