Businesses sometimes need to decide whether an identified problem warrants the commencement of an internal investigation. When the decision is “yes”, it must determine who should pursue it, when it should be commenced, and its potential scope and thoroughness. Getting it right is no easy feat, and getting it wrong exposes the businesses, and their stewards, to costly consequences. Companies must be ready to identify any matters that could lead to inquiry and determine, as soon as possible, what is appropriate in the circumstances.
The costs of running an internal investigation can quickly add up to staggering amounts. Wal-Mart recently reported that it has spent US$439 million over two years investigating allegations of foreign bribery. In December 2011, Wal-Mart informed the U.S. Department of Justice that it was conducting an internal investigation into potential violations of the U.S. Foreign Corrupt Practices Act, which prohibits payments by U.S. companies to foreign governments for business favours, in relation to its Mexico operations. (Wal-Mart’s business dealings in Mexico have been the subject of lengthy exposés by the New York Times in April 2012 and December 2012.) In addition to Mexico, Wal-Mart’s investigation now includes India, China, and Brazil.
Wal-Mart expects to spend considerably more money this fiscal year (upwards of US$200 million) on this investigation and a global review of its policies, practices and internal controls. It will also likely incur further costs defending shareholder lawsuits and participating in investigations commenced by both U.S. and Mexican authorities.
Controlling costs is amongst the most challenging aspects of managing an internal investigation. But often, an internal investigation is the most effective way of getting on top of a problem before others (regulators, law enforcement agencies, medial litigants) have the opportunity to do so. This is why, when confronted with information about possible improper internal conduct, it is advisable for an organization to identify, investigate and address the potential problems as early as possible. Getting a handle on the allegations early will not only save money in the long run, but may also minimize reputational costs and the risks of incurring further expenses in the form of lawsuits and regulatory investigations.
As expensive as the Wal-Mart’s investigation has become, the price tag of an internal probe should not deter an organization from initiating one when the situation warrants it. There can be steep financial and reputational costs to avoiding or delaying the commencement of an investigative process.
This is partially true in the employment context. Another situation involving Wal-Mart clearly demonstrates this. Last May, the Ontario Court of Appeal upheld an award of $200,000 for aggravated damages against Wal-Mart in an employment case. The Court in that case found that after receiving complaints of harassment, Wal-Mart, as the employer, did not take effective steps to pursue a proper inquiry into the complaints, it did not consider all the evidence available to it, and failed to follow and enforce its own policies.
The goal of an internal investigation should be to get in front of an issue as quickly and as thoroughly as possible. An organization is best positioned to control costs and minimize legal, business and reputational risks when it does things properly.