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Identifying Risk
and Managing
Internal
Investigations
Corporate crises are as old as
By Amber Lee Williams, Matthew Singer, and Lorraine Campos
business itself. However, the focus has never been more intense on the
role of in-house counsel to prevent and respond to crises. This widening
spotlight on in-house counsel is the result of several coalescing trends.
It has been 15 years since the US Congress passed the Sarbanes-Oxley
Act, which made it clear that lawyers are “gatekeepers” and play an
important role in ensuring a clean corporate marketplace.1 In the years
since Sarbanes-Oxley, government regulators have ratcheted up their
compliance-related enforcement and the liabilities for in-house counsel
as individuals and as corporate gatekeepers have increased.
In 2004, Stephen M. Cutler, then- purpose of the privilege and dis- Naturally, in-house counsel are feel-
director of the Securities and Exchange courage communication of relevant ing the heat of the spotlight. The recent
Commission’s (SEC) Division of information by company employees ACC Chief Legal Officers 2017 Survey
Enforcement, explained the change to to their in-house counsel. This case, showed that more than one out of
the investigations landscape when he and others like it, point to both the every four respondents reported being
said that pursuing gatekeepers is the ever-expanding role of in-house targeted by a regulatory agency in the
“most targeted and effective way of counsel and the challenges of man- past two years.6 In the same survey, 74
using the agency’s limited enforcement aging internal investigations. percent of respondents rated ethics and
resources” to ensure good corporate In the aftermath of the economic compliance as their top challenges.7 In
behavior.2 Increasingly, individual recession, most companies are finding addition, the actions of general counsel
lawyers are named defendants in creative ways to “do more with less.” during recent investigations at major
enforcement actions along with Many companies now save money companies have garnered significant
company leaders and board members. by meeting more of their legal needs media attention.
Occasionally, an in-house counsel is in-house and hiring fewer outside Though the CEO, chief compli-
the sole defendant in a prosecution for counsel. Increasingly, corporate ance officers, and other top company
a corporate failure. in-house counsel are involved in leaders are generally considered to be
While in-house counsel are being enterprise-scope of strategic busi- primarily responsible for establishing a
pursued as gatekeepers, companies ness decisions and advise executives company’s values, in-house counsel are
are also simultaneously expand- on critical matters beyond those that uniquely positioned to help support
ing the scope of responsibilities for are strictly legal. Job descriptions for the integration of compliant behavior
in-house counsel. In an ongoing in-house counsel continue to evolve; into organizational culture. Benjamin
dispute, the traditional ability of they often wear multiple hats and W. Heineman, Jr., author of The Inside
in-house counsel to provide legal juggle more expansive workloads. One Counsel Revolution, argues that that
advice that considers a range of busi- of the significant consequences of the general counsel must serve in both
ness concerns is being challenged.3 expanding corporate counsel role is a partner and a guardian role.8 As a
The Federal Trade Commission that such expanded responsibilities business partner, an in-house counsel
(FTC) is challenging the boundaries further stretch the ability of in-house works with company leaders to make
of whether the role of an in-house counsel to devote the necessary focus and help implement major business
counsel in a business transaction is to internal investigations, discern decisions. As a guardian, an in-house
subject to the privilege as it relates risks, and identify potential crises, counsel is responsible for bringing an
to an FTC antitrust investigation.4 thus further increasing the risks that objective perspective to the company,
In the matter, a corporate general problems may be overlooked or insuf- and is uniquely positioned to challenge
counsel helped negotiate a business ficiently addressed. company practices that are too risky or
deal. The FTC, as part of its investi-
gation, has argued that such advice
and supporting analysis should not Amber Lee Williams is a senior associate general counsel and section head for Walmart, where
be held under the privilege. The she leads the legal team that supports US Compliance. amber.williams@walmartlegal.com
corporation, with the support of the
US Chamber of Commerce and the
Association of Corporate Counsel
(ACC), has contended that the FTC’s Matthew Singer is a senior associate counsel at Walmart Stores, Inc., who manages internal
approach would have a devastating investigations for the company. matthew.singer@walmartlegal.com
impact on privilege and the ability
of in-house counsel to, among other
things, conduct meaningful internal
investigations. As courts have noted, Lorraine Campos is a partner at Crowell & Moring LLP. Her practice includes conducting a range
“[r]are is the case that a troubled of complex internal investigations and working with companies across all aspects of government
corporation will initiate an internal contracts law. lcampos@crowell.com
investigation solely for legal, rather
than business purposes.”5 Many
believe the impact of adopting the The authors would like to thank G. Meredith Parnell, a Harvard Law School Student and Crowell & Moring summer
FTC’s approach would frustrate the associate, for her assistance with this article.
