Chief executives are increasingly
likely to consider conducting independent investigations to help resolve major
legal and regulatory dilemmas and challenges to their companies' integrity,
The Conference Board notes in a report released today.
Howard T. Anderson and Edwin Stier, authors of the report, are attorneys
whose firm Stier Anderson, LLC, specializes in carrying out independent
"Today's business leaders," say the authors, "are increasingly likely to
face a decision that seldom confronted their predecessors: whether to conduct
an independent investigation to help resolve a legal, regulatory, or corporate
Before the 1980s, companies traditionally "circled the wagons and mounted
a vigorous defense" when under attack, bringing in corporate and outside
lawyers, public relations experts and other advisors to help design crises
strategies. "It was even more unusual -- bordering on the heretical -- for a
corporate lawyer to recommend waiving privileges as part of such a strategy,"
the authors say. "Yet in our post-Enron/Sarbanes/Oxley/Sentencing Guidelines
times, lawyers are advising corporations to do just that in a wide variety of
The report emphasizes that independent investigations have both risks and
benefits. Say the authors: "Once an organization chooses to conduct an
independent investigation, it must do it right."
In an independent probe, the lawyer acts as a fact-finder, not as an
advocate. Instead of attempting to make the best case for a client in an
adversary proceeding, the independent investigator seeks to become the sole
arbiter of the facts, regardless of whether they support or undermine the
client organization's legal claims or the interests of any individual. Before
commissioning an independent investigation, an organization's leaders must
decide whether they are prepared to take action against key individuals --
even top officers -- if the evidence warrants it and to present facts that
could help the organization's adversaries prove claims.
WHEN IS AN INDEPENDENT INVESTIGATION NECESSARY?
Few companies would run these risks if independent investigations did not
confer substantial benefits. In many situations, there may be no prudent
alternative to conducting one. Courts are increasingly making independent
fact-finding a legal obligation. Even when there is a choice, however, the
independent investigation strategy may be the only practical way to resolve a
crisis of confidence and demonstrate an organization's core values to its
stakeholders, government agencies and the public. Properly conducted
independent investigations also can boost morale within the organization by
demonstrating that in a crisis people will be treated fairly and according to
a rational process.
Types of situations in which an independent investigation might be
considered include cases of sexual harassment, health and safety issues caused
by equipment malfunctions, financial malfeasance and stock manipulation.
"What really determines if an inquiry has to be independent, however, is
whether it is crucial for an organization to demonstrate to the public,
government agencies, a court, or its own stakeholders that it acted
appropriately," says Stier. "Once a decision has been made to use the
independent investigation strategy, all organizational actions and statements
should be consistent with it."
THE TRUE MEANING OF INDEPENDENCE
There is no current universally recognized definition of independence in
the investigative context. Based on existing legal standards, the following
are guidelines for independence:
* Relational independence: This test asks whether a prospective
independent investigator has a problematic relationship that might
compromise the substance or appearance of objectivity.
* Demonstrating independence through the investigative process: Even
absent compromising relationships, skeptics will scrutinize the
investigative process to determine whether it is genuinely independent
and objective or advocacy in disguise. An investigation must definite
its purpose; establish appropriate relationships with both sides; use
procedures fair to all; document evidence thoroughly; and demonstrate
soundness of conclusions through a reproducible analysis.
"Choosing a strategy that includes an independent investigation must be
done carefully, with a full appreciation of both its risks and benefits," says
Stier. "How an organization responds to a crisis will define its values far
more convincingly than any code of conduct. Doing it right, as Johnson &
Johnson did with the Tylenol poisonings in the '80s, can turn a crisis into a
net gain for the organization by reinforcing its reputation for integrity."
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