United States: Dealing With An Investigation: Communication

Last Updated: July 26 2019

Global Crisis Management Series: This post is part 6 in a series concerning topics further elaborated on in Cleary Gottlieb's Global Crisis Management Handbook—a desk reference for spotting issues and avoiding common mistakes when faced with a crisis. The current version is available here.

The overall success of an investigation depends on the flow of communications between those overseeing an investigation, those conducting it and the company's relevant stakeholders. As such, it is necessary to identify responsibilities and define the structure of communications at the outset of the investigation.

Before determining what communication chains should be established, there are certain threshold issues that will need to be decided. Who will be directing and overseeing the investigation? Who will be conducting it? Once these determinations are made, communication links must be established between: (1) the members of the investigative team and the body overseeing the investigation; and (2) those overseeing the investigation and other relevant stakeholders at the company, such as auditors or board members (or a special committee thereof). Finally, there may be a need to determine whether to self‑report and cooperate with relevant authorities, which will require establishing and maintaining an additional line of communication.

Determining the Right Constituencies

One critical early determination in any investigation is who will be directing and overseeing the investigation. While it is perfectly acceptable to have company management overseeing an investigation under certain circumstances, under others it will be more important to avoid potential conflicts of interests (or even the appearance thereof). This may lead to an oversight structure that involves either the board of directors, or, if a board member might be potentially involved in the underlying conduct, by creating a special committee of a subset of the board of directors overseeing the investigation. This decision should equally affect who conducts the investigation—whether in-house counsel, corporate counsel, or an entirely new external counsel. There may be other advantages to having an independent investigation, even when there is no clear conflict, including that regulators and other stakeholders may view the investigation's findings as more objective and credible.

While creating an independent investigation can ensure the integrity of the investigation in the eyes of various stakeholders, it can also complicate how the investigation is coordinated and managed. Management generally has the best understanding of the business and knowledge of where counsel should be directed for information. Accordingly, it will be important to communicate and coordinate with management, even if they are not directly overseeing the investigation. In addition, in the event that the investigation is being directed by a special committee of the board, it will be important for the special committee to receive regular reports from the investigative team. In turn, the special committee should keep the board, management and the company's auditors apprised of the progress and, to the extent appropriate, developments in the investigation.

Managing Internal and External Communications

It is important early on to develop a protocol for managing internal and external communications, which should address the potential implications of making such communications for the assertion of privilege, as described in greater detail in our prior post.

From a logistical perspective, the investigative team should develop a communications strategy with pre-scheduled meetings and check-in goals to manage expectations and anticipate any issues, especially in large cross-border investigations where information sharing with local counsel is crucial. Team members should make sure that relevant internal documents are shared as needed to keep parties apprised of important developments. This may include communications with forensic auditors, co-counsel and experts if necessary.[1] Frequent and targeted updates reflecting potential implications for the company will help managers and/or board members to properly manage risks and day-to-day business decisions.

Knowing The Audience and End Product

The investigative team's reporting goals and intended audience will often guide the communications strategy: who gets the results of the investigation and in what format they expect to receive it will often shape what form the communications strategy takes. In consultation with the company, the investigative team should determine whether the goal of the investigation is to deliver its fact‑finding results in oral or written reports or some other presentation or other work product. For example, a lengthy written report, while most likely to be comprehensive and useful for documenting the investigation and its methodology, could create potential litigation risk in the future and might be a costly and inefficient way of conveying bottom-line results on which stakeholders can make decisions. On the other hand, oral reports, even where supported by counsel's internal records, may be a more effective way to communicate findings, but will not create as clear or comprehensive a record of the investigation. A middle path, such as providing a presentation or executive summary setting forth the investigation's highlights, may achieve the goal of distilling the most important information and creating a record while avoiding the major pitfalls of issuing a report. But it will certainly be less detailed. Under any circumstance, these discussions are key to consider at the initial stages of the investigation, as they help set expectations for relevant stakeholders and ensure that appropriate privilege safeguards are put in place.

Self- Reporting and Disclosure

The decision to self-report wrongdoing or other conduct identified through an investigation, or whether to disclose it to the market generally, will often be factually driven and should always be made with the advice of counsel. This will usually be a very nuanced decision that goes beyond the limits of this specific blog post. Still, there are several key principles that companies should keep in mind when considering whether to make this decision and how to deliver their message to regulators. At a minimum, the company and investigative team should weigh, among other assessments:

  • whether there are legal (or industry) obligations that trigger disclosure by law, and if not, whether it still might be useful to do so;
  • whether there is any benefit to disclosing sooner rather than later;
  • whether there has been sufficient factual development to understand what is being disclosed and why;
  • whether auditors have obligations to report any conduct that has been identified to them;
  • whether other due diligence, mergers or transactions with counterparties are pending such that disclosure to such parties is necessary;
  • whether the company is prepared to engage in full cooperation with regulatory authorities; and
  • whether the company understands and is prepared for the legal, business and reputational consequences of self-reporting and potentially making any issues public.

