Prior to conducting an internal investigation, it is necessary to determine clear objectives for the investigation. To determine these objectives, it is crucial to identify the interests of the company and the risks associated with the investigation. This is essential because the investigative actions and the intensity of the investigation significantly depend on the objectives, the company's interests, and the risks involved.
A fundamental consideration in this regard is whether external authorities, such as law enforcement, are involved in the investigation and what their interests are.
To provide a comprehensive overview, the following scenarios are presented:
1. Routine Internal Audits
The primary function of Internal Audit is to review business processes (e.g., Purchase-to-Pay, Order-to-Cash, etc.) and ensure compliance with internal controls. Internal audit activities are typically conducted in a collaborative manner and in coordination with the functions under review. Process-oriented internal audits rarely give rise to criminal or antitrust issues. Hence, in such cases, an extensive examination of the company's interests and potential risks stemming from parallel government investigations is not required.
2. Antitrust Investigations
Antitrust violations, such as illegal price-fixing, pose a significant risk to a company due to the severity of penalties and potential civil liability claims. What sets antitrust investigations apart from routine audits is their potential to reveal antitrust misconduct and thereby expose the company to significant risks. From the company's perspective, this requires a careful and timely assessment of how to address this risk. Options may include invoking leniency programs or simply terminating the misconduct. In the simple termination of the misconduct, there is a risk, during the statute of limitations period, that the misconduct may be reported to the antitrust authorities by another company involved in the cartel. In some cases, the company may also become vulnerable to pressure from individuals who become aware of the antitrust behavior but have not engaged in any antitrust misconduct themselves.
Furthermore, applications for leniency programs may not always be successful, particularly when antitrust misconduct spans multiple jurisdictions with various authorities involved. This can lead to the public disclosure of misconduct, potentially resulting in reputational damage and damage claims from antitrust victims (private enforcement).
These circumstances may give rise to conflicting interests among the company, its executives, authorities, and victims. Although individuals involved may not face personal criminal liability, they may encounter employment-related consequences. The decision to pursue employment-related consequences should be carefully considered, as companies often rely on confidentiality and cooperation with their executives, irrespective of whether leniency programs are invoked or antitrust misconduct ceases.
3. Employee Misconduct
Employee misconduct typically entails an employee causing harm to the company through a criminal act, committed by abusing his function. These acts are often aimed at personal gain or benefiting a third party. For straightforward cases (e.g., theft detrimental to the company), the investigation's objectives are clear: the company's interest lies in seeking damages, preventing future harm, and terminating the employment relationship.
In cases of employee misconduct, the company itself is not subject to criminal prosecution as the criminal act did not benefit the company. Hence, the company's interest aligns with law enforcement authorities, namely, to investigate thoroughly and establish the facts. For the alleged perpetrator, the interest lies in avoiding criminal proceedings and amicably terminating the employment relationship.
4. Corporate Misconduct
Corporate misconduct involves a (high-ranking) manager attempting to benefit the company through a criminal act. The manager does not seek direct personal gain from the criminal act (possibly indirect via MbO target accomplishments and bonus payments). He initially believes that he is acting in the company's best interests.
Unlike cases of employee misconduct, determining the company's interests in cases of corporate misconduct is not straightforward and requires a comprehensive analysis.
It requires a delicate balance between the publicly communicated commitment to cooperate with authorities to mitigate reputational damage and the legal obligations associated with assessing employment and civil law claims and defending the company against criminal and civil liabilities (e.g., claims from customers). The complexity arises from the potential benefit of the criminal act to the company, which can expose it to criminal and civil liabilities.
This creates tension between corporate defense, internal investigations, and external investigations by law enforcement authorities. The situation intensifies when not only the company faces criminal liability, but also the managers acting in the company's alleged interest. In the case of a suspect manager being an executive board member, the situation becomes more intricate, necessitating the separation of their personal interests from the company's. Additionally, it's worth noting that the manager could potentially secure immunity by invoking leniency programs.
5. The Role of the Investigation Leader and the Company's Interests
The aforementioned scenarios are especially relevant to the individual leading the investigation.
In cases of corporate misconduct and allegations of antitrust violations, the investigation leader must gain a clear understanding of with whom to discuss the company's interests and who will ultimately determine and define them. It should be noted that the company's interests may change during the investigation.
If the allegations are directed at a first-level manager, the head of the investigation will primarily discuss the company's interests with the responsible executive board member and possibly with the entire executive board.
If allegations involve a first-level manager, the leader of the investigation will primarily discuss with the responsible executive board member, possibly the entire executive board. In cases where executive board members face allegations, unaffected board members and the chairman of the supervisory board are responsible for addressing the company's interests. In cases targeting a supervisory board member, the chairman of the supervisory board and the CEO must address the company's interests. Anticipating potential investigation outcomes and ensuing consequences is vital. Decisions regarding the course of action must be grounded in a comprehensive evaluation of costs, benefits, and potential harm to the company's interests, in alignment with the investigation's objectives.
6. Consequences of Neglecting to Define the Company's Interests
Failure to adequately define the company's interests, particularly when under pressure from authorities and the media, can lead to a disoriented and potentially flawed investigation. In such situations, it becomes apparent whether the executive board and the supervisory board are capable of making decisions that genuinely align with the company's interests rather than being motivated by internal power dynamics. Without clear determinations, this lack of direction permeates the entire investigation, hindering crucial operational decisions. For instance, the investigation leader may remain uncertain about how to respond to inquiries from law enforcement authorities, such as those related to initiating a preliminary investigation, or internal inquiries from the executive board member affected by the allegations.
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