Internal investigations: what you don't know can hurt your company.

• Author: Anderson, Peter
• Position: LAW JOURNAL 2010

Despite the increasing frequency of high-stakes investigations and prosecutions of business crimes, the catastrophic risk of such an ordeal cannot be protected through insurance. Or can it? Although commercial policies do not exist, valuable forms of proactive "self-insurance" are being implemented by companies interested in managing risks, adding value and "covering their assets."

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Under this preventive insurance analogy, the premiums are relatively low, while the coverage is extremely high. Internal investigations are a critical part of a company's plan for self-protection.

One size does not fit all

What is an internal investigation? It is any effort initiated by a company to gather facts relating to its operations, often in response to a problem or allegations of misconduct. These steps often involve document gathering (both electronic and hard copies) and witness interviews. Over the past decade, public companies have hired law firms to conduct more than 3,000 internal investigations.

Ideally, a company's contingency plan for conducting internal investigations should be a natural extension of its overall compliance program. Rather than an elusive art form, effective corporate compliance is a science--and internal investigations are a key part of the formula. The true measure of a company's commitment to compliance is not just what it "declares," but more importantly, by what the organization adequately funds, accurately documents, and regularly measures or monitors. Ethical codes of conduct and compliance plans are important declarations or blueprints. But planning for, and conducting, internal investigations is one of the action items that fulfills those promises and builds a culture.

The two most common and dangerous myths surrounding internal investigations are that they are always expensive and lengthy, and they are only justified or necessary in response to serious events. Thus, the key to effective internal investigation planning is to avoid doing "too little," starting "too late," or spending too much.

Sometimes--by sheer necessity--internal investigations need to be expanded and become more complex. Other times, they are easily completed. How far you have to go depends on what you find. The critical first step is the willingness to take a hard look.

Responsible responses to trouble

Overlooking "red flags" of misconduct within your company is like denying the smell of smoke in the middle of the night or...