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Board Issues : Legal

The Corporate First Responder: 15 Questions to Consider When a Corporate Crisis Strikes

January 11th, 2013 |

When a business enterprise is confronted with a situation that suggests that there has been a violation of law, the judgments made at the outset may well be critical to the ultimate outcome.  Indeed, poor choices concerning how the matter should be handled— perhaps made in a rush and almost certainly without full facts—may prove even more prejudicial and damaging to the enterprise than the underlying conduct.  As has often been said, corporations get into real trouble more often due to “flunking the investigation” than due to the conduct being investigated.

The objective of this article is to identify issues that should be considered when a potential violation of law surfaces, and to venture some thoughts on the considerations relevant to addressing them.  The article presents 15 questions to consider at the outset of any crisis investigation.  All of our questions will not be relevant to all situations, and there will undoubtedly be others that will need to be answered in whatever situation you may face.  That said, we chose these 15 questions because, based on our experience, they provide the decision-maker with sufficient insight to develop a picture of the challenge facing the enterprise—and, of equal importance, of what the decision-maker does not know.  

We intentionally have not prioritized the questions because they are so interrelated.  It is not possible to answer many of them until some consideration has been given to all of them.  

We offer one caution in approaching a newly discovered problem.  Sometimes you may find that there is no real issue but merely a misunderstanding.  But once a real problem is identified, as one probes it, it seldom gets better.  As Admiral Nimitz exhorted the fleet in the context of storms of a different sort, “[n]othing is more dangerous than for a seaman to be grudging in taking precautions lest they turn out to have been unnecessary.”

Question 1:  Has the conduct stopped?

It is an obvious principle that illegal conduct must be stopped as soon as it is uncovered.  When faced with illegal or improper conduct, the enterprise must demonstrate its total intolerance of, and swift response to, such conduct to its employees, its shareholders, its regulators and the public.  If misconduct is allowed to continue once known by the enterprise’s governance and control structure (such as the legal department), the enterprise’s exposure is exponentially increased.  At a minimum, if later investigation reveals that an illegal scheme was uncovered and ignored or disregarded, or that the company proceeded at too leisurely a pace, the firm’s ability to argue for leniency will be compromised.  

To view all 15 questions, please click here to download the white paper.

mwiseman

Michael M. Wiseman is the managing partner of Sullivan & Cromwell’s Financial Institutions Group. He represents banks and other financial institutions on their largest transactional and most sensitive regulatory matters, and can be reached at wisemanm@sullcrom.com

snelles

Sharon L. Nelles is a partner in Sullivan & Cromwell’s Litigation Group. Her practice focuses on the interplay among investigations, enforcement proceedings and the civil lawsuits that follow. She can be reached at nelless@sullcrom.com.  

mtrevino

Marc Trevino is the managing partner of Sullivan & Cromwell’s Executive Compensation and Benefits Group. He advises on a variety of transactional and compensation matters, governance, regulatory and compliance issues and regulatory investigations. He can be reached at trevinom@sullcrom.com.