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To Find the Truth

Internal investigations can help a company find wrongdoing in the workforce -- or lead its leaders astray.

Friday, September 2, 2011
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How did it all go so wrong?

What started as a company investigation of employees for suspected wrongdoing turned into an embarrassing public debacle, forcing the business to fire high-level executives and straining the relationship between two of the world's superpowers.

Back in January, French automaker Renault fired three executives it thought had stolen secrets about the company's electric-car program -- only to learn later that the accusations were false. Company leaders had issued numerous public statements about the firings, and Chief Executive Officer Carlos Ghosn had claimed on television that he'd seen evidence of wrongdoing himself.

With 15 percent of Renault owned by the French government, the incident chilled the nation's relationship with China after a French legislator hinted that the Chinese were receiving company secrets -- a claim they vehemently denied.

But when prosecutors did their own investigation, they found no evidence of industrial espionage -- forcing Renault leaders to publicly apologize to the fired executives and try to make sense of how their investigation had failed so terribly.

The debacle eventually led to a major shake-up in company leadership, including the firings of Chief Operating Officer Patrick Pelata and Jean-Yves Coudriou, an HR manager responsible for senior-executive staffing.

The company paid undisclosed settlements to the three fired executives and hired one back to the company. (The other two declined reinstatement.)

Interestingly, Renault also promoted its HR chief, Marie-Francoise Damesin, to its executive committee -- perhaps an indication that HR will play a larger role in future investigations.

Renault declined to comment for this story.

Internal investigations don't tend to get much worse than this.

What can companies learn from the Renault incident and others like it? The rules of the game seem simple enough: Investigate everything, investigate promptly and thoroughly, and try to finish in a reasonable amount of time. So why do companies continually get it wrong? Experts say it's all about who investigates, how they're trained and what infrastructure is set up within a company to get the job done.

According to news stories and experts, Renault trusted a vague, anonymous letter claiming wrongdoing and did not bring intelligence officials onboard until after the company had already fired the three executives.

In fact, the letter contained numerous references to the shakiness of the accusations such as "I have no proof" and "This is conjecture." Bret Cohen, employment attorney at Mintz Levin in Boston, says such a letter should be dealt with carefully. Companies need to maintain a proper balance between healthy skepticism and sensitivity for the potential victims, he says.

Richard Plansky, senior managing director and head of the New York office of risk consultancy Kroll, would not comment specifically on the Renault case, but did say companies and investigators should remember that "not all complaints are created equal."

"A completely anonymous complaint from a whistleblower that does not contain any corroboration," says Plansky, "should be treated differently than a person who comes forward on his or her own accord with corroborating information, such as copies of emails, bank statements, etc."

Amid the scandal, Renault's stock price fell to $36 in March from $49 in February. At press time on Aug. 1, the stock was trading at approximately $35.

Cohen says the Renault investigation may have also gone south because the company was reluctant to air its dirty laundry.

"Think about how much less it would have cost Renault -- in terms of publicity, stock price, severance to these employees . . . if they would have spent half a million on an immediate, thorough, ripping-up-the-carpet investigation ... ," Cohen says. "They would have never been where they are right now."

Raising the Stakes

Having a robust system in place to handle internal investigations is becoming more and more important as the economic downturn has led to an influx of complaints from current and former employees. The U.S. Equal Employment Opportunity Commission reports that private-sector workplace-discrimination-charge filings nearly reached 100,000 in fiscal year 2010 -- a record high. That's up from about 83,000 in 2007.

Other types of complaints, say experts, are rising as well.

"As more people got laid off and didn't find jobs, they had more time to consider why they were terminated instead of their colleagues," says Debbie Muller, president and founder of Chatham, N.J.-based HR Acuity, a consultancy that helps employers conduct investigations. "The people who remained became fearful of layoffs and were more likely to raise issues [about wrongdoing by managers or other employees]."

Plus, the Dodd-Frank Wall-Street Reform and Consumer Protection Act that took effect in August gives whistleblowers increased protection and awards, and should increase the amount of complaints from employees.

There are also plenty of companies taking proactive steps, especially in this tenuous economy, to encourage employees to speak up so problems don't escalate or stay hidden under management's radar.

At Princeton, N.J.-based Tyco International, employees can issue complaints via a website, hotline or by directly contacting a company leader. That's quite a change from 2002, when news broke that Tyco CEO Dennis Kozlowski and Chief Financial Officer Mark Swartz had been accused of receiving lavish gifts on the company tab -- including a posh Manhattan apartment, a getaway on the Mediterranean and a $6,000 shower curtain.

