Whistle-blowers are back on the front page, helping to revive that titillating double question from the Watergate hearings: What did he know and when did he know it? Directors have a different question: What should you do if a whistle-blower comes to you with allegations that the company, or one or more of its officers, is cooking the books or misbehaving in some other way? Here’s advice from William Brandt, president and chief executive officer of Development Specialists Inc., a turnaround firm based in Chicago.
Most important, resist the temptation to conduct a personal investigation of the whistle-blower or his or her allegations. Instead, move to institutionalize the board’s response.
Inform the other directors of the allegations. Insist that a small group or subcommittee of board members be formed to investigate and respond. This subcommittee should be dominated by outside directors, ideally ones who are not members of committees affected by the allegations. For example, if accounting irregularities are alleged, members of the audit committee should not be part of the investigating group.
The subcommittee must act quickly to ensure that all relevant materials (memos, correspondence, financial working papers, and the like) are kept away from the shredder.
The subcommittee should immediately retain outside professionals to conduct a thorough, no-holds-barred investigation. If accounting issues are at stake, hire an additional outside accounting firm or forensic-accounting firm. If sexual harassment is the issue, engage a consulting firm with experience in that area. The subcommittee should also retain an independent law firm to represent it exclusively. If the company’s in-house lawyers are involved in either the allegations or document storage, make the outside counsel responsible for all relevant materials.
Try to have the bulk of the investigation conducted offsite. This will minimize interference by management and disruption of day-to-day operations.
Avoid any wisp of retaliatory action against a department or an individual—including the whistle-blower and anyone accused of wrongdoing—until the subcommittee completes its report. At that point, the whole board can decide what action to take next.
