Internal investigations – a sword or shield?

Faced with a high-profile investigation by the regulators, several organisations have recently decided to also conduct their own internal investigations.

The Commonwealth Bank of Australia (CBA) and Essendon Football Club are two such cases where double-whammy external and internal investigations have opened up the organisations to significant scrutiny.

The CBA’s investigation focused on its financial products and advisors and the Essendon Football Club conducted a review of its governance processes and supplements program.

In both instances independent internal inquiries were commissioned separately from the investigations being carried out by the relevant regulatory bodies.

With so much at stake and such a high-level of media scrutiny, it’s essential that all companies have a plan in place should an internal investigation need to be conducted.

It is essential to consider the issues and potential risks to be investigated, define the scope of the inquiry and take into account all relevant and necessary stakeholders.

Set out below are four key factors that are essential to conducting a successful internal investigation:

Establishing the investigation – who, what, when and how

No two investigations are the same. However, at the outset it is imperative to define and articulate the scope and objectives of the investigation, how it will be run and by whom, and when the final report will be due and published.

At the outset, the organisation must make the difficult decision of determining whether the investigation is to be a time-effective “desk top” review of a particular matter or whether it is to be an in-depth inquiry searching for the “smoking gun” akin to a regulatory investigation.

Careful consideration should be given to the team responsible for the investigation. Will your organisation need to engage an independent person with sufficient experience and credibility to consider the relevant issues and make recommendations or will it be sufficient to have the inquiry run by a team of senior employees? In addition, it will be necessary to draw together a supporting team with defined roles which may involve executive, legal and accounting members.

A judgment call will need to be made promptly to determine whether the investigation will be covert or overt in nature. This decision will determine whether the investigation is announced publicly, and if so how.

The investigation

Once the scope and team are established, the next crucial step is to marshal, secure and analyse the evidence. People may need to be interviewed, documents will need to be reviewed and in a technologically evolving world many different forms of data may need to be obtained and scrutinised.

One relevant and important matter is the question of legal professional privilege and how it is to be preserved, if at all. Where a matter is time sensitive or potentially problematic, allegations risk being made public and investigations may be initiated without prior thought being given to whether legal professional privilege can or should be maintained over the inquiry. This may become very important at a later stage should a government regulator become involved or litigation ensue.

Coordinating the investigation between the relevant company officers, including in-house counsel, external counsel and forensic accountants will be crucial if the investigation is of some size and scope. There is a clear need to coordinate all of these resources to ensure that: the outcomes are sufficiently objective and independent; all relevant expertise is brought to bear; there is no duplication of resources; and, if applicable, the question of legal professional privilege and confidentiality are properly understood and followed.

The report

Irrespective of the public or private nature of the final report, any relevant document must necessarily set out the scope of the investigation, the procedures followed, the findings and any recommendations to reduce the risk of a similar occurrence in the future.

The outcome

Finally, it is crucial to make proper use of the investigation and its findings. In our experience, this would involve consideration of applicable laws, company governance, policy and procedure, and the role of all relevant stakeholders or regulators.

Internal investigations may result in negative findings or recommendations for substantial change. The adequacy of current compliance programs and existing policies and procedures may be questioned. Organisations need to be prepared for close scrutiny and to make changes that are in the best interests of the company.

A credible investigation can assist a company in meeting serious allegations. In order to achieve its intended outcome it is necessary that any internal investigation is carefully established, adequately resourced, conducted impartially, the findings taken into account and recommendations enforced by the chief executive down. Doing so may assist in restoring both corporate and individual reputations in addition to informing relevant stakeholders that the organisation has recognised a problem and intends to do something about it.

Howard Rapke is the head of the dispute resolution and litigation team at Holding Redlich’s Melbourne office and specialises in regulatory and white collar defence matters. Roxanne Burd is a solicitor in the dispute resolution and litigation team in Melbourne.