C-Suite Executives Beware: Handling Sensitive Claims Is the Key to Avoiding Disaster

In today’s world, more and more organizations have come under fire for failing to respond or for improperly responding to allegations regarding internal misconduct such as discrimination, sexual harassment, inappropriate behavior, or severe breaches of company policy. Furthermore, it is important to understand that sometimes mere allegations of inappropriate behavior outside the workplace can also cause significant damage to an organization’s reputation. These serious allegations combined with the extensive use of social media and the “cancel culture” phenomenon create significant risk for organizations that fail to act in a swift, decisive, and transparent manner in response to such allegations. This truth is only intensified when the allegations are lodged against a principal, an executive, or a high-ranking official. Organizations of all sizes are confronted with allegations of potential misconduct daily. Therefore, the need to protect the organization and its bottom line is more important now than ever. Yet, dismissing employees based upon mere allegations is fundamentally unjust and will lead to litigation, an increase in false allegations, and eventually “mob rule.” As a result, organizations have a responsibility, if not a duty, to investigate serious allegations of wrongdoing or misconduct, and to do so in a transparent and defendable way. One need only look to Google, Uber, McDonald’s, Aaron Rents, Fox News, Baylor, and Michigan State University to see how mishandling or ignoring allegations of misconduct can end up costing an organization

Do I Need an Investigation?

First, it is a solid business practice to investigate allegations of wrongdoing or misconduct by any member of an organization. This holds especially true if the allegations are lodged against an executive or other prominent member of the organization. Failing to respond or inquire as to the facts and circumstances surrounding an allegation of misconduct is tantamount to gross negligence and will only exacerbate the issue. Regardless of the vehicle, the allegations must be examined as to their merits. Aside from discerning the truth, there are extraordinary collateral benefits to internal investigations. An impartial and thorough investigation of the allegations provides an organization with a comprehensive understanding of the facts. This is vital to any comprehensive evaluation of an organization’s exposure, regardless of whether it is civil, social, or criminal. The scope of the response to such allegations also sets the tone of the organization’s compliance program, and the inquiry will, by itself, reinforce the core value of transparency. Moreover, it can also shield principals, c-suite executives, and senior management against additional allegations of complicity or nonfeasance. Simultaneously, the investigation memorializes an organization’s effort to discern the truth in an effective and efficient manner, and to properly resolve the situation

However, every allegation cannot be investigated. An internal investigation, no matter how well done or well planned, will bring with it some level of distraction. In addition, if the investigation is done utilizing in-house counsel or outside counsel, there will be costs and disruptions associated with the investigation. There are two primary questions that will guide an organization’s decision whether to investigate or not. The first is the seriousness of the allegation. This can also be asked as, will the allegation, regardless of truth, end up in litigation or the press? Allegations of serious misconduct such as sexual harassment, discrimination, gross violations of company policy, or criminal conduct should give rise to an investigation. By contrast, allegations of pilfering supplies, de minimis use of company assets, or employees taking advantage of company amenities, might not warrant the distraction or expense of an investigation.

The next question considers whether there is a complete understanding of the facts. Allegations do not arrive with a full dossier of witness statements, emails, pertinent records, and confessions. Rather, most complaints arrive as a single emailed statement or a verbal one-sided account, delivered by a disgruntled or shaken employee. In order to make a sound decision, an organization must collect all the relevant facts and data, and understand the possible risks and ramifications of the allegations and their implications. Customarily, serious allegations of misconduct must be accompanied with various questions of fact. Because there are two sides to every story, it is an organization’s duty to seek out all of the facts and determine the truth, as best it can done.

Document Preservation

Once a decision has been made regarding the need for an investigation, an organization should start preserving all relevant materials, documentation, and electronic files. It is crucial to the investigation that all relevant information and documentation are preserved. Consultation with an organization’s IT department is appropriate to fully understand the organization’s data storage and retention policy, and more specifically, the duration that emails and electronic files are retained. Also, if the possessor of these files deletes them, would copies be retained in a system back-up and for the length of time that they would be needed? Additional measures can include the suspension of document deletion function of all or a targeted portion of the organization. In extreme circumstances, mirroring of employee’s hard drives may even be warranted, especially if there is a concern relevant documents have already been deleted. More overtly, the organization should issue a litigation hold or preservation mandate to all potentially affected employees. The mandate should cautiously identify the subject matter and sufficiently describe the types of documentation to be retained.

If it is decided that an investigation is warranted, a decision as to who will investigate is the next step. Will it be undertaken by in-house personnel or outside counsel? For those allegations involving gross misconduct where litigation/law enforcement involvement is probable, or in matters that can evoke great public opinion, the best way to navigate the situation is to hire outside counsel with credentialed personnel. Likewise, in matters involving board members, executives, or senior management hiring, outside counsel would be the more prudent decision, eliminating any perception of censorship or favoritism.

Both in-house and outside counsel present their own strengths. In-house counsel will have a better grasp of the organization’s culture, business, personnel, and policies. This understanding will greatly reduce the amount of pre-investigation analysis. An additional benefit is lack of organizational distraction. Regardless of who conducts the investigation, there will be some interruption of the normal course of business. In most cases, employees will have some level of familiarity with in-house counsel and their presence, which will reduce the feelings of unease. Perhaps the biggest advantage to in-house counsel is the price tag. In-house counsel is a fixed expense, which is already contemplated in the budget.

Nonetheless, hiring outside counsel to conduct internal investigations also presents a number of advantages, the most significant of which is credibility. All investigations can be called into question. This is especially true if the investigation is not perceived to be both fair and impartial. Generally speaking, those investigations conducted by in-house counsel will be presumed biased despite their result. In contrast, outside counsel will come with the presumption of credibility to judges, juries, and the public at large. Coinciding with credibility, that same level of objectivity will enhance protection provided to c-suite executives and senior management against allegations of complicity. Outside counsel is also better positioned to withstand challenges by the complainant, shareholders, or the public that senior officials steered the investigation, its conclusions, or recommendations. Furthermore, the complainant and associated witnesses will have more confidence in the investigators and process if they truly believe the investigation is objective and free from interference. In sum, outside counsel promotes and reinforces the ideal of organizational transparency and compliance.

Furthermore, an additional benefit of outside counsel is they will naturally bring superior investigative skills and have enhanced capabilities when compared to in-house counsel. Aside from years of real-life experience, outside counsel also bring with them formal training in investigative techniques, management, interviewing, and statement analysis.

Finally, outside counsel will provide a greater degree of privilege protection. Courts have consistently applied stricter standards to in-house counsel in determining what material is protected and what is not. In-house investigations, even if based on serious allegations and incidents, are more apt to be viewed in the normal course of business, regardless of whether the investigation is mandated by federal or state regulations. On the other hand, investigations conducted by outside counsel for the purpose of providing legal advice, which would encompass a complete unveiling of the factual underlayment, would afford the organization the most protection with respect to privilege.