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Independent investigation

By | 07/02/2022 in Blog posts
Independent investigation

One of the questions which has arisen in the context of the UK’s current political machinations centres on how an investigation into alleged failings should be carried out and who should do it?

Business is different from politics of course, but from time to time a PLC or large corporate may need to launch an investigation into alleged failings such as a breach of law or failure to meet regulators’ expectations.

When such a challenge arises senior management and board directors will want to ensure they limit damage to the company and stakeholder interests. There is much to think about in such situations, including but not limited to – does the company wish to get the protection of legal privilege for its investigation? how does the board manage internal and external communications? how can the company ensure records are protected so that an investigator(s) can access all the materials required to complete the investigation?

The purpose of this article is not to explore the many issues a board must consider, but rather to focus on one issue which has arisen in the context of the current government’s travails i.e. should the investigator be independent and if so, what does that mean in practice?

For most companies, particularly those which are listed or subject to regulation, the board will almost always want to ensure the investigator is independent and can reasonably be seen to be independent. It is probable that many firms may seek legal advice on this issue as there are many pitfalls and misunderstandings as to what independence means. It is not another employee of the company, even if s/he is completely unconnected to the events being investigated, is of the highest integrity and known for having an independent mind. Companies may wish to appoint an internal investigator, if they do, they will need to consider whether there are any conflicts of interest to such an appointment that might compromise the proposed investigator being considered to be independent. It should not be a “friend” of the company. In practice an external investigator will almost always be a professional such as a private practice lawyer with the relevant training and experience.

However, even where outside assistance is sought, most organisations will rightly conclude that to achieve an effective investigation, overall direction will need to be held by an independent person who has a closer understanding of the company and the business. This is likely to be one of the independent non-executive directors with sufficient standing and experience. A typical choice would be the chair, assuming that s/he meets the independence criteria, not just in board terms, but also when assessed against the facts of the investigation to hand. The chair will usually have the required standing in the organisation to enable him/her to put together an investigative team, arrange for the protection and gathering or relevant records, seek external support as needed and handle communications. Non-tainted executives should then be freed up to continue running the business.

One thing all companies should be doing is planning ahead of an “event” actually happening. It is important to do it when there is time to think and not when the heat is already on. Plans can be outline and flexible, in fact they need to be as it is impossible to anticipate every potential eventuality. Even an outline plan is likely to be better than no plan. The board should ensure that any such plan includes the name of suitable independent candidates to lead the investigation.

Peter Snowdon is a legal and corporate governance expert, with a particular interest in issues affecting financial services firms, banks and investment firms. A former partner at Norton Rose, he also worked for the Financial Services Authority (FSA) prior to joining Bvalco.

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