A vivid example of a company getting it wrong is Rupert Murdoch’s News of the World, which touted its 2007 internal investigation as proving that phone-hacking was ‘not widespread’, according to the New York Times. When the explosive phone-hacking scandal broke a few months ago, however, it proved the 2007 investigation was, at best, a failure.
Companies would be wise to re-examine their approach to internal wrongdoing, particularly in the brave (and bountiful) new world of whistleblower legislation. As required by the Dodd-Frank financial overhaul bill, the SEC has finalised rules for rewarding whistleblowers with bounties of at least $100,000 for original information that leads to a successful prosecution and $1 million or more in penalties. Since whistleblowers need not use the company’s internal compliance program to qualify for the bounty, companies cannot count on getting the whistleblower’s information first.
Against this uncertain new backdrop, companies not only need to be reviewing their compliance programs, but also need to be prepared to launch an effective internal investigation at any time. So what is the best way to handle these difficult situations?
Al Gagne, director of ethics and compliance for Textron Systems, has been involved in hundreds of internal investigations at his company. Textron Systems is a $2 billion subsidiary of the $10 billion defence contractor Textron Inc. Gagne agreed to discuss best practices and pitfalls from his experiences with Corporate Secretary, but emphasises that he is not a spokesman for Textron.
Gagne’s investigations have ranged from simple allegations of a hostile work environment and petty thefts to allegations of fraud and possible Foreign Corrupt Practices Act violations. At times he has handled investigations at other companies within Textron Inc.
He explains that in those situations, he was brought in ‘to provide independence and objectivity to a particular situation’ or ‘just to help someone who might otherwise have been perceived as being too close to the matter being investigated.’
Gagne states that ‘one of the key components of a credible investigation is to have someone who can be completely independent.’ Similarly, Toby Thacher of full-service investigative firm Thacher & Associates stresses that independence is crucial. ‘We must maintain our independence in both methodology and in the preparation of our final report,’ he says. ‘In the event that independence becomes impossible to maintain, you have no alternative but to resign.’
Things haven’t always gone smoothly during the 15 years that Thacher has been investigating allegations of kickbacks, discrimination and harassment, procurement fraud, hostile work environments and theft of trade secrets.
‘We were involved in one investigation where we believed there was criminal activity on the part of one of the corporate officers, which needed to be reported to the SEC and prosecutors,’ he recalls. ‘We asked for permission to tell the audit committee, but the client refused. Our only alternative was to resign from the investigation.’