Executive Conflicts of Interest and Fiduciary Breaches
Corporate investigations targeting executive conflicts of interest and fiduciary breaches present unique challenges. At Oberheiden, P.C., we work with in-house counsel, boards of directors, and other stakeholders to conduct comprehensive and confidential investigations that produce actionable results.
What do you do when you have concerns that one of your company’s executives has breached his or her duty of loyalty to your company? How do you navigate the issue both practically and politically, and how do you make sure the issue remains confidential until you are ready to deal with the fallout? Perhaps most importantly, what if you aren’t sure whether the executive has a conflict of interest? How do you uphold your duty to investigate without tarnishing the executive’s reputation and potentially shedding your company in a negative light as well?
Investigations targeting possible executive misconduct present many unique challenges. Not only do they raise the types of questions we just discussed, but they can raise potential conflict issues for in-house counsel, board members, and other individuals as well. You have a duty to investigate; however, in doing so, you could be putting your colleague – and your own career – at risk.
Experienced Outside Counsel for Corporate Executive Investigations
At Oberheiden, P.C., we conduct independent investigations in the corporate environment and on behalf of companies nationwide. We are sensitive to the complexities and nuances of investigations targeting corporate executives, and we understand the legal and practical risks that in-house lawyers, board members, and others can face during these inquiries. As outside investigations counsel, we offer complete independence, and we can provide full transparency when the time is right. We can also make sure that everyone involved is duly protected, and we can help make sure that the fallout from the investigation is no greater than necessary.
Our team of investigators is comprised of senior attorneys and investigators. Several of the members of our team previously served in investigative roles with the federal government, including as U.S. Attorneys, Assistant U.S. Attorneys, U.S. Department of Justice (DOJ) prosecutors, and high-ranking agents with various federal law enforcement agencies. We have handled corporate and government investigations involving complex and high-stakes white collar issues across the country, and we have served clients ranging from small privately-held businesses to large publicly-traded corporations.
5 Key Considerations for Investigations Targeting Executive Employees
Fundamentally, a corporate investigation targeting an alleged executive conflict of interest or fiduciary breach is no different from any other internal inquiry. The same basic legal principles apply, and the investigative process is generally the same. However, given the nature of the investigation, there are certain special considerations that demand attention. These include:
1. Maintaining a Culture of Compliance and Transparency
How can your company promote internal compliance and transparency if personnel at the highest levels are under investigation for obfuscating their own corporate misdeeds? Typically, it will be in the corporation’s best interests to keep the investigation confidential until a definitive conclusion has been reached. However, this necessarily involves a lack of transparency; and, if it eventually comes out that the executive under investigation did breach the company’s trust, it is going to look like everyone involved was hiding the ball from shareholders and rank-and-file employees. This can be avoided, but a heavily strategic approach is required in order to do so.
2. Determining Who Should Be Involved
When a CEO, CFO, COO, or other executive employee is under investigation, who should be in charge of investigating? Equally important, who else should be involved? Should you appoint a special committee? Should in-house counsel be involved, and if so in what capacity? Should any members of the executive leadership team have insight into the ongoing investigation? None of these questions has a single, right answer, and assembling an appropriate investigative team is critical to arriving at a sound outcome.
3. Avoiding the Appearance of Complicity
As we alluded to above, a common issue in corporate executive investigations is the risk of nearly everyone involved appearing complicit in some way. This most commonly takes the form of allegations that those involved in the investigation were trying to protect the executive in question while “covering up” information that employees and shareholders who were not involved in the investigation would have wanted to know. Here, appearances can be just as important as reality. Once again, we are sensitive to these kinds of issues, and we rely on centuries of combined legal experience to handle them effectively.
4. Documenting the Investigation
Documentation is always important. However, in investigations involving alleged conflicts of interests and breaches of executives’ fiduciary obligations, this importance takes additional dimensions. From decisions regarding the makeup of the investigative team to the processes and procedures followed during the investigation, all aspects must be clearly documented in order to protect the company in the event of ensuing civil litigation or a federal law enforcement inquiry.