larger risk to the company. In-house As in-house legal teams conducted with limited in-house
counsel should insist on unfettered take on more varied involvement. In-house counsel should
communication channels with all objectively examine the purpose and
responsibilities within
departments, especially a company’s scope of the investigation while also
leadership team. Likewise, employees
companies, issues of considering resources and real-time
in the business should feel comfort- attorney-client privilege business pressures. Here are three
able raising concerns to in-house are becoming thornier. examples of the types of matters that
counsel. Michael Held, executive This is especially true are likely best handled as internal
vice president at the Federal Reserve privileged investigations.
for in-house counsel who
Bank of New York, recently cautioned ■■
A privileged investigation might
against organizational cultures that
participate in strategic be in order when an employee flags
yield “too high a degree of adherence” business decisions where an issue for concern that could
and a “dangerous lack of question- they may be providing both create legal risk for the company.
ing.”9 Leaders in business, compliance, legal and business advice. For example, whistleblowers
and legal departments can help foster should be taken seriously, and their
open communication within the orga- complaints appropriately addressed.
nization by encouraging and reward- Even seemingly innocuous issues
ing employees who have the courage influencing the parties’ negotiation might be indicative of a larger
to flag issues, and by strictly enforcing posture. Or in-house counsel may problem. At the very least, looking
non-retaliation policies. hear through rumors that a company into the merits of a complaint sends
Sometimes a company creates its employee is engaging in unethical be- a signal to employees that their
own crisis and other times the un- havior. Or a third party may formally input is valued and helps to create a
expected occurs despite a company’s allege corporate wrongdoing. Although culture of compliance. It is the job
best efforts. When a corporate crisis each of these examples represents a of the in-house counsel to evaluate
strikes, general crisis management vastly different circumstance, each the seriousness of a complaint and
protocols and investigation efforts situation requires that in-house coun- provide advice on the scale and
may consume significant resources. sel assess whether further inquiry is scope of a potential investigation.
Yet, there are some preventive mea- necessary and appropriate. ■■
A privileged investigation should
sures that will mitigate the impact Many times, the in-house counsel’s also be considered when safety or
of the crisis and any subsequent “assessment” of the situation is rapid other regulatory risks are at stake.
investigation. In-house legal teams and instinctive. At other times, the For companies that are vulnerable
should plan ahead by anticipating attorney may need to spend focused to product liability claims where
that their company may find itself time deliberating next steps. Too often, consumers might be hurt as a
faced with an internal or external al- corporations recognize the need for an result of a design or manufacturing
legation of wrongdoing that warrants investigation too late in the process — failure, in-house counsel should
investigation. often after significant internal actions aggressively investigate potential
Below are four questions that every have already taken place. In addition problems and do so quickly. These
in-house counsel should consider as to relying solely on sound, individual cases are likely to spiral out of the
they examine their company’s readi- judgment, the in-house counsel may company’s control in the wake of
ness for the unexpected. need to confer with other in-house inaction. At the first whiff of a safety
and/or external counsel to determine concern, in-house counsel should
1. Do I need to investigate? how best to proceed. immediately elevate the issue to
Depending on an entity’s line of the stakeholders at the appropriate
business and the role of the in-house 2. Do I conduct an internal level within the organization. In one
counsel within the organization, many investigation under privilege? case, a senior lawyer hid the news
lawyers are confronted with issues on a Once an in-house counsel determines of a product defect from company
daily basis that require them to assess that an internal investigation is war- leadership. Later, after the product
whether further inquiry is necessary. ranted, they must be able to promptly was implicated in causing serious
For example, an in-house counsel may plan how to proceed. Not all inter- harm to consumers, the company
be working on a transactional matter nal investigations need to be at the was sued and was found liable
where, in the course of discussions, direction of in-house counsel; indeed, for significant compensatory and
it appears there may be a “side deal” many internal investigations can be punitive damages. The post-crisis
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implementing and communicating the need to promptly clarify their role via documents, asserting attorney-client
change — taking into consideration an “Upjohn warning” so employees privilege. Government agencies have
potential negative inferences. understand that they represent the responded with strong arguments that
Another step that in-house law- company as opposed to the individual when in-house counsel hold dual roles
yers can take to build an effective employee.10 as legal counsel and business advi-
investigative framework is to actively In-house counsel have tripped sor, the burden is on the company to
develop and maintain strong relation- over this issue when they were not prove that the attorney was providing
ships with outside counsel. In-house in communication and in agreement predominantly legal, rather than busi-
legal teams are meeting an increasing with company leaders about whether ness, advice.
