Panel: ‘Information Is Power' For Corporate Internal Probes

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By Yin Wilczek

June 26 — As in most things, “information is power” in the governance and direction of corporate internal investigations, attorneys said June 25.

Whether you are outside counsel or an in-house attorney, “you have to know as much as you can so you can make the right decisions,” said Gregory Morvillo, a New York-based partner at Morvillo LLP.

Lee S. Richards III, founding partner of Richards Kibbe & Orbe LLP, New York, noted that the governance of an investigation and who manages and directs it is a “critical decision” that may hinge on who potentially is in the line of fire. If the company's chief executive officer or the general counsel is implicated, external counsel handling the internal investigation may have to reconsider their reporting structure.

Thomas Hanusik, a Washington-based partner at Crowell & Moring LLP, also observed that time is especially pressing for public companies, which have to submit filings and give representations to their auditors. In that situation, “you really want to get your arms around what has happened” as quickly as possible to “help the company go forward and to defend itself.”

The attorneys were part of a panel at a Practising Law Institute internal investigations conference.

Board Involvement?

On the question of when the board should be informed of a matter, Joshua Levine, general counsel of ICG Regulatory Enforcement at Citigroup, suggested that directors—at least in the financial industry—will want regular updates on any issue that has the potential to become serious. The message from banking regulators is that boards should be “more involved” and “more active.”

The panel also noted that in some situations, the government will want companies to undertake an internal investigation and will halt its own probe. Levine observed that the Securities and Exchange Commission often has “deputized” a firm to perform an investigation on its behalf.

“The SEC faces the same resource issues that we all face, whether it's internal or at a firm,” Hanusik responded. Especially in cross-border investigations, the government “has very limited ability to get information in as timely a manner as an employer does,” he said. He added that in the Foreign Corrupt Practices Act context, about 99 percent of the time, the company conducts an internal investigation and reports the results to the government.

Control of Probe 

One advantage of pursuing an internal investigation and having the law enforcer “stand down” is that companies have the opportunity to “have some control over where the investigation is going,” Richards said.

However, the cost of doing that is an “implicit promise” that the company will report its findings to the government, Richards continued. At early stages of an issue, that can be a problem because it's not clear if it's in the company's best interests to do so, he said, adding that “in this day and age, it almost inevitably will be because cooperation is the sine qua non of any corporate defense.”

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