When a company is faced with allegations of illegal or unethical conduct within its ranks, an internal investigation may be the best response. This positive action helps management to learn the facts and to remedy problems before they escalate. Conversely, failing to conduct an internal investigation can lead to substantial legal, financial and reputational consequences.

An effective corporate internal investigation can serve these important objectives:

  1. Identifying and resolving issues early — If misconduct is discovered early, corrective actions can be implemented, such as employee discipline, policy changes or improved training programs. This helps to minimize potential damage and to prevent the problem from spreading or recurring. Additionally, discovering issues internally allows the company to handle the matter privately, without the scrutiny that can come with public disclosures or whistleblower actions.

  2. Mitigating legal and regulatory risk — Whenever possible, a company should address alleged or suspected legal or regulatory violations before government authorities take action. By uncovering potential misconduct, such as fraud, discrimination or violations of environmental laws, a company can take proactive steps that may avoid or reduce fines and other penalties. Where criminal acts are alleged, early self-reporting to authorities can help in obtaining a deferred prosecution agreement.

  3. Strengthening defenses in litigation — Should a company face litigation or regulatory action, an investigation allows for gathering evidence, preparing a defense and devising a strategic response. Having conducted an internal investigation can serve as evidence of good faith efforts to comply with laws and regulations. This can improve the company’s position with regulators, prosecutors and courts and potentially lead to more favorable outcomes. 

  4. Reaffirming corporate governance and ethical standards — Conducting an internal investigation sends a message to employees, shareholders and investors that the company is serious in its commitment to legal, ethical behavior. This can improve employee morale, reassure business partners and build trust with customers and investors. 

Just as compelling are the potential detriments of failing to initiate an investigation, which may include: 

  1. Increased legal exposure — Ignorance of internal misconduct is not a valid defense to legal charges or regulatory action. Companies can be held liable for violations that go unchecked, whether due to negligence or willful omission. Failure to act on allegations or signs of wrongdoing can result in harsher penalties and even criminal prosecution.

  2. Reputational damage — The company's reputation can suffer once misconduct within a company becomes public, whether through whistleblowers, media reports or regulatory actions. Customers, investors and business partners may lose trust in the organization, leading to lost business and reduced market value. Company stakeholders are more likely to view management as complicit in wrongdoing if no concrete steps were taken to address it.

  3. Employee morale and retention — Employees may feel unsafe, undervalued or even threatened in an environment where unethical or illegal behavior is allowed to persist. This can lead to a toxic workplace culture, increased staff turnover and difficulty attracting new talent. Conducting an internal investigation demonstrates that the company takes its responsibilities to its employees seriously.

An independent firm experienced in internal investigations is best suited to handle the task. Retaining an outside investigator ensures that the probe will proceed objectively and without the appearance of management influence or interference. Management should not be involved except to answer questions and provide requested documents. Only upon receiving the investigator’s report and recommendations should responsive action be taken. 

Garcia & Gurney, A Law Corporation, in Pleasanton, California conducts thorough workplace investigations for businesses across the Tri-Valley area. To discuss your matter, contact us online or call 925-468-0400.