Why is cooperation in corporate enforcement actions such a big deal? Because from the outside, most companies are a black box. Without help, it’s impossible to know what happens inside.
The DOJ’s Justice Manual (the handbook for federal prosecutors) describes “several obstacles” that can hinder a corporate investigation. Among the obstacles are informal lines of authority, documents and data spread worldwide, and promotions, transfers, firings, resignations, and retirements that disburse key players.
“Accordingly, a corporation’s cooperation may be critical in identifying potentially relevant actors and locating relevant evidence, among other things, and in doing so expeditiously,” the Justice Manual says.
It’s no surprise, then, that the FCPA Resource Guide says both the DOJ and SEC “place a high premium” on cooperation (along with self-disclosure and remediation) “in determining the appropriate resolution of FCPA matters.”
In the UK, the SFO sets equally high expectations: “Cooperation means providing assistance to the SFO that goes above and beyond what the law requires.”
But here’s the problem. Companies can only act through people. Will those people cooperate? Will they help during an investigation?
Facing that uncertainty, what can companies do?
Some do nothing. They have no stated policy about employees’ future cooperation. If there’s an investigation, individuals are left to decide whether to cooperate or not. The company either takes no position or responds ad hoc.
Can those companies keep a promise to cooperate? Maybe, but it’s all left to chance.
Other companies plan ahead. They take steps in advance to obligate, encourage, and incentivize their employees’ cooperation.
Planning through codes of conduct. For example, Live Nation Entertainment’s code (part of the company’s recent 10-K filing) obligates all employees “to report violations of this code or the law and to cooperate in any investigations into such violations.”
The code also “requires all personnel to cooperate with internal accountants and outside auditors “to the maximum extent possible.”
Anyone at Live Nation involved in a code violation faces discipline, determined in part by “the degree of cooperation” displayed by the employee.
Some companies also encourage cooperation by promising to protect employees who cooperate.
Microsoft’s anti-corruption policy (featured in this benchmarking post) says the company “will not tolerate any retribution or retaliation against anyone for raising a concern in good faith about a potential violation of this policy, or for cooperating with an investigation.” (My italics.)
Planning through employment agreements. It’s now common for companies to include “cooperation clauses” in employment agreements. The clauses typically say the employee (usually an executive) can be terminated for cause for “failing to materially cooperate with any investigation authorized by the board or any governmental or self-regulatory entity.”
Cooperation clauses can operate even after an employee leaves the company. In practice, that works only for those due severance payments or other post-departure compensation.
Planning through agreements with third parties. Some companies require commercial partners to cooperate with investigations. A license agreement attached to Alimera Sciences, Inc.‘s latest annual report is on point.
It obligates each party to “fully cooperate with any ethics or compliance investigations into possible violations of the FCPA or the anti-bribery laws and regulations of the Territory or other countries that arise in connection with this Agreement.”
Even with the best planning and preparation, no company can guarantee that every employee will cooperate.
The DOJ can’t make cooperation credit contingent on a defendant waiving the attorney-client privilege. Nor can the feds force employers to require that employees waive protected rights.
Well-drafted cooperation clauses in employment agreements say the employee’s failure to waive attorney-client privilege in connection with an investigation doesn’t constitute cause.
Still, prosecutors and regulators have high expectations. That’s why prudent companies lay the groundwork for cooperation before it’s needed.
Despite the limitations, a company that can demonstrate good-faith efforts to cooperate through prior planning is likely to win points from the DOJ, SEC, and SFO.