CEOs Face Tough Options: When to Hire Independent Investigators

Chief executives are increasingly likely to consider conducting independent investigations to help resolve major legal and regulatory dilemmas and challenges to their companies' integrity, The Conference Board notes in a report released this week.

Howard T. Anderson and Edwin Stier, authors of the report, are attorneys whose firm Stier Anderson, LLC, specializes in carrying out independent investigations.

"Today's business leaders," say the authors, "are increasingly likely to face a decision that seldom confronted their predecessors: whether to conduct an independent investigation to help resolve a legal, regulatory, or corporate integrity crisis."

Before the 1980s, companies traditionally "circled the wagons and mounted a vigorous defense" when under attack, bringing in corporate and outside lawyers, public relations experts and other advisors to help design crises strategies. "It was even more unusual -- bordering on the heretical -- for a corporate lawyer to recommend waiving privileges as part of such a strategy," the authors say. "Yet in our post-Enron/Sarbanes/Oxley/Sentencing Guidelines times, lawyers are advising corporations to do just that in a wide variety of circumstances."


The report emphasizes that independent investigations have both risks and benefits. Say the authors: "Once an organization chooses to conduct an independent investigation, it must do it right."

In an independent probe, the lawyer acts as a fact-finder, not as an advocate. Instead of attempting to make the best case for a client in an adversary proceeding, the independent investigator seeks to become the sole arbiter of the facts, regardless of whether they support or undermine the client organization's legal claims or the interests of any individual. Before commissioning an independent investigation, an organization's leaders must decide whether they are prepared to take action against key individuals -- even top officers -- if the evidence warrants it and to present facts that could help the organization's adversaries prove claims.


Few companies would run these risks if independent investigations did not confer substantial benefits. In many situations, there may be no prudent alternative to conducting one. Courts are increasingly making independent fact-finding a legal obligation. Even when there is a choice, however, the independent investigation strategy may be the only practical way to resolve a crisis of confidence and demonstrate an organization's core values to its stakeholders, government agencies and the public. Properly conducted independent investigations also can boost morale within the organization by demonstrating that in a crisis people will be treated fairly and according to a rational process.

Types of situations in which an independent investigation might be considered include cases of sexual harassment, health and safety issues caused by equipment malfunctions, financial malfeasance and stock manipulation.

"What really determines if an inquiry has to be independent, however, is whether it is crucial for an organization to demonstrate to the public, government agencies, a court, or its own stakeholders that it acted appropriately," says Stier. "Once a decision has been made to use the independent investigation strategy, all organizational actions and statements should be consistent with it."


There is no current universally recognized definition of independence in the investigative context. Based on existing legal standards, the following are guidelines for independence:

  • Relational independence: This test asks whether a prospective independent investigator has a problematic relationship that might compromise the substance or appearance of objectivity.
  • Demonstrating independence through the investigative process: Even absent compromising relationships, skeptics will scrutinize the investigative process to determine whether it is genuinely independent and objective or advocacy in disguise. An investigation must definite its purpose; establish appropriate relationships with both sides; use procedures fair to all; document evidence thoroughly; and demonstrate soundness of conclusions through a reproducible analysis.

"Choosing a strategy that includes an independent investigation must be done carefully, with a full appreciation of both its risks and benefits," says Stier. "How an organization responds to a crisis will define its values far more convincingly than any code of conduct. Doing it right, as Johnson & Johnson did with the Tylenol poisonings in the '80s, can turn a crisis into a net gain for the organization by reinforcing its reputation for integrity."

Source: The Conference Board

You may like these other stories...

Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...
The prospect of International Financial Reporting Standards (IFRS) being fully adopted in the United States in the near future are growing less likely, as the Financial Accounting Standards Board (FASB) and the International...
House proposes $10.5B, eight-month highway billThe House Ways and Means Committee proposed a transportation funding bill on Tuesday that calls for a temporary extension of current transportation funding levels until May 31,...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.