They were each later convicted of grand larceny, falsifying business records and conspiracy, receiving sentences of up to 25 years in prison.

Tyco responded by creating an ombudsman -- a brand-new position -- and developing an expansive case-management system. The ombudsman lies within the legal department but works with HR to oversee investigations and address employee concerns.

Each year, Tyco receives about 900 complaints from employees, suppliers or stockholders, and every one is investigated. In the end, a little more than 40 percent are found to be without merit, while the rest compel the company to take action, says Laurie Siegel, Tyco's senior vice president of human resources and internal communications.

Of the company's 300 investigators, about 250 are from HR. Investigators typically conduct four or five investigations per year. Siegel says the continual employee concerns and complaints keep investigators sharp. "If you only have one investigation every five years, you aren't going to be efficient," she says.

The most egregious cases -- such as someone embezzling money -- could lead to a firing and possible prosecution. Lesser offenses lead to written or verbal warnings.

Laura Lonsdale, the company's first ombudsman (she now serves as flow-control-compliance counsel) recalls getting a call directly to her office from someone who claimed that a former employee may have stolen money.

Immediately, the wheels went into motion. A forensic-audit team along with HR began digging into old financial files and computer records and interviewing employees. "He was clever about it and came up with a scheme, but he stole money from us," says Lonsdale, who adds that the former employee is now in jail for the crime.

Tyco is currently involved in a pending civil case to try to gain restitution for the stolen money, she says.

In another incident, the ombudsman's office received word that an employee was running a side business using company equipment -- and was even telling clients that the business was part of Tyco.

Although the whistleblowing employee reported the wrongdoing anonymously via the company intranet, investigators were able to ask questions via a "reply to reporter" function that keeps names out of the conversation. The employee simply gets a claim number, then logs into the website and types his or her answers to the investigator's questions anonymously.

In the end, Tyco was able to find and fire that wrongdoer, says Lonsdale.

"That's something that we never would have found out about if not for this employee reporting," says Lonsdale.

Tyco also goes to great lengths to get the word out about its internal-investigation process. The ombudsman and representatives from the HR and legal departments travel from site to site hosting town halls and focus groups encouraging employees to raise issues.

"Senior managers want to hear from employees. They want to root out the problems. They want to put in fixes," says Lonsdale. "I talk to colleagues in similar roles at other companies and it's difficult to even get on the business manager's calendar, much less have a real discussion about issues."

Ingersoll Rand also has a robust investigation process that includes a 24-hour hotline and vigorously encourages employees to use it. If it's an employee-relations issue, HR will investigate. If it's a violation of a law or company policy, the Ethics and Compliance Group (made up of attorneys and financial professionals) heads the investigation.

Either way, the Dublin, Ireland-based commercial products manufacturer hopes to find the facts and come to a resolution in a reasonable amount of time, says Marcia Avedon, senior vice president of human resources and communications. Nevertheless, she says, there's no reason to rush.

"While trying to avoid the negative impact that a lengthy investigation can have on a location [in terms of morale, resources and distractions], as a company, I want to make sure that we get it right, both in terms of following our internal investigation procedures and in getting to the underlying facts," says Avedon.

Confidentiality, she says, is also of the utmost importance, "not only to avoid tipping off those who may be involved in the wrongdoing, but also to protect the reputation of those who are accused of wrongdoing until an investigation can be conducted."

Avedon also says it's important that investigators not act like the "internal police" -- but, rather, are respectful to employees during interviews. After all, everyone in a company is, or should be, on the same team.

In 2009, Ingersoll's program helped catch an employee who stole tools and parts from a distribution center and shipped them to himself and relatives.

"As is often the case, he started off small with only a few tools each month, but then quickly increased it when he thought no one noticed," says Avedon.

The investigation quickly proved the company's fears -- and the employee was arrested and eventually received a jail sentence.

Investigative Best Practices

Experts agree that sound internal investigations take planning, effective interviewing and the willingness to find out information that may be tough to swallow.

Such probes, says Paul Salvatore, co-chair of New York-based Proskauer's global labor and employment law department, "present opportunities to discover any practices that are inconsistent with the company's policies and standards for workplace behavior.

Prompt, proper and thorough investigations," he adds, "prevent harm in the workplace, enforce anti-discrimination and anti-harassment policies, work to avoid any potential legal liability [and] may provide a defense to a lawsuit and undermine claims for money damages."

Muller says companies should start by having ongoing documentation of employee-relations issues.

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"One thing I think companies are doing wrong is waiting until there is an issue. Once there's an issue, whatever [documentation] you have, you have," she says.