5. Making an Informed Decision Based on the Company’s Best Interests
Once the investigation reaches its end, the appropriate individuals must make several important decisions: Has the executive engaged in misconduct that harmed the corporation? If so, what is the most-appropriate course of action? What information should be disclosed internally? To the public? To federal regulators? Ultimately, all of these decisions must be made with the company’s best interests in mind.
Protecting Yourself as a Board Member, In-House Attorney, or Innocent Executive
As a board member, in-house attorney, or company executive who has learned of allegations of executive misconduct, understanding your obligations and knowing how to protect your own personal interests are important considerations as well. Internal allegations and whistleblower complaints can have far-reaching effects, and high-level personnel can find themselves ensnared in various ways even if they played no role whatsoever in the alleged conflict-of-interest transaction or fiduciary breach.
In order to protect yourself, the best approach is to engage independent outside counsel. Rely on experienced professional advice, and do not take any action independently that could expose you to an investigation of your own.
Attorney-Client Privilege, Voluntary Disclosure, Enforcement Action, Derivative Litigation, and Other Important Issues
Beyond the issues discussed above, there are various other issues that corporate personnel and board members may need to address during executive misconduct investigations as well. At Oberheiden, P.C., we are experienced in handling each of these issues, and we can provide advice and representation beyond the scope of the investigation itself as necessary. For example, common concerns during investigations into allegations of executive conflicts and fiduciary breaches include:
- Preservation of the Attorney-Client Privilege – During all types of company investigations, preservation of the attorney-client privilege is of utmost importance. At all stages of the investigative process, due care must be exercised in order to prevent inadvertent disclosures from potentially exposing all privileged communications and documentation to scrutiny.
- Voluntary Disclosure of Imputed Misconduct – If the executive has in fact engaged in misconduct, and if this misconduct can either be imputed to the corporation or potentially harm the company’s investors, then some form of voluntary disclosure may be required. Matters of voluntary disclosure require a meticulous and detail-focused approach in order to ensure compliance without creating unnecessary exposure.
- Federal Civil and Criminal Investigations – Regardless of whether voluntary disclosure is required, executive misdeeds will often put companies at risk for federal civil and criminal investigations. Allegations can range from money laundering to securities fraud, and potential penalties can range from fines to imprisonment.
- Whistleblower Litigation – Whistleblower claims alleging executive misconduct can create extraordinary exposure, and protecting the corporation against unnecessary loss requires a strategic and aggressive approach. At Oberheiden, P.C., we have experience on both sides of federal whistleblower cases, and we can fight to protect your company pre-intervention, post-intervention, and at trial.
- Shareholder Derivative Litigation – Shareholder derivative litigation is a risk that requires careful consideration during corporate executive investigations as well. Developing the necessary documentation to protect the company in litigation is critical (as is preserving the attorney-client privilege); and, if a lawsuit appears to be on the horizon, swift and decisive action must be taken immediately.
- Public Relations and Crisis Management – Beyond the direct consequences of federal law enforcement action and private civil litigation, the public relations implications of executive misconduct allegations can have extraordinary impacts as well. If there is bad news that is at risk for being publicized (whether permissibly or impermissibly), the corporation must get in front of the issue and control the narrative as much as possible in order to mitigate any loss of goodwill and prevent long-term reputational harm.
Speak with a Member of Oberheiden, P.C.’s Investigation Team in Confidence
When faced with allegations that a company executive has engaged in a conflict-of-interest transaction or breached his or her fiduciary duty to the company, engaging outside corporate investigations services and counsel is the first step toward achieving a positive resolution. At Oberheiden, P.C., we handle internal investigations for companies across the country, and we can take action immediately if necessary.
For more information about how we can help you and yur corporation, please contact us to speak with one of our attorneys in confidence. Call 888-680-1745 nationwide, or send us a message online and we will respond shortly.