Communicating With External Regulators or Auditors

In some situations, the involvement of regulators and/or auditors is assumed—perhaps because the regulator or auditor has initiated the investigation via subpoena or other request or because disclosure is required by law. In other situations, the company will have faced a calculus of whether and how to reach out to regulators and auditors, and decided to self-report, disclose findings or cooperate with authorities. In any of these scenarios, communication with external parties must be carefully considered both in substance—what will be shared, whether documents, proffers, presentations, witnesses—and how, above all making sure that the attorney‑client privilege is preserved, to the extent possible.[2] These issues may become even more complicated when multiple regulators are involved.

Externally, an investigative team wants to ensure that its communications with regulators will meet those regulators' expectations for what they consider to constitute good faith cooperation and will be executed in a manner that maximizes goodwill. For example, best practices for coordinating investigations under review by multiple regulators may require producing to all relevant regulators simultaneously to demonstrate transparency and to prevent any one regulator from viewing itself as being treated differently.

In addition to being coordinated, communications with various regulators should be tracked diligently. The best way to ensure that the client is obtaining cooperation credit is by maintaining a log or logs of all communications and interactions with or productions to the various authorities. This log should continuously be kept up-to-date on all relevant matters, including disclosures, representations and cloned discovery. Depending on the complexity of the matter, maintaining a communications log memorializing discussions and presentations to regulators or other third parties (like auditors) may be just as important for keeping track of what information has been shared with, promised to and requested from such entities. Organizing parallel production and communications logs helps create an internal record of developments, information shared and follow-up requests. It also serves as a living document that can be quickly referenced to understand the status of the investigation at any given time.

Equally important for the sake of demonstrating credibility is maintaining an accurate log of the steps taken (or not taken) by the investigative team. From the initial collection of documents and devices to the determinations of whether a given document is privileged or non-responsive during a document review, every action undertaken during the course of an investigation should be memorialized so that later on those activities can be understood and explained.

Communicating with Company Employees or Members of the Public

Finally, communication in the context of managing crises will often involve direct communication with the public and/or the company's employees about the topics under investigation. When communicating with these groups, the investigative team should consider the legal and practical consequences of any statements on the status of the investigation or of particular factual findings being made public. Under certain circumstances, it may be worthwhile to consider hiring a public relations firm to help develop a messaging strategy and mitigate the effects of any damaging publicity.

When speaking to the media, disclosures should be coordinated with the advice of counsel to preserve legal privilege and discussed with relevant stakeholders to ensure consistent messaging. Inconsistent messaging not only erodes trust and confidence in the company and its investigation, it may have legal consequences. Before making disclosures, the investigative team and company management or board overseeing the investigation should assess whether there is a legal duty to do so, and the effects of disclosure on both ongoing matters and potential future litigations. Staying organized on how and what is disclosed to the public (and when) will allow the company to assess the possible consequences of any disclosures and avoid unintended waivers of privilege and the appearance of conflicting information.

* * *

In general, it is critical during an investigation to have in place a communications structure by which information is disseminated to relevant parties and records of discussions, conclusions and decisions, follow-up points and next steps are shared among team members and those leading the investigation. This applies whether working with in-house counsel, the board of directors or a special investigative subcommittee of the board of directors. This structure will also serve as the set of principles that will guide external communications, where relevant, with auditors, regulators and even, under certain circumstances, the general public.

[1] To ensure maximum privilege protection, counsel conducting the investigation should hire all experts or consultants. In order to preserve privilege, ensure that expert and consultant engagement letters are drafted to expressly memorialize that the communications to and from the expert/consultant will be made in confidence and for the purpose of obtaining or providing legal advice. United States v. Kovel, 296 F.2d 918, 921-22 (2d Cir. 1961). Kovel holds that attorney-client privilege extends to communications an attorney has with an outside expert if those communications are made in confidence for the purpose of obtaining legal advice from the lawyer (e.g., consulting an accountant to understand underlying financial documents in order to render a legal opinion). Id.

[2] The approach adopted by internal and external when sharing information with regulators should be mindful of potential waivers of privilege. For example, in SEC v. Herrera, an oral download of external counsel's interview notes to the Securities and Exchange Commission ("SEC") was considered to have waived protection from disclosure under the attorney work product doctrine, and the law firm that had presented the proffer was ordered to disclose underlying notes that had been orally downloaded to the SEC as part of the proffer session. SEC v. Herrera, 324 F.R.D. 258, 264-267 (S.D. Fla. 2017).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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