TheCorporateCounsel.net

Last week on CompensationStandards.com, I blogged about approaches that some companies are taking to incentivize compliance & ethics. But even “good” companies are regularly dealing with complaints, which may or may not be valid. Management & the board then face the difficult question of what to do – and recent experience shows that the decision can have important implications for officer & director liability.

This 4-page Skadden memo gives a roadmap that audit committees & boards can follow when deciding whether to launch an internal investigation, and what form it should take. Here are the key takeaways:

– When a complaint reaches a company’s board, directors need to assess how serious and detailed it is, and how credible it is at first glance, before deciding how to investigate it.

− If similar complaints have been lodged in the past, that could suggest systemic problems and greater risk for the company.

− An investigation will take on added urgency if the regulators or external auditors are aware of the allegations, or if those may affect pending financial or strategic transactions.

− Other complicating factors: any allegations against management, conduct the company has a duty to report and the potential for financial restatements.

If you find yourself answering “yes” to most of the questions in the memo, the Skadden team says that the board should strongly consider conducting an investigation, with help from outside experts.

– Liz Dunshee