In the current difficult operating environment of government linked companies and the reported incidents of hidden corporate scandals in Malaysia, new corporate leaders and incoming board of directors are faced with the risks of personal liability for breach of directors duties and breach of employment contracts for failing to act in the best interests of their companies.
Ticking time bombs in the form of undisclosed illegal conduct and ongoing offenses are of primary concern.
Some of the ways in which risks can be managed, minimized and or hopefully avoided are as follows:
- Encourage employees to speak up about any wrongdoings they are aware of.
- Implement a Whistleblower Program and Hotline.
- Undertake an Internal Compliance Review.
- Undertake Corporate Internal Investigations based on reported or discovered wrongdoing or misdeeds.
Even with a new CEO and Board of Directors, much of the old management and employees will remain in the company. How do we ensure that an independent compliance health check and or an internal investigation is truly transparent and independent?
Conflicts of interests will be a major minefield to navigate. It is tough to expect culprits to admit to wrongdoing. The tendency will be to hide the misdeeds and shred incriminating documents ala the Enron saga. Hence the need for independent outside counsel and financial accountants to undertake compliance health checks and internal investigations.
When choosing outside counsels and financial accountants, conflicts of interests will arise at two levels:
- Transactional Conflicts of Interests
Existing panels of outside lawyers and financial accountants may have acted in some of the transactions and are thus conflicted from acting due to transactional conflicts of interest.
- Relational Conflicts of Interests
Existing panels of outside lawyers and financial accountants may have built relationships with the past management of the company and are ethically subject to relational conflicts of interest.
In 2003, the Conference Board issued a report Commission on Public Trust and Private Enterprise – which stated:
In the event an independent investigation is reasonably likely to implicate company executives, the board — not management — should retain special counsel for this investigation. Special investigations of company activities that may implicate the conduct of company executives require independence from management. Typically, lawyers and law firms are in the best position to conduct investigations, and care must be taken that these investigations are conducted thoroughly, vigorously, and objectively. It is important, therefore, that investigative counsel be chosen by, and report directly to, the board. To ensure that special counsel’s interests are not aligned with, or influenced by, management, the Commission believes that special counsel should not be one of the corporation’s regular outside counsel or a firm that receives a material amount of revenue from the company.
While the above statement is applicable to corporate internal investigations where there is no change of CEO or directors, it is even more applicable where a change of corporate leadership has occurred as the new management and board have no historical knowledge of what happened in the company and the remaining management and employees will have an advantage if they are so inclined to hide wrongdoings and misdeeds.
The solution then is to engage truly independent outside counsels and financial accountants free from transactional and relational conflicts of interest to assist in corporate internal investigations and compliance healthchecks.