Under investigation

Investigations into business are more likely now than ever before, with an ever-lengthening list of regulatory and criminal offences that can be committed in a business context - from money laundering compliance breaches to failure to prevent bribery or the facilitation of tax evasion. Any investigation into a business is always unwelcome, but tackling a criminal or regulatory investigation into conduct that has occurred within a family business can be a minefield. The response to the investigation will be tailored to the specific allegation, the powers of the investigators and the nature of the business, but there are some guiding principles to consider when dealing with an investigation into a family business.

This article outlines the first three principles that those advising a family business should consider when faced with an investigation: retaining confidentiality, deciding who leads the response, and planning to ensure business continuity.

Confidentiality

Keeping the investigation confidential is key; whatever the nature of the business, as it could have a negative impact on the business, its staff and external relationships. Sometimes retaining confidentiality is impossible; for example, where the investigation starts in a public manner or arises from a publicised event. However, most frequently, an investigation will start with a letter from an investigator requesting documents or an interview. A common reaction is to assume that the allegation is unfounded and that the investigation will reach that conclusion swiftly. However there is no limitation period for most offences and, in practice, investigations may take years to reach a conclusion. Many family businesses are run on relationships and the founder or business leader will instinctively want to tell their staff and stakeholders about the investigation. Such instinct should be challenged; in the majority of cases, there is no requirement for those people to be notified of the investigation and sharing the fact of the investigation can place an unnecessary strain on goodwill, particularly if an investigation will take place over a prolonged period.

The representative

Another critical decision for early consideration is the identity of the person or group who is going to deal with the investigation on behalf of the business. This is often one of the most difficult decisions to make in a highly emotive situation. The person directing the response to the investigation will need to balance the interests of the business’s stakeholders with the interests of the potential wrongdoer. The identification of the person or group is important for preserving legal privilege (confidentiality of legal advice) and so that there is a clear mandate to a person or group who will interface with the investigators and take decisions on strategy. Therefore, the ideal candidate is someone who has no involvement in the allegation and can take objective decisions in the interests of all involved.

On the one hand, founders or family business leaders may consider themselves best placed to tackle the crisis, but, more often than not, the person currently leading the business is the person facing the allegation. Ideally, the person who manages the investigation will have sufficient authority to take autonomous decisions on behalf of the business, taking into account the views of the founder or business leader.

Advisors may find it painful to contemplate the worst-case scenario at the outset of an investigation, but it is crucial to do so, so that measures can be put in place to safeguard the future of their client’s business while the investigation runs its course or following charges or a regulatory outcome. Advisors should seek specialist advice in order to understand what might happen both in the course of the investigation and at its conclusion.  

For many offences, there may be potential criminal liability for both individual managers and the business but, in practice, the investigator will only pursue one or the other. For example, investigators examining minor regulatory offences may be more interested in securing an outcome against the business whereas those examining fraud and bribery allegations may be more interested in outcomes against the individual managers or directors. Where there is a potentially serious outcome for the individuals, even where that person is confident that they will be vindicated, plans should be put in place to protect the long-term viability of the business. In some family businesses, the reputation rests solely on the shoulders of the founder but, in others, management support can be put in place to enable a smooth transition should the existing management have to step down to focus on the investigation.

These are emotive decisions and it is important that the business leader and other stakeholders are able to have a frank and informed decision about the path ahead of them.