Covering Your Assets: Protecting Corporate Credibility in the Face of Scrutiny

Welcome to the July edition of our newsletter! In this issue we’ll examine steps companies can take to protect themselves when being investigated by authorities, and research initiatives that can assist in that effort.

Best Foot Forward: Cooperating With Investigative Inquiries

At its best, compliance is a necessary burden for most companies, ensuring that their clients receive the proper standards of service, or that the products produced are safe and meet quality control metrics. In heavily regulated industries, self-reported information and routine audits by state or federal regulators are meant to provide layers of accountability and transparency which help consumers make choices and help companies market themselves confidently.

Sometimes this process goes awry, and improprieties are discovered, either via such routine measures or via whistle-blowers or other sources who communicate, often anonymously, with regulators or news outlets. In such instances, if fraud or other improper practices are discovered, a strong culture of accountability is required in response – a difficult proposition on occasion, as such offenses likely would not have occurred if such a culture was in place throughout.

Although some executives may feel a need to double-down on defensive measures in the face of scrutiny, especially if that scrutiny moves from a private matter to a public one, the best course of action is often to admit any sins that have occurred, preserve all necessary records and cooperate. Since corporations are simply groups of people, whose goals hopefully align, another worthwhile measure is to conduct internal reviews of relevant people and policies, often supplemented by public records research. For example, if a long-time purchasing manager is accused of creating phony vendors to defraud a government agency your company supplies,, it may be worthwhile to create an updated financial profile on that person, to identify any new and relevant stressors that could help explain his motives – also helping to determine where the money went.

A corollary to cooperating with investigators, and identifying any relevant information about parties alleged to be culpable, is to understand as much about the source of investigators’ information as possible. As we’ve noted before, the majority of corporate fraud schemes are discovered via a hotline or other method for anonymous tips. The identity of such persons may never surface, but if it becomes known a thorough investigation of that person is in order, as a defensive measure to identify any character issues or past practices that could undermine the whistle-blower’s credibility, and also to better understand what their motivations may be.

Oversight can be a difficult process for companies of all sizes, and investigations into business activities can be especially difficult. By combining an attitude of cooperation with a deeper understanding of the risks posed both internally and externally to your company, even the most difficult circumstances can be navigated with confidence.