Muller recalls a story about an employee who claimed he didn't get proper workplace accommodations after being injured. An HR generalist offered him a wheelchair, which he turned down ... but the incident was never documented.

Now, the company is embroiled in an ongoing, expensive disability-discrimination case.

"It would have taken the HR generalist five minutes to document that conversation. Five minutes!" says Muller. Armed with such a document, "there would be no litigation."

Once a complaint does come in, employers need to take action. The following is a step-by-step guide to investigations, according to experts, HR executives and employment lawyers.

* Make a Plan. The minute an employee contacts management with a complaint, company leaders need to make a plan -- and prevent panic, says Barbara Hoey, attorney at employment law firm Littler in New York.

"It sounds rudimentary, but a lot of companies don't do that because they get caught up in this crisis mode," she says. "Everyone is sort of running around."

What do you know? What do you need to know? Who should be interviewed? What's a reasonable amount of time to finish the investigation? A sound plan can make all the difference.

* Choose Your Investigator. Opinions differ on who should do the investigating. Some think HR should take the lead every time. Others say attorneys, accountants or consultants should do the investigating.

Cohen touts human resource professionals as investigators because they already have a rapport with the staff and firsthand knowledge of the day-to-day climate of the organization.

"People may be more willing to speak to [HR] than they will to some guy in a suit carrying an expensive briefcase," says Cohen. "Frankly, I love it when HR conducts the investigation, [especially] when we intend to rely on the adequacy of investigation as some potential defense later on."

Hoey says HR should only conduct investigations about workplace complaints -- such as mistreatment by a boss or a disagreement about an annual evaluation -- as opposed to those involving criminal activity.

Both attorneys agree, however, that if an investigation centers around high-level officials, such as C-suite leaders, HR should defer to legal counsel. "It's very hard to have HR investigate those people because HR [professionals are] going to be worried about their jobs," says Hoey.

Cohen asks rhetorically: "How aggressive can you be with the people who sign your checks?"

While some suggest attorneys are the best way to go, Muller cautions against asking lawyers to conduct investigations.

"When you put a lawyer in front of someone, even if they're acting in an investigatory capacity, the person on the other side of the table is going to think, 'Hmm, they have a lawyer; do I need a lawyer?' " says Muller.

She also says lawyers can be a bit harsh with employees.

"Lawyers tend to cross-examine people -- that's not what you want to have happen in an investigation," Muller says. "You want to find out the truth, you want to do the fact finding, but you're not there to cross-examine them. That will put employees on the defensive."

Whatever school of thought an employer follows, getting legal advice throughout the process is important, says Kroll's Plansky.

"There are literally a million ways to get in trouble in the process of an investigation," he says, noting that different laws govern what employers can and can't do state-to-state, and, in some cases, county-to-county.

* Critical First Hours. Data can be overwritten. Surveillance tapes can be erased. Electronic evidence can be gone in a flash. That's why it's important to get on it right away. (For more on data forensics, see sidebar.)

When it comes to evidence, "lock it down right away," says Plansky. You never know what you'll need down the line, and often there is one "smoking gun" that can crack a case.

Waiting to gather evidence lessens the chance of actually finding what you need.

"Investigations should be prompt, confidential, thorough and well documented," says Salvatore. "Start investigations as soon as possible after learning of alleged harassment, discrimination or misconduct and complete them within a reasonable period of time."

* Start Interviewing. Identify people you want to get answers from and talk to them. At the same time, tell them that it's important that they don't try to create or destroy documents, says Hoey, noting that all documents should be copied to attorneys because they will fall under attorney/client privilege and not be admissible in court.

While interviewing employees, remember that no one should feel singled out.

Allegations can be damaging and stigmatizing to a person.

"You're dealing with real people, with real families, careers and reputations. It's important to conduct investigations with that in mind," says Plansky.

* Deliver Results. Before closing a case, deliver results to whoever is leading the investigation and determine what actions should be taken. If wrongdoing was found, should that employee be reprimanded? Fired? Prosecuted?

It's also important that investigators know it's OK to recommend that the company take no action. Too often, internal investigators are overzealous and look to find a wrongdoer no matter what -- even if nobody did anything wrong.

In addition, investigations can fall short because companies can't check bank records or gather subpoenas -- and that's OK.

"[Corporate investigators are] not the FBI," says Plansky, "... and they're not a court of law. They don't have to prove things beyond a reasonable doubt."

Still, he says, there's no excuse for getting an investigation wrong.

"There's no reason," Plansky says, "that you can't do a professional investigation that's legal, ethical and effective."

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