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Conducting internal investigations – pitfalls and tips for the Board

Posted on 6 March 2023

When issues arise that need a company to investigate, how should the Board go about setting up an investigation? In the midst of a crisis, good governance might be the last thing on the minds of directors but setting up a fair and robust procedural framework at the outset can help avoid the risk of complaints from employees about an unfair process later down the line and ensure that the investigation is conducted properly and can stand up to scrutiny.

We set out our top tips for the steps to take at the outset of an investigation, and some do's and don'ts to keep in mind as the investigation progresses. Whether you are given conduct of the investigation or are on the Board of directors when an investigation is commenced, investing the time and thought at the start is likely to pay dividends in the long run.

Before launching into an investigation

  • Consider whether the investigation is covered by legal professional privilege. This is likely to depend on the circumstances and purpose of the investigation (particularly where there is a real risk of litigation or other adversarial proceedings) and can have significant ramifications for how the findings of the investigation can be used. For example, in an open investigation, the Board will need to be very alive as to what is committed to writing as it could be disclosable in disciplinary action against employees, whereas if the investigation is privileged, the material is highly unlikely to be disclosable (unless privilege is waived). This is a particularly important consideration where there are any potential professional conduct/regulatory ramifications or if the investigation has been triggered by a professional body/regulator.  
  • Delegate conduct of the investigation to an appropriate person or persons. It is essential that the investigation is regarded as "independent" to the best extent possible.  Some of the directors might be witnesses in the investigation or the Board may have authorised decisions which are now being called into question. This raises important issues of potential director conflict, which need to be actively managed. For that reason, it may be necessary to identify someone else who will have responsibility for running the investigation. That might be a non-executive director, a senior employee within the business, or a committee made up of 2-3 appropriate people (who we will refer to as the "Investigation Lead"). The key point to bear in mind is that the Investigation Lead should be as neutral and as far removed from the matters being investigated as possible.
  • Be clear as to what powers and duties the Investigation Lead has. It is usually advisable for the Board to pass a resolution formally delegating authority for conduct of the investigation to the Investigation Lead. This needs to be carefully thought through. Consider whether, how and when they will report back to the Board, in what format if so, and consider whether the resolution gives them authority to instruct lawyers and incur company funds on the investigation (and if so, if there is a budget they should stick to). The Investigation Lead should be the instructing individual for any external advisers, again to protect privilege in the advice received in relation to the investigation.
  • Seek legal advice. The Investigation Lead may want to ask a law firm (sometimes with the involvement of a barrister) to conduct the investigation, again to ensure as much distance as possible between the company and the issues to be investigated. To ensure maximum independence, it may be advisable to instruct a firm of lawyers previously unconnected to the company (or at the very least unconnected to the matters being investigated) to conduct the investigation, with the existing company lawyers involved once the investigation has concluded.
  • Consider introducing an information barrier. To help maintain the independence of the investigation, the Investigation Lead may be privy to information that other directors and senior employees should be kept away from until the conclusion of the investigation. This includes ensuring that the Investigation Lead has a separate – and confidential – line of communication with the legal team, to protect the privilege of advice pertaining to the investigation.

Once the investigation is under way, it can be easy to get wrapped up in the issues being investigated. It is important to periodically step back and consider the process that is being followed. The below do's and don'ts are intended as a guide for some of the most important factors to consider, particularly for the Investigation Lead, and for the Board to be aware of when asking for updates about the investigation.

  • Do suspend the company's document deletion policy. Ensure that all relevant stakeholders are informed of the need to preserve documents at least until the conclusion of the investigation.
  • Do put together a terms of reference document. This should set out the scope of the investigation, including the function of its findings, whether a report is required and who findings are to be reported to.
  • Do consider who will need to be interviewed. Cast the net wide when identifying witnesses at the start – it is better to identify potential witnesses and then rule them out, rather than to realise at the last moment that an important witness has been forgotten. Ensure that witnesses have time to read and digest written material in advance of the interview.
  • Do keep timing in mind. You might need to balance the competing needs of a tight timeline to report to external stakeholders or interested parties against the need for all witnesses to have sufficient time to give their evidence.
  • Don't forget about privilege and confidentiality. Take legal advice on who is entitled to what information and when, and be clear in the terms of reference for the investigation whether and what kind of confidentiality or privilege attaches to the investigation, particularly if the investigation has potential or actual professional/regulatory issues.
  • Don't anticipate the outcome of an investigation. Where the Investigation Lead or Board of directors is seen to have pre-judged the outcome of the investigation, this is likely to call into question the fairness of the investigation as a fact-finding mission. That does not mean you cannot take precautionary steps to protect the business (for example, by limiting what certain employees can do whilst the investigation is pending, where it relates directly to their conduct) but do so with caution and having obtained legal advice.
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