Nigel Farage, the outspoken former Brexit campaigner, prides himself on saying what others dare not. But when he turned a law firm’s report into claims for damages, Coutts disbarred him as a “whitewash”He was not the first to raise concerns about such investigations.
Corporate investigations have come into the spotlight after a series of high-profile cases of alleged misconduct or corporate failure raised questions about the quality and independence of legal investigations and how companies use them to counter criticism.
Red Bull said this year that a lawyer had cleared its Formula One team boss Christian Horner of allegations of inappropriate behavior toward a female employee, but declined to name the lawyer or publish his conclusions.
The Post this month cleared its chief executive, Nick Read, of wrongdoing allegations after a legal investigation, without disclosing the report or its findings.
Such cases have highlighted the complexity of internal investigations, which must balance a company’s obligation to demonstrate that it has properly investigated an allegation with its desire to avoid greater disruption or reputational damage than necessary.
Some companies want to hire a high-profile lawyer or firm to gain “an air of respectability” but don’t really want an in-depth investigation, said Lord David Gold, former senior partner at city law firm Herbert Smith Freehills and founder of David Gold & Associates.
Internal investigations are coming under increasing scrutiny as the Lawyers Regulatory Commission for England and Wales is set to update its guidance on how best to conduct these investigations this summer after lawyers raised concerns.
In the wake of global scandals from Libor manipulation by banks to #MeToo, it has become standard practice for companies facing corporate misconduct – which can range from alleged bribery to sexual misconduct – to hire outside lawyers to investigate give an order. This growing demand has led the city’s law firms to establish investigative practices, creating a cottage industry for specialized advice.
There’s more work ahead: the Bank of England’s Prudential Regulation Authority in January introduced a 50 percent discount on fines for companies that take early approvals and show complete openness in investigations, including handing over reports and interview protocols.
Allegations of a lack of independence and transparency have long plagued internal investigations involving high-risk allegations and typically conducted behind closed doors. Attorneys’ findings can have enormous power and potentially prevent regulatory or reputational harm by ruling out wrongdoing.
But such investigations face myriad hurdles: Lawyers’ access to information and witnesses is sometimes hindered, according to people involved in investigations, and their findings are sometimes kept secret or made public only through selective summaries. The most common risks in these investigations are “glossing over” errors or “stonewalling” by the company, said Peter Swabey, director of the Chartered Governance Institute.
Companies often rely on long-standing consultants who know the business. In such circumstances, a real or perceived lack of independence from a contact may jeopardize the credibility of an investigation.
“If [an investigation] It’s about addressing external reputational concerns. . . Independence is becoming much more important,” said Roger Barker, director of policy and corporate governance at the Institute of Directors. An investigator’s findings are “much more credible” if they are truly independent, he added.
Magic Circle law firm Linklaters was criticized by employees of its client Endeavor Mining in January after the gold producer used it to investigate ousted chief executive Sébastien de Montessus. Critics argued that the company’s relationship with Endeavour, which flourished under de Montessus, undermined its independence in investigating his conduct – a claim Linklaters disputed.
“If you want an independent investigation, you shouldn’t go to your favorite lawyer,” said Gold, whose firm specializes in working for companies facing regulatory or governance issues. “It can be good [in substance] but it’s an own goal.”
To avoid accusations of bias, companies under criticism sometimes turn to lawyers instead. Lawyers who are self-employed and do not typically advise on other areas of a company’s business can be expected to have an additional level of independence.
However, the appointment of senior counsel alone does not resolve all issues. Red Bull, which wouldn’t even name the investigating lawyer, was urged by F1 partner Ford to be “transparent” in its investigation into Horner. The woman who made the allegations and was suspended last month has filed an appeal. Red Bull declined to comment.
Shortly after the Post’s investigation was published this month, Marianne Tutin, the lawyer who led it, defended the work as “fair, thorough and proportionate” and said it was up to the Post to decide what to publish.
Recent cases raise questions about a lack of transparency regarding the conduct of corporate investigations and the use of their results.
The Financial Times reported in December that KPMG partners in Dubai had raised concerns about the cost and transparency of a $1.5 million audit carried out in 2022 by Freshfields Bruckhaus Deringer, with board members fearing they were being left in the dark would.
Meanwhile, Farage claimed Travers Smith was “trying to hide the truth” in the investigation into his debanking dispute with Coutts.
Companies sometimes choose not to publish the results of a legal review or even share them internally because they want to invoke legal secrecy – a confidential protection that applies to legal advice and potential litigation. Conclusions are sometimes communicated to a company’s board of directors orally rather than in writing to avoid creating a document that could be disclosed in future litigation.
Legal privilege is a long-established principle, but relying on it carries reputational risks and can frustrate external parties such as politicians. Australian authorities in February accused accounting firm PwC of “deliberately hiding” a report by Linklaters about the use of leaked government information outside the country. PwC insisted the information was “privileged and confidential” but later released a two-page summary.
Linklaters referred to previous statements about its investigations and said it had complied with its professional duties. Freshfields and Travers Smith declined to comment on the criticism they faced. The Post said its report should remain confidential to protect its whistleblower policy and fulfill its “duty of care” to the people involved.
While some companies try to keep investigation results secret, others consciously try to limit the scope of investigations or ensure a particular outcome, some lawyers said. Witnesses may also be unwilling to cooperate, either because they have left the company or because they fear becoming involved in wrongdoing.
“[Sometimes] You get a company that says, “We want you to do this work, and basically we want you to find this answer and outcome for us,” said one law firm partner. “You have to take it or leave it.”
Lawyers said that to improve independence, they sometimes use different teams than those who regularly advise a client. And some said they had refused requests to conduct corporate investigations if they believed it would not give them the freedom to properly investigate and gain access to necessary documents and witnesses.
In its draft guidance published last month, the Solicitors Regulation Authority said it was concerned that poorly conducted investigations could undermine its outcome “due to actual or perceived unfairness or bias”. . . “damage the trust and confidence of the public.”
“It would be best to hire a law firm that has no previous business relationship with the firm,” said Henri Servaes, a professor of corporate governance at the London Business School. “The important thing here is not only to avoid conflicts of interest, but also to avoid even the remotest appearance of conflicts of interest.”