Litigation: 5 tips for conducting high-value internal investigations

How to keep costs down while maintaining good outcomes

With the implementation of the Dodd-Frank Wall Street Reform and Protection Act, government oversight of public companies continues to increase; formal SEC investigations are up 160 percent since 2008. Privately held companies of all sizes also are under increased scrutiny by industry-specific regulators, as well as federal, state and local law enforcement agencies.

With all of this increased oversight comes increased legal fees. Government investigations appear out of the blue and have a tendency to shoot holes through carefully calculated legal department budgets. Certain well-known examples of investigatory costs (such as Avon Products’ $240 million legal spend on its Foreign Corrupt Practices Act investigation and News Corp.’s payment of more than $100 million in legal fees on its internal investigation of telephone hacking) are eye-popping.

However, one need not look to such extreme examples to understand the importance of managing internal investigation costs. An unexpected expenditure of $500,000 or $1 million in investigatory legal fees can wreak havoc on the legal budgets of companies—public and private alike.

While some costs are unavoidable, there are certainly ways to limit them even in the high-stakes world of investigations.

1. Invest in compliance before an investigation arises

By investing in internal controls and creating an atmosphere in which employees are comfortable identifying and raising concerns, companies generate better business outcomes and often prevent differences of opinion from escalating into expensive misunderstandings.

2. If an investigation arises, clearly define its scope at the outset

Defining the scope of your investigation is a key cost containment exercise. In so doing, the investigative team will avoid spending countless hours with superfluous or irrelevant documents and witnesses.

3. Empower in-house personnel to support the investigative team

The individuals with greatest access to relevant data typically work for the company, including business people, accountants, IT staff and general counsel. These key employees must be empowered to make investigation support a top priority, and that message must come from the top. Full engagement by appropriate staff and counsel will result in quick and economically efficient information gathering and evaluation. Of course, the appropriate in-house representatives must be selected for each investigation as the facts warrant.

4. Utilize technology to drive efficiency

Consider using predictive coding technologies and other document review applications to cull down the universe of documents to be reviewed and to drive down costs. In addition, while video conference capabilities are not optimal for use in witness interviews, they can be extremely helpful in coordinating in-house representatives around the country or the globe to marshal resources quickly and efficiently. 

        5. Maintain credibility to avoid defending expansive external investigations

In our current regulatory environment, government agencies often expect companies to conduct internal investigations and report to the government with information gleaned from the investigation. It is imperative that the company (and outside counsel) develop and maintain credibility by conducting thorough internal investigations, making candid disclosures to the government and reaching reasonable conclusions.

If the company and its counsel are deemed credible, the government may heavily rely on the information from the company’s internal investigation. The government may then conduct a more narrow review for the limited purpose of testing the reliability of the company’s internal investigation, rather than commencing an expansive external investigation of its own. This dynamic will result in significant cost savings for the company—with respect to the investigation at issue, as well as with future investigations involving the company.

It’s possible to conduct a thorough, credible investigation without breaking the bank, so be sure to engage experienced outside lawyers who understand that quality and cost-effectiveness can go hand-in-hand.

Contributing Author

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John Fagg

John Fagg is a member in Moore & Van Allen's Litigation Group. In addition to being an experienced trial lawyer, Mr. Fagg has extensive experience...

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Contributing Author

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Valecia McDowell

Valecia McDowell is a member in Moore & Van Allen's Litigation Group. Ms. McDowell has extensive experience conducting internal investigations for publicly-traded, privately-held and non-profit...

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