A Culture Of Compliance: The Best Way To Avoid Internal Investigations

Friday, August 1, 2008 - 00:00

Editor: Prior to joining Kelley Drye, you were at a boutique firm that focused on white collar criminal defense work. Can you tell me a bit about Buchwald & Kaufman and the types of matters it handled?

Keneally: There were three of us at Buchwald & Kaufman (Don Buchwald, Alan Kaufman and myself). I joined the firm in 1988. We handled investigations across a wide variety of industries from banking to pharmaceuticals and an equally wide array of legal issues, including securities, accounting, tax, insurance, FDA, construction law and even art fraud matters. For a firm of our size, this was a very sophisticated practice.

Editor: How has your white collar work been enhanced when Buchwald & Kaufman became part of Kelley Drye & Warren?

Keneally: Besides the obvious advantage of being part of a large multi-city firm with extraordinary resources in terms of attorneys and support staff, at Kelley Drye our group has been able to adapt to the more proactive type of white collar criminal defense practice that is currently emerging. Today's business leaders understand that potential civil or regulatory liability is often closely linked to potential criminal liability. A company needs to be mindful of its exposure in all of these areas when making strategic decisions, and it needs to be able to make those decisions before a crisis develops. Naturally, our partners at Kelley Drye understand this and are able to include us in their clients' decision-making processes and to help identify problems before they get out of hand. Addressing issues in a proactive rather than reactive way may or may not result in a full-fledged internal investigation. However, we find that clients tend to want to know what their exposure is and what options they have in meeting that exposure sooner rather than later.

Editor: Kelley Drye constitutes a large platform, and its resources in terms of expertise and personnel are extensive. Would you tell us how you relate to other disciplines and practice groups within the firm?

Keneally: Kelley Drye prides itself on being a firm with a great litigation tradition, and so obviously we work closely with other litigators in a variety of areas in representing clients of the firm. In addition, the firm has a strong corporate practice, and our corporate partners understand that we bring added value to the overall representation of their clients. Since joining Kelley Drye in June of last year, our group has been active in making sure our corporate partners understand, and communicate to their clients, our ability to act on their behalf. One of our particular strengths is being able to address an issue before it develops into a significant problem.

Editor: Is there a typical type of internal investigation that you find yourself handling?

Keneally: Most people think of accounting issues and audit committees when it comes to internal investigations. We have certainly had our share of this type of work. However, there is almost no limit to the type of investigation we might be called upon to handle. We've seen good, solid and ethical businesses in myriad industries finding themselves faced with situations that could lead to criminal problems. An industrial company could have an environmental issue; a construction company could have asbestos-disposal issues; a large, multinational company could have FCPA issues; a pharmaceutical company could have anti-kickback problems; or a company could have problems concerning its employees' immigration status. Accordingly, we are not a practice group focused on a narrow specialty. We think of ourselves as practitioners who bring to their clients what any good litigator brings: an ability to quickly learn the facts, to understand the client's business, to identify the legal issues, and to protect the client's interests on a timely basis. This, incidentally, is the basic philosophy at Kelley Drye, and I think that helps to explain the success of our integration into the firm.

Editor: From the defense lawyer's standpoint, how do investigations differ from other kinds of white collar criminal defense work?

Keneally: Maybe the best way to answer the question is to contrast an internal investigation with the representation of an individual who has been indicted and where a trial is almost a certainty. In the latter situation, the defense attorney's role as an advocate for the client and as the government's adversary is probably more clearly defined. The issues are a matter of public record, and the government is trying to put your client in jail, while you are trying to keep him out of jail and to preserve his reputation. Further, most of the facts are known to you. Naturally, a successful defense requires a significant amount of strategizing, but your targets are known, for the most part.

Corporate investigations are more fluid and thus often more nuanced. Obviously, your goal is to keep your client's name out of the newspapers and out of the legal system. And, certainly, avoiding an indictment is crucial. However, you have to accomplish these goals in a setting where the facts are still developing and where the government's focus can shift without a great deal of notice. This environment calls for care and great deliberation, and a sense for when and how your client should cooperate with the government, and when it should fight back.

