Author: Samuel Rubenfeld, Risk & Compliance Journal, The Wall Street Journal
A company has a crisis, and its board retains outside counsel to investigate. What happens to the findings?
The topic of how to properly handle an internal investigation recently came into sharp relief with the bungled internal probe by FIFA,as itinvestigated the bidding process into the 2018 and 2022 World Cup tournaments. A FIFA spokeswoman declined to comment for this story.
While every company would handle the challenge in a slightly different manner, experts talking to Risk & Compliance Journal expressed common themes about what to do with an internal investigation, such as reporting the findings to the audit committee, keeping directors informed throughout the process and ensuring the process of the investigation doesn’t become more controversial than the subject being investigated.
In FIFA’s case, President Sepp Blatter assigned ethics investigator Michael Garcia to conduct a probe, and to hand his findings to th eethics judge. The judge kept the full document secret but he released a statement summary clearing everyone of wrongdoing in the bidding process. Following an outcry, including from Mr. Garcia himself, Mr. Garcia and the judge then turned the still-secret full report over to the Risk & Compliance Categories chief of FIFA’s audit and compliance committee, who will decide how much of it will be accessible to the governing body’s executive committee. (A brief look at the five-day whirlwind of scandal is here.) The audit committee chief is scheduled to update the executive committee on his progress at this week’s meeting in Marrakesh, Morocco. (Separately, FIFA also filed a criminal complaint against individuals in the report it didn’t name, and Mr. Garcia is investigating three members of the executive committee.)
“It’s a great example of how a governing body can mismanage the results of an internal investigation,” said Michael Peregrine, a partner at McDermott Will & Emery LLP.” You never want the process by which the investigation was conducted to be more controversial than the investigation itself.”
Typical U.S. corporate governance practice, Mr. Peregrine said, involves staffing an investigative committee with independent directors, giving the audit committee and the full board a review of the report, and for them to discuss their views with counsel.
“The goal isto make sure directors have what they need to make decisions,” he said.
Reflecting on the FIFA case, Mr. Peregrine said “It’s a great reminder to the board to focus as much on the process as what you do with the report.”
Limiting access to only the chief of the audit commiitee before making decisions on who can see it “seems a little unusual,” said Joe Murphy, an attorney with 35 years’ experience practicing in the compliance field.
“Limiting it like that puts everyone on notice that they have to look at it more carefully,” said Mr.Murphy.
What made the FIFA case unique, however, is the people being investigated were members of the FIFA Executive Committee, its version of a board of directors, instead of company officers.
Mr. Peregrine said ensuring that someone under investigation isn’t hurt by the probe isn’t a reason to limit access. “That’s inconsistent with the purposes of conducting the investigation in the first place,” he said. “That’s not a pretext for limiting distribution to limited people on the board.”
Halsey Knapp, a partner at Krevolin Horst LLC, pointed out that FIFA’s position with officers running the operations of the entity while serving on the board created the anomaly in which it finds itself. Ordinarily, the board members under investigation would be sequestered or suspended before the board could be briefed.
“Board members are very reticent to share the findings with the accused, and are very reticent to participate in decisions before the board before the matter comes to fruition,” said Mr.Knapp.
The greatest irony of FIFA’s situation is that it brought it upon itself, said Alexandra Wrage, founder of business compliance group Trace International, who was part of a FIFA reform committee before she left in April 2013, citing a lack of movement on suggested governance changes. There was nothing requiring FIFA to setup the investigation framework, she said, nor was the body beholden to shareholders, sponsors, enforcement agencies or development banks to do anything amid scandal.
“FIFA did this voluntarily to restore its reputation and still got this totallywrong,” she said.View Source »
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