Corporate Directors Should Prepare to be Proactive with Government As Investigations Increase
February 19, 2009
NEW YORK, NY – February 19, 2009 – The Conference Board Governance Center issued today the third in its new series of reports on the oversight role of the board of directors in the current economic crisis. The report identifies pressure points for pragmatic boardroom discussions in situations where the company is prompted to launch an internal investigation of fraudulent conduct or compliance violations.
One of the few certainties of these uncertain times is that government inquiries will increase in the coming months and years, says Robin M. Bergen, a partner at Cleary Gottlieb Steen & Hamilton LLP in Washington, D.C. and author of the report for The Conference Board. Historically, government enforcement efforts dramatically increase in response to turbulent market conditions. If the board suspects misconduct has occurred or the government has informed the company that it may be the target of an investigation, the board faces tremendous pressure in the current environment to launch its own internal investigation. This initiative must be approached with care to ensure the board of directors is able to demonstrate to regulators and auditors that the company was proactive and thorough in uncovering all relevant facts.
The report elaborates on a number of aspects that directors should address as part of their oversight role, including: the need to assess the degree of independence required to directors involved in the oversight process; whether the oversight responsibility should be delegated to a board committee; how to select the lead investigator; how to establish effective communication lines, both internally and with government officials; and the process to assess culpability and choose effective remedies.
The report also discusses attorney-client privilege considerations that may arise during the investigative procedure. In particular, it is recommended that the board should carefully evaluate the purpose behind initiating the internal investigation and determine whether the privilege should be waived. If an important reason for the investigation is to put the company in the best position with regulators, the board must be aware that, in all likelihood, the government will not be satisfied with broad conclusions and expect to learn the details of the discovery. For example, in the recent litigation proceeding against Morgan Stanley for allegedly fraudulently marketing auction rate securities (ARS) as an appropriate investment for municipalities, the company launched an internal investigation to determine the extent of the misconduct and concluded that it would proactively share any additional information it would find, including whether municipalities other than those initially identified in the allegations had been sold ARS.
In these difficult times, The Conference Board is renewing its commitment to provide guidance to the boards of directors of its member companies, says Matteo Tonello, associate director, Corporate Governance at The Conference Board, and director of the report series. Along with their advisory functions at a time where corporate strategies are being reconsidered, directors fulfill a crucial role in overseeing that the organization continues to meet the highest ethical and compliance standards. While corporate leaders are inundated with several new pressing responsibilities, it is important not to drop the guard of E&C programs, which remain essential to restore public confidence in business corporations.
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