2007 Issue 1 - New York City Bar Association

L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E
Those concerns must be considered by counsel advising the corporation
in every instance. There are costs to hiring counsel who is too close
to current management. If true wrongdoing has occurred, counsel with
ties to management might not be best suited to discovering it and rooting
it out. If the company chooses wrong and there is wrongdoing where
it was not believed to exist, the failure to act through independent counsel
can be expensive. 199 Even where there is no true wrongdoing, the use of
regular counsel to conduct the investigation can cause credibility problems,
and possibly lead regulators or the Board to conclude that a new
investigation must be conducted by independent counsel.
There are, however, some investigations where the benefit of hiring a
law firm that is familiar with the company, or has prior experience in the
subject matter of the investigation, will outweigh the disadvantages arising
out of the prior relationship. Counsel knowledgeable of the company
and its personnel, and familiar with the regulatory and factual framework,
will have a shorter learning curve, will get up to speed more quickly
and efficiently on a matter, and presumably will be better suited to evaluate
evidence in context than counsel who lacks this background. This is a
benefit both from the standpoint of shareholder value and from the standpoint
of corporate governance.
Once again, counsel for the corporation should lay these choices out
for those supervising the investigation and let them make their own choice.
During the course of the investigative process, they should periodically
assess whether outside counsel remains independent of the influence of
interested directors and officers.
2. How should the scope of the investigation be determined
After determining who should supervise an investigation and which
counsel should be retained, the client must define the scope of the investigation.
This issue usually is, and should be, resolved by the corporation
in consultation with investigative counsel. It is an extremely important
issue that can be addressed only with sensitivity to the facts giving rise to
the investigation itself.
State and corporate fiduciary duty law and federal securities law and
other federal obligations provide relevant guideposts. State corporate law
Acting General Counsel supervising the investigation continued to be an active partner of the
firm allegedly charged with investigating. See D-15, below.
199. See Report of Investigation in the Matter of Cooper Companies, Inc., SEC Rel. No. 34-
35082, 58 S.E.C. 591, 594-96 (Dec. 12, 1994) (faulting internal investigation where co-chair
and CFO of company had refused to cooperate with outside counsel’s investigation, and the
Board of Directors did not act).
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