THE question of when it's time for general counsel to "fess up" has been raised amid an era of heightened regulatory scrutiny.
As recent months have seen directors, general counsel and others being handed marching orders over their involvement in illegal and misleading activity, general counsel have a heightened sense of when, and if, they should report questionable activity.
Offering a string of checks corporate counsel should ask when questioning whether they should self-report an issue to the government, Corporate Counsel magazine reports that generally, there is no legal obligation for a company to self-report.
"It is a mistake to jump too quickly to the conclusion that self-reporting is unwise," advised Richard Marshall, a partner in the investment management and securities litigation groups of Ropes & Gray in New York wrote in Corporate Counsel.
But, he advised, a key consideration will be whether the government is likely to find out about the problem in any event.
"In the real world, guessing about whether the government will inevitably uncover a problem can be difficult. However, the chances that the government will find out are much greater if any hint of the problem needs to be disclosed in a required regulatory filing."
On top of this, if large numbers of third parties, including accountants, independent director, shareholders or customer are told about the problem, confidentiality is near impossible.
Before making the final decision to self-report, he said, it is important to think of all the consequences of this decision.
Once a company adopts a strategy of cooperation with the government by self-reporting a problem, Marshall said, the company is committed to that strategy of cooperation throughout the government investigation.
"It makes little sense to self-report a problem to the government then later seek to obstruct the government’s investigation of the problem," he said.
He reinforced the point, then, that the company should not expect to be able to protect key employees who may have been involved in the wrongdoing, even if the company may wish to do so for business or personal reasons.
"It also means that the company should expect to continue gathering and presenting information to the government even after its initial presentation."
Attorney-client privilege also needs to be considered, he said. "There will be pressure to waive the privilege and the company should consider this issue before it self-reports."
On top of all of this, said Marshall, it is impossible to control the course of a government investigation once it begins.
"This means that the company may find itself in unwanted and unpleasant situations, such as helping the government prosecute a formerly valued employee or even a valued customer or business partner. These consequences cannot be avoided once the company commits to cooperating with the government by self-reporting a problem."