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Baltimore SmartCEO
August 2003
CASE BY CASE - The CEO's Checklist For Discrete Corporate Investigations
From competition and product development to management and logistics, a smart CEO must be involved in all aspects of a business. As generalist and visionary, the CEO gets credit when a firm succeeds. As the final authority, you are also held responsible when something or someone goes wrong. Be it theft, fraud, discrimination, sexual harassment or a leak of confidential information, as CEO the problem is ultimately yours. Take action early and you'll likely correct it with minimum fuss. Delay too long and you may lose money, critical information and, worst of all, reputation.
Should the day come when you face an internal or external situation which requires investigation, you'll manage better if you've given it some thought. While there's no substitute for well considered procedures, here's a basic checklist to get you started.
You Decide
Choosing to investigate an employee, transaction or business partner is one of the most difficult decisions a CEO can make. Partly, because no two situations are identical. What may trigger action in one instance may not in another. According to the professionals, the attentive CEO must trust their instincts.
Michael Kessler is CEO of Kessler International, a New York City corporate investigative and computer forensics firm. He says that companies' internal systems often alert them to malfeasance. Occasionally, an outside authority or business associate may indicate that you have a problem. Other times, gossip may tip you off. Though unreliable, it can key your own instincts. "Usually, the red flags go up somwhere," Kessler explains, "That's when it's time to act."
Perhaps the most telling observation professional investigators make is that CEOs who know and interact regularly with their personnel, even in large companies, are better able to tell if something untoward is afoot. Not only do such executives keep their fingers on the pulse of the firm well, their presence encourages communication with employees who frequently feel more comfortable bringing problems to their attention.
Even when the need for an investigator is black and white, it's rarely a decision CEOs take eagerly. Given such natural reluctance, those with an affinity for the workings of their firms more often make right call when the signals for action are nebulous.
Who To Tell
If discretion is often the better part of valor, it's also the watchword for corporate investigations. Discretion should be high among a CEO's priorities the moment an issue/complaint is brought to their attention or a problem is perceived. If you have decided to seek investigative help, keep it quiet Thomas Daly says. Daly is a principal in NFC Global, a Pennsylvania investigative firm which serves the banking, healthcare, and casino industries among others.
"There's no question that being discrete will breed success in an investigation. The more people that know [about outside investigators], unfortunately, the more compromised an investigation can be."
In some instances, bringing others into your confidence can be beneficial. Michael Kessler believes that discussing the matter with department heads who are not directly involved or with long-time loyal employees can give you a head start. "They can give you insight into the individuals who might be involved in alleged acts or provide detailed information about their activities."
Generally, you should keep the circle of those who know you've decided to retain investigative talent small. One of the first questions NFC investigators ask clients is how many people are aware of the situation. "If it's a sexual harassment complaint for example," Daly illustrates, "is it general office knowledge that John is bothering Mary or is it a situation where a person came to a supervisor to try and nip it in the bud?"
Even if a problem like theft of goods is common knowledge, it is still in your interest to keep your decision quiet, otherwise identifying the perpetrators will become difficult. Just as discretion can impact the efficacy of an investigation, it can impact your firm's position in the marketplace. Ensuring that any publicity surrounding the action is released at the appropriate time, or not released at all, is another side of the equation.
Timing Is Everything
As tough as the decision to hire an investigator may be, it's one you shouldn't linger over. Vacillation can allow the trail to go cold, further funds and property disappear, or harmful behavior to go unchecked.
"Timeliness is very important depending on the type of case," Reg Przybylski agrees. His Towson-based firm, Absolute Investigative Services, undertakes corporate investigations in the Baltimore area. "If you have a theft problem, say client lists are being stolen from inside, you want to nip it in the bud as quickly as possible." Potential liability can be as serious as potential loss Przybylski adds. "Once a [CEO] is notified, they are going to be held responsible. If you sit on a problem and let it fester, it can become very big."
Kessler International's CEO views investigative decisions with an eye toward the hourglass too. "If you start doing an internal review based on a defalcation of funds or sexual discrimination claim, the clocks starts running. Once the company knows about it, it's best to try and resolve such matters quickly. It's best to secure evidence immediately and interview people simultaneously rather than individually so stories can't be merged."
The passage of time may not only could the facts as related by individuals, it increases the likelihood that electronic information in particular (files, documents, emails) will disappear, whether by design or not. Paper trails are more easily traced as time passes, Kessler allows, but the potential for documents to go missing increases regardless.
Investigating The Investigator
Hiring an outside investigator is important. They have the experience to mine information effectively and to gather evidence which can withstand scrutiny in court if necessary. Their observations are generally untainted by vested interest or personal loyalties.
"If you have a plumbing problem, you don't get an electrician to take care of it," Reg Przybylski quips, "Obviously an HR person or other insider won't have the experience we do. The first thing I'd look for is someone that has the right background."
Finding an agency with the resources and experience germane to your problem requires you to do a little homework. The first priority is to be certain that any firm you consider is licensed and has no outstanding complaints. Most states license investigators buy you also need to be certain that the personnel they assign to your case are licensed and/or experienced.
"It's nice to have the CEO with 30 years law enforcement experience," Michael Kessler says, "but he might take someone with no experience who's looking for a part-time job and put them on the case." Reg Przybylski advises CEOs to be wary of those who purport to be licensed but have simply gotten listed with licensed agencies by working with them for a period.
Look at the background of the people you'll be hiring as you would with your own employees and choose a firm with a track record like yours. "You certainly wouldn't want a company which does divorce investigations ninety percent of the time taking on a white collar crime investigation," Kessler cautions. All three companies with which we spoke number former federal, state and local law enforcement personnel heavily among their staff and have significant technical and human resources expertise.