percentage of most companies’ legal they were representing the corporate On June 2, 2017, the US Chamber
needs, but company lawyers simply entity or the individuals involved in of Commerce and ACC submitted an
cannot do it all and often need to rely an investigation. There are numerous amicus brief against this position in
upon outside resources to respond cautionary cases where employees of a case involving the FTC.11 The brief
to complex, high-risk matters. When an organization believed the in-house argues that if in-house counsel are
faced with an allegation of internal counsel represented them individually. required to prove whether they are
wrongdoing which meets a certain Such confusion is easy to understand providing legal or business guidance
threshold, most companies will hire as in-house counsel and company when advising their clients, such a
outside counsel to conduct an internal employees often develop close rela- stance “will undermine the traditional
investigation. In the face of crisis, it is tionships. A clear “Upjohn warning” ability of in-house counsel to pro-
extraordinarily helpful and beneficial dispels such confusion. vide legal advice that considers the
to be able to call upon trusted outside As in-house legal teams take on full range of concerns relevant to the
counsel familiar with the company, more varied responsibilities within company, and will promote a moment-
the industry, and regulators. companies, issues of attorney-client by-moment, communication-by-
privilege are becoming thornier. This communication approach to attorney
4. Who is my client? is especially true for in-house counsel client privilege that would chill clients’
Attorney-client privilege is the oldest who participate in strategic business communications with counsel and
common law protection for confiden- decisions where they may be provid- undermine the provision of legal ad-
tial communications and is designed ing both legal and business advice. vice.”12 If the court finds in favor of the
to encourage a client to be open In many situations, the role of the FTC on this issue, in-house counsel
and honest with his or her attorney. in-house counsel is blurred when, who are engaged in their companies’
Attorney-client privilege is a key ele- for example, they are advising on the business decisions will need to track
ment of a legally led investigation, and business aspects of a deal or corporate whether each activity and communi-
it is imperative that corporate counsel strategy. In certain of these situations, cation is primarily for business or for
understand the technical aspects of government agencies have requested legal advice.
how the privilege applies in the in- communications related to the deal
house context. to determine whether any laws were Conclusion
As an initial matter, in-house broken. Companies have generally The roles and responsibilities of
lawyers conducting investigations will refused to turn over those types of in-house counsel are changing and
ACC Docket Workplace Investigations: the Compliance for the Small ACC HAS MORE MATERIAL
How to Prevent a Tragedy: Know Role of the Office of the General Law Department (Oct. 2016). ON THIS SUBJECT ON OUR
WEBSITE. VISIT WWW.ACC.COM,
Your Role During Government Counsel (May 2017). www.acc.com/legalresources/
WHERE YOU CAN BROWSE OUR
Investigations (May 2017). www.accdocket.com/articles/ resource.cfm?show=1444847
RESOURCES BY PRACTICE AREA
www.accdocket.com/articles/ resource.cfm?show=1429437
InfoPAK OR SEARCH BY KEYWORD.
resource.cfm?show=1457679
Program Material Management and Defense
10 Tips for Conquering Cross- Investigations: Managing of Employee Whistleblower
Border Internal Investigations the Process and the Claims (July/Aug. 2015).
(March 2017). www.accdocket. Resolution (Oct. 2016). www.acc.com/legalresources/
com/articles/tips-conquer-cross- www.acc.com/legalresources/ resource.cfm?show=1405564
border-internal-investigation.cfm resource.cfm?show=1445965
NOTES
1 Stephen M. Cutler, “The Themes of
Sarbanes-Oxley as Reflected in the
Commission’s Enforcement Program,”
(Sept. 20, 2004), www.sec.gov/news/
speech/spch092004smc.htm.
2 Assoc. of Corp. Counsel, ACC Chief
Legal Officers 2017 Survey, www.
acc.com/legalresources/research/
(last visited Aug. 9, 2017).
3 Brief of Amicus Curiae US Chamber
of Commerce and the Assoc. of the
Corp. Counsel in Supp. of Boehringer
Ingelheim Pharmaceuticals.,
Inc., FTC v. Boehringer Ingelheim
Pharmaceuticals., Inc., No. 16-
5356 (D.C. Cir. Jun. 2, 2017).
4 Id.