In this five-part podcast series, sponsored by Affiliated Monitors, Inc. (AMI); I am joined by AMI Managing Director Stern. We consider how defense counsel can work proactively with independent monitors to help clients who may have sustained an ethical or compliance violation or are under government scrutiny for allegations of illegal misconduct in a wide variety of industries, disciplines and corporate settings. In this second episode, take a deep dive into the nuts and bolts of defense counsel working with a third-part independent monitor.
We began by exploring some basic questions around the attorney/client privilege, which belongs to the client and not the lawyer. Further, if a third-party independent monitor is retained by corporate legal to perform an assessment or review, it can be done under attorney/client privilege. It designed to give the company maximum information and flexibility to not have people being concerned about the information flow. It puts company’s in a position to make a decision on the possible self-disclosure. Not every issue needs to be self-reported nor does the government want to hear about every issue.
Stern emphasized that the privilege provides a company with the ability to self-disclose and, in some cases, to protect that information at least initially without worrying about being sued by private parties or class actions are securities cases. It allows an organization to “get an unvarnished view of the facts by an outsider or it goes to the lawyer who can assess it and discuss it with the client and then make a decision.” It allows you to explore such questions as: Do we need to report it? Should we report it? How should it be reported?” It can be a very powerful tool.
We then turned to a detailed review of the steps an independent third-party monitor should take. Stern said the “first goal is to figure out the source of the problem. What triggered the problem?” It could be a whistleblower, a government subpoena, an outside investigation or even be picked up by a company’s own internal audit function. From that point try to determine if the problem is an outlier or is it something such as, “internal audit has picked up excessive expenses and payments to outside third parties in a particular country. Maybe it’s a country in the Baltic region or maybe it’s a country in Africa where the office seems to have excessive payments.”
The next question faced is what do you do with that information? Often a third-party independent is brought in to look at the internal controls to make sure they are sufficient, then to move to a deep dive in that particular risk area, finally advising the company whether the controls are insufficient.
The following area is the always difficult decision on self-disclosure. Stern began by noting that the role of the third-party independent is to bring forward information. Yet this question has multiple factors such the industry and areas involved. If you are in health care or some type of regulated industry, Stern believes you are more likely to make the decision to self-disclose. Moreover, if you are a public company, there is always the possibility of a whistleblower to the Securities and Exchange Commission (SEC) under Dodd-Frank or Sarbanes-Oxley (SOX). Here Stern said, “now with the explosion of ways to get information out of a company so great that a company really needs to consider that as well.” Further, if a competitor gets into hot water, you may want to look at your business model. Stern said, “if you’re a bank and you read that Wells Fargo is having a problem with false accounts and compensation structure, which seems to be at odds with good practices. I think you owe it to your shareholders and your Board to at least ask yourself the question, what about us? Is this, is this something that we should take a look at?”
The bottom line is that companies cannot simply bring in a third-party independent, get a report or findings and then put their head in the sand. Stern believes being proactive means not simply bringing in an independent third-party but also using the information developed in a proactive manner. He said, “It is being aggressively proactive in fixing your problems. It is being as transparent as possible within that particular company’s environment. Identifying and fixing the problems, not only builds confidence internally within but provides assurance to the outside world; to shareholders, the media and government regulators that you are identifying your problems and fixing them yourself. This is the way to go.”
Join us in our next episode in which we consider case studies where an independent third-party monitor was used successfully by defense counsel.
Find out more about Affiliated Monitors Inc. by checking out their website here.