Outside Counsel Investigations: Why it's important, what to expect.

• Author: Schroder, Bryan
• Position: PROFESSIONAL SERVICES

Every executive or business owner has shown up at their office on what seemed to be a perfectly normal morning and walked into a disaster. Most of the time when business leaders face a problem, they can evaluate the situation, take appropriate action, then move on. But what if the problem is too thorny--for any number of reasons? Maybe it's beyond the management team's area of expertise, such as a cyber-attack or a situation that has drawn the interest of government regulators or even law enforcement officials. Or perhaps it involves allegations of misconduct of someone on a senior leadership team. In such situations, business leaders should consider whether hiring outside counsel to conduct an investigation is their best option.

Why Investigate?

Why do an investigation at all? Because the business matters. People don't get to be a business owner or senior executive by ignoring problems. If something has gone wrong, they want to know why, and they want to know what can be done to make sure it does not happen again. If the problem is significant, especially one that might draw the attention of government regulators or law enforcement officials, they want to be ahead of the information curve, not behind. They want to know what the government knows, preferably before they know it. The bottom line is that taking proactive measures pays dividends.

Why hire an outside counsel to conduct the investigation? After all, senior leadership and owners know the business, and hiring outside counsel is a considerable expense. However, hiring outside counsel communicates to everyone in the company that when the owner or management team identifies a problem, it is dealt with directly. Depending on the type of situation, it can also send a message to employees that they need to follow the company's established values and code of conduct.

If the matter has drawn, or may draw, the attention of government regulators or law enforcement officials, an outside investigation can pay even greater dividends. The Department of Justice and the Securities and Exchange Commission both have policies in place that reward companies for voluntary disclosure of information related to violations. An investigation can provide that information. However, to maximize the benefit, the investigation needs to be conducted by a thorough, independent entity.

Hiring a law firm to conduct the investigation also adds an additional level of control: protection of information under the...