Editor: What kind of role should corporate counsel take with respect to an internal investigation?

Keneally: In general it is good to have in-house counsel working with outside counsel as the investigation proceeds. In-house counsel can serve as a nexus between counsel conducting the investigation and the company's key executives and employees, and help counsel become acclimated to the company's culture.

In addition, in-house counsel can act as the company's spokesperson until it becomes necessary for outside counsel to make its presence known. Very often, the conduct of an internal investigation by outside counsel, if known, is misunderstood or sends a signal that something is wrong. Corporate counsel can play a vital role in avoiding an inappropriate or premature disclosure of information concerning the investigation.

Editor: Internal investigations can be costly, disruptive and damaging to a company. When would you recommend that a company agree to undertake this process?

Keneally: Sooner rather than later. There is no question that an investigation can be expensive, interfere with the company's productivity and raise morale issues with its employees. But it's also important for the company to have a handle on the facts as soon as any sign of trouble appears; that's certainly preferable to trying to play "catch-up" after a major criminal or regulatory investigation has started. It's better to learn what employees know before they leave a company or try to find new careers as whistleblowers. And it's better to be able to inquire about an issue when a company still has control over all of its documents, rather than beginning an inquiry after a facility has been raided and all of the key documents seized by the authorities.

Moreover, if undertaken promptly, an internal inquiry need not be a massive undertaking of immeasurable cost. Indeed, the nightmarish, snowballing type of investigation that companies fear probably occurs more frequently when managers try to forestall matters. This is what leads to inquiries about obstruction of justice, witness tampering and the like.

Editor: Once the decision has been made to conduct an internal investigation, should the persons brought in to do it be regular outside counsel or should they be from a firm that has had no relationship with the company?

Keneally: I have seen it handled both ways, and I think it depends on the circumstances. For example, if the focus of the investigation is on transactions where the company was represented by regular outside counsel, it might well be inappropriate for that counsel to conduct the investigation. By contrast, if the investigation involves an alleged violation of the law, and regular outside counsel has had no connection with the matter, I see no problem with the latter handling the investigation. However, the company would be well advised to obtain separate counsel for individuals connected with the investigation.

Editor: Once an internal investigation begins, what is the best way to streamline the process?

Keneally: I think the first thing the company needs to do is identify the issues that are to be investigated but with the understanding that as more information is uncovered the investigation might have to be broadened in scope.

The company must also create a chain of communication among its key executives, its counsel and its employees. From the onset of the investigation it is crucial that senior management be kept informed of all developments. In this regard, it may be beneficial to hold regularly scheduled conference calls among senior management.

The persons most knowledgeable about the issues should be identified and interviewed as early in the process as possible. In addition, the company should establish a protocol for the preservation of documents and information - especially including emails - and this should be communicated to the employees immediately.

Finally, the company should establish a procedure for dealing with press inquiries.

I hasten to add that this list is not exhaustive. If the items I have mentioned are addressed, however, the company has a much better likelihood of being able to proceed with its business in a normal manner while the investigation is underway.

Editor: What is the best advice you can give to a company that is called upon to conduct an internal investigation?

Keneally: My best advice is not to fear the truth. For a company, the most difficult damage to repair is that to its credibility and integrity. That most often occurs when the company tries to avoid or obscure the facts. The next most important thing is not to panic. Investigations are not automatically a prelude to disaster. They can be beneficial and lead to positive institutional changes.

It occurs to me that many of your readers would be interested in how to avoid an investigation in the first place. The best thing a company can do is to have a compliance program - with teeth - in place that is specific to the company and tailored to the industry in which the company operates. Such a program should be audited on a regular basis, and if something slips through the cracks, it should be rectified immediately. If a company possesses a culture of compliance, and one which all employees understand is essential to its good name and reputation, the company will be in a good position to avoid, as opposed to invite, investigations.

Please email the interviewee at jkeneally@kelleydrye.com with questions about this interview.