Trade associations including those to which you may belong are a good place to start searching for investigative services. Referrals are an important part of the business but it may be difficult to find others on your level willing to discuss the subject. In our area, the Maryland Investigators and Security Association is a good place to start a search as is the Professional Investigators Alliance of Maryland.
An additional recommendation is that you look for investigative firms which repeatedly get good press for having uncovered wrongdoing or have been asked to participate in important cases.
Pursuing The Investigation
Once contacted, investigative agencies typically set an initial meeting with the client to discuss the specifics of the matter and agree on fees. Investigators stress that no two situations are exactly alike so the course of action differs from case to case. Much depends on the client and the service exchanging as much information as is relevant. CEOs are often reluctant to share information but, as Thomas Daly points out, it is both necessary and expedient.
"You find that businesses, for legitimate reasons, are afraid to share information with a third party. That's unfortunate because if the information has a direct bearing on the investigations, ultimately it will probably be uncovered. It's costly to the client and it wastes time."
Not only does sharing available information give the investigator the ability to get results more quickly, it also lets them more accurately price the investigation. Price will be affected by the methods called for. Most often, information database/file analysis will start the investigation followed by discrete interviews and perhaps surveillance. The interview process can be very delicate and requires skill according to Daly, particularly when someone on an executive level is under scrutiny. The most time consuming and expensive type of investigation involves placing someone covertly in a work place. However, the returns don't often justify undercover efforts, says Michael Kessler.
"You try to resolve these cases as quickly as possible and as economically as possible. You're not going to have someone work in a position [undercover] where it's costing your client a tremendous amount of money and the possibility of getting information is about twenty percent."
Theft may be an exception to the undercover rule as Reg Przybylski pointed out. His firm often uses surveillance cameras to uncover theft but has successfully inserted covert operatives into manufacturing businesses to acquire evidence when no other way proved effective. "It depends on the situation," he says, "Sometimes it's worth the cost."
Seizing information is usually the most effective means of figuring out if wrongdoing has occurred and who is responsible. With the client's consent, Kessler International will often go into an office after-hours to download files, seize computers or information from an individual's workspace. Thorough knowledge of the legal strictures on such activity in the relevant state/city is paramount. In financial fraud investigations Kessler staff have posed as outside accountants hired by the client on a plausible pretext. That way, access to records is made easy and opportunities to observe/interact with individuals under suspicion are plentiful and natural.
Whatever the method of investigation, one of the most important factors a CEO must deal with up front is cost.
The Fee
"It's extremely important to establish a retainer agreement with the investigator," Michael Kessler maintains. "Get an outline of what they're going to perform, get their charges. You also need to prepare a budget and don't leave it open-ended. There are agencies which will take advantage of the situation."
NFC Global has a corporate hourly rate of $125 according to Thomas Daly. It's a competitive rate but is largely a guide since the "case by case" rule holds here as well. "Basically, the client will come to us with a specific request," Daly explains. "We'll take a look at it and say, based on our experience, that we should put a financial cap of $5,000 on this or whatever the case may [warrant]."
CEOs must be honest about what they're willing to budget for an investigation. Sometimes an investigation cannot be effectively executed for the figure you're willing to spend. Provide the investigator with a budget and let them advise you of what is feasible. The CEO should do his/her own cost benefit analysis as well. There are no guarantees that an investigation will recover what you've lost but it may still be worthwhile.
Allowing someone to get away with an action can set a precedent and even cause a snowball situation. "It also defeats the morale of honest people in your company if they see someone who took advantage whether stealing time, money, supplies or information get away with it," Michael Kessler explains. Setting an example can deter future negative activity and may reflect well on your firm from a public relations standpoint Daly adds, particularly in the post-Enron environment.
Stay Involved
Having gotten a good investigator and given them the information and maneuvering room they need, you cannot wash your hands of the matter. Staying involved is important. Just as investigators will return information and advice, they'll want your input on any further steps to take.
Absolute Investigative's policy is to keep the client informed of its findings on a daily basis or at least twice weekly basis. Comprehensive written reports should be delivered to you regularly and if necessary, to your legal counsel. If prosecuted, the target of an investigation may file counter charges or bring a civil suit against the firm whether guilty or innocent. Having the facts well organized and an investigative service at least on professional par with your own firm is imperative.
Investigators usually let the client decide the means of communication, frequently outside the company channels. The result is that you, as CEO, will often be the "point-man." Effectively delegating responsibility may be one of your most valuable talents but in these situations it may not be appropriate. If you do assign communication with an investigator to a trusted associate, be sure to stay engaged anyway. Get copies of the reports yourself and compare notes regularly.
From The Outside In
The other half of the discretion equation mentioned earlier is external confidentiality. Trade secrets are sometimes at issue and investigative firms which can't keep them don't last long in the marketplace. Since many of these firms specialize in due diligence and legally permissible competitive intelligence gathering, their incentives for keeping private information private are strong. Be certain that your investigator signs a thorough non-disclosure agreement and that the investigating firm has serious confidentiality policies in place. Make sure that such guarantees extend to the firm's employees as well.
If the investigation or the result of the investigation becomes public, it's best to take a proactive stance and provide your staff and the media with as much information as reasonable. Coordinate the information you release with your investigator so that you're speaking with the same voice.
External investigations are another subject on their own and there is certainly more to consider than covered here. The bottom line is that a bit of preparation, as in all aspects of business, gives you an advantage when the unexpected arises. Happily, there is more professional investigative advice and assistance available than ever. An abbreviated checklist such as this can get you started but the key is to remain alert and flexible. Take each problem "case by case."
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