Guidance for Business-Related Investigations – Workplace, Business Operations, Board, Audit Committee and Special Committee

The following are some of the issues and steps to consider when determining whether the investigation of a serious situation or allegation of misconduct was reasonable, and whether a reasonable belief in the outcome of the investigation and its process is warranted:

  • Take the complaint of wrongdoing seriously;
  • Maintain confidentiality of the situation to the extent reasonably possible;
  • Conduct a timely investigation promptly after receiving the complaint of wrongdoing or becoming aware of the possible situation;
  • Decide and appoint an appropriate, sufficiently independent or situationally independent and qualified person or committee to oversee the investigation, and for decision-making;
  • Consider whether the investigator will be someone in-house or from outside the entity, and how the investigator will be retained, such as through legal counsel;
  • Have the investigation performed by an investigator who is sufficiently independent or situationally independent, competent and knowledgeable about the relevant subject matter and issues (for example, including as necessary, claims, defenses, applicable law, burdens of proof, presumptions, gathering evidence and the showing required, etc.); and also how to conduct (and evaluate) investigations, investigation techniques, evidence (including, for example, credibility, admissibility, whether the evidence or possible additional evidence exists, is likely to exist and be obtainable, or is speculative in nature, examination, confirmation or support, cross-examination, rebuttal or debunking, and impeachment); writing reports and opinions; oral communication; and witness testimony experience and abilities. Also note issues that might be present if the investigation is performed by an attorney for whom attorney client or work product privileges might be claimed. In short, work these issues out before the investigator is selected;
  • Consider qualified legal counsel (note: a firm/team approach might be best for expertise on diverse issues of law) and possible additional specialty assistance needed (such as CPA or forensic accountant experts hired through counsel or possibly through the investigator); consider the issue of independence or situational independence depending on the capacity in which the person, firm or entity is providing services; and also carefully consider any possible appearance of inappropriate conflict or bias, including as viewed by courts, legal authorities, third party stakeholders, and other people in general;
  • Follow appropriate complaint investigation procedures;
  • Listen to and treat the difference sides fairly and equally;
  • Obtain, evaluate and understand the claims that are being made and possible defenses – including, e.g., claims based on a statute or section of law, a regulation, or a rule, and also claims based on some other standard such as any applicable policy, handbook, code of conduct, contract, collective bargaining agreement, etc. that had been enacted or adopted;
  • Provide the accuser with ample opportunity to offer evidence of his or her claims including what occurred or not, documents that might be relevant, and the names of and information about witnesses who he or she believes can provide relevant comments about the alleged occurrence(s);
  • Give the alleged wrongdoer fair notice of the claims being made;
  • Provide the alleged wrongdoer with ample opportunity to offer evidence in his or her defense, including what occurred or not, documents that might be relevant, and the names of and information about witnesses who he or she believes can provide relevant comments about the alleged occurrence(s);
  • When appropriate, provide and communicate an appropriate means whereby third parties can provide information that is relevant to the issues and the investigation;
  • Have the investigator conduct a thorough investigation, under the circumstances (note that in some circumstances courts have held that the investigation need not necessarily be perfect, but it should be sufficient, reasonable and thorough under the exigencies and circumstances at hand without the benefit of full discovery or a trial);
  • Have the investigator prepare a well-reasoned report and conclusions, supported by and based on objective evidence;
  • Have the investigator report to the decision-making person or committee;
  • Have the decision-maker or committee prudently and appropriately evaluate the claims, defenses and investigation; and
  • Implement progressive discipline if appropriate.

Of course, each situation is different, and for some of the above points the courts and regulatory agencies have provided additional guidance.

Best to you,

David Tate, Esq., California (and California inactive CPA) – blogs: audit committees, D&O, governance, compliance, investigations, responsibilities and rights, liability, and risk management – trust, estate, and elder and dependent audit abuse litigation – please also connect with me on Linkedin and Twitter.

Disclaimer. This post is not a solicitation for legal or other services inside or outside of California, and also does not provide legal or other professional advice to you or to anyone else, or about a specific situation – remember that laws are always changing – and also remember and be aware that you need to consult with an appropriate lawyer or other professional about your situation. This post also is not intended to and does not apply to any particular situation or person, nor does it provide and is not intended to provide any opinion or any other comments that in any manner state, suggest or imply that anyone or any entity has done anything unlawful, wrong or wrongful – instead, each situation must be fully evaluated with all of the evidence, whereas this post only includes summary comments about information that may or may not be accurate and that most likely will change over time.