Many corporate scandals share a common trait in the way they are brought to light. Internal investigations - in one form or another - are normally the way to spot the issue, size it up and take action as needed. Few people enjoy scrutiny and when it is on the agenda, the air thickens with tension. As issues develop or come to light a serious hands-on internal investigation is usually the right response.
Doing the right thing
In my personal experience, executives and directors generally want to do the right thing. However, instincts of self-preservation, fear of the unknown or just plain dumbness is a natural reaction. This trait needs to be understood and can require a little help when such situations occur. And the corporation has to make the right call. Such decisions are not taken in a vacuum and it is crucial to have the right business and legal environment to make them in. Both the applicable laws and their interpretation by regulators and prosecutors is a key undeniable element in the ‘worthiness assessment’ routinely undertaken by corporations facing the prospects of an imminent internal investigation.
The economic advantage
But here’s the trick: While uncovering problems early and voluntarily taking them to government agencies and regulators is both ethical and the “right thing” to do, it carries, in many cases and in some jurisdictions, a tangible economic advantage in terms of mitigation of potential fines.
As all corporations increasingly face the prospect of carrying out internal investigations regarding possible wrongdoings, some companies are at a competitive disadvantage. Their ability to effectively carry out investigations is impaired by applicable laws and regulations which leave no option to courts to evaluate the opportunity to prosecute them and in fact mandate such courts to take action. US companies, when uncovering issues, can rely on the prospect of non prosecution deals with the Department of Justice. The company spots the issue, does what it should in terms of investigating it and remediating,goes to the Government, strikes a non prosecution agreement and that may well be end of story.
Companies must be incentivised to report wrong-doing
Not so in other jurisdictions where no such discretion is allowed and the prosecutors - once the matter is (self!) reported- must take action. This is a serious issue for lawmakers in these jurisdictions and they should focus on it. Enhancing the incentives for any corporation to uncover past problems is equally important as making sure internal controls are sound. Those serious about uncovering issues and leaving no stones unturned should do so under the auspices of an adequate form of safe harbour, which is both proportional to the facts unearthed and still better a prospect than adopting a ‘head in the sand’ approach.
Antonino Cusinamo is general counsel of Telecom Italia general counsel
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