At the outset
A company will learn during its settlement discussions with the government whether it will be subject to an independent monitor. Assuming a monitorship cannot be avoided, the first important question will concern the identity of the monitor. While the government ultimately makes the selection, the company can often propose candidates and, through external counsel, may be able to help the government understand what experience, expertise and technical capability the monitor should have to maximise the odds that the monitorship will achieve the government’s aims and remediate the perceived problems at the company. Key also to the government will be the independence of the monitor candidates; lawyers, consultants and former government officials who have previously interacted with the company will almost always lack the required independence.
For instance, if the company is a manufacturing concern, the monitor candidates would ideally have some experience of that industry. To be clear, this does not mean the monitor must previously have been the monitor for another company in the industry (though this would be helpful). Rather, it would be enough if, for example, the candidate had consulted in the industry, provided legal representation to a manufacturing company, or worked for a regulatory body that oversaw or interacted with the industry. It is critical that a monitor comes to the assignment with basic knowledge of the company’s business, and a professional and prepared monitor team will have done enough advance study to be able to hit the ground running when the monitorship begins.
If the monitor candidate lacks knowledge of the industry, he or she will often fill that gap by assembling a team to assist in performing the monitorship. If the monitor is from a law firm, the team is likely to include members from the law firm and experts retained to assist in technical areas beyond the ken of the lawyers. Increasingly monitors come from consulting firms that specialise in investigative services, compliance, project management and monitorships. These firms have in-house specialists but also access to external experts who can be hired on contract to serve as members of a monitorship team. The monitor candidates will often assemble a portion of their teams in preparing and submitting proposals to the government.
The engagement letter
For the company, there are two critical documents concerning the monitorship: the deferred prosecution agreement (DPA) or plea agreement, which will already have been finalised with the government, and the engagement letter, which will be negotiated and signed with the monitor. The latter will in many respects be informed and constrained by the former.
For instance, the scope or jurisdiction of the monitor’s work will be set forth in the DPA and then mirrored in the engagement letter. Sometimes the language will clearly detail the monitor’s mission, but more often the language used by the government will be more general and open to interpretation. And even when the language is specific, the DPA will usually contain a catch-all provision that makes clear that the scope of the monitor’s work is to be interpreted broadly. To cite just one example, the provision will state that ‘[p]rovisions regarding the Monitor’s jurisdiction, powers, and oversight authority and duties [are] broadly construed’. This language will make it difficult for the company to confine the monitor’s work strictly to the precise terms of the jurisdictional provision, no matter how specific the language. The company should always keep in mind, too, that the government will be generally disposed to side with the monitor in disagreements concerning scope. After all, there is little incentive for the government to side with a company accused of – and having admitted – wrongdoing.
Still, the engagement letter process gives the company an early opportunity to engage with the monitor on jurisdiction and scope, and, in any event, the language in the engagement agreement should not be broader than that found in the DPA or plea agreement. If the monitor and the company simply cannot come to a meeting of minds on this topic at this stage, it is better to resolve the issue (with the government’s help, if necessary) early in the relationship so that the work can begin on a sound footing.
The engagement letter will also mirror other important terms of the DPA, such as the term of the monitorship, the company’s responsibility for fees and costs, the company’s obligation to make witnesses and documents available, and how matters subject to legal privilege will be handled. The company has scant leverage on many of these terms, but there remain some. The company can ask the monitor to agree to use company-preferred (and less expensive) travel and lodging services, the company can suggest language that makes clear that monitor requests – particularly those relating to senior company officials – should be reasonable, and the company can expressly reiterate the language from the DPA that protects the company from having to disclose privileged material to the monitor.
The engagement letter should also contain language ensuring the confidentiality of the materials and information provided to the monitor, the monitor’s reports, and any other materials created by the monitor concerning the company, and what will be done with those at the end of the monitorship. In addition, the agreement should make clear that the monitor will join the company in fighting any effort by third parties to obtain these materials.
Finally, the company should pay close attention to the term of the monitorship set forth in the engagement agreement. The DPA, which has a specified term, may well commence several weeks before the monitor is named. The engagement letter may take a week or so to finalise, and as a result, the monitorship term may purport, pursuant to the engagement letter, extend beyond the expiration date of the DPA. This mistake should be remedied at the outset, with the dates aligned to the end date of the DPA.
Structuring the company’s monitor team
Just as the monitor will need to build a team with the required expertise, judgement and ability for the mission, so, too, must the company have a qualified team ready to work daily with the monitor to satisfy the company’s obligations. Ideally, the company should identify a single individual to lead that effort, and it should be someone who can devote most, if not all, his or her attention to the task. The ideal candidate will be a respected leader in the company who has the support of, and access to, senior leadership and, as appropriate, the board of directors, an experienced team leader with strong project management experience and someone who understands the mindset of government regulatory and enforcement agencies. It is not essential that the candidate be a lawyer, but if not, it is critical that the team include a member of the in-house legal staff who can advise the team and help to identify matters that implicate attorney–client privilege or work-product doctrine.
The internal monitor team leader should be empowered by the company to make significant decisions that bind the company under the monitorship. That leader must have enough experience, expertise and judgement to know when issues need to be elevated to the company’s general counsel or business leadership. The internal team leader should build a close working relationship with the monitor. Significant issues should be elevated to this level and resolved, if possible, before elevating further, including to the government.
The team should also include subject-matter experts from within the company whose expertise dovetails with the subject matter of the monitor’s scope of work. For example, if the monitorship is focused on the company’s compliance programme, the internal team should have members steeped in that programme. Similarly, if the monitor is focused on safety and engineering processes, the internal team should include members who are knowledgeable in these areas. In this way, the team members can help to educate the monitor team, proactively identify issues and anticipate next steps, and quickly identify witnesses and information that will increase the efficiency of the monitor’s work.
Just as the team leader should be a respected and talented employee, the team members should also be known top performers in the organisation. These individuals will interact regularly with the monitor team, and to the extent these interactions build trust and confidence, it will help the monitorship proceed smoothly and end successfully.
Setting the tone
From the outset of the monitorship, the company should establish and maintain a cooperative and constructive relationship with the monitor. The monitor will be there for some time, working with and inside the company at the direction of the government; it makes little sense for the company to assume an adversarial position unless necessary. During the term of the monitorship, the company should err on the side of accommodation to preserve a good working relationship with the monitor. The company should always bear in mind that there is little or no incentive for the government to side with the company in a dispute with its monitor.
Critical to creating a productive, collaborative tone is establishing early on a relationship between the monitor and the company’s senior leadership and board of directors. This will give the monitor confidence at the outset that the company respects and supports the effort he or she is undertaking, and company leadership gains a better understanding of the plans the monitor has for the monitorship.
A good start is achieved by inviting the monitor to present to the board and the senior leadership during the first few weeks of the monitorship. The monitor team leader for the company should work with the senior leadership and board to prepare them for the meeting by reviewing the DPA, the engagement letter and what the monitor has proposed as his or her initial work plan. It is important during this meeting that the chief executive officer (CEO) and board chair (or lead director, if the CEO is the chair) convey their support for the monitor’s work and pledge the company’s support. Put simply, the company message should be along the lines of: ‘We have made mistakes. We are working hard and are committed to correcting those mistakes. We understand and appreciate that the monitor is here to help us make those corrections and we will fully support the monitor’s efforts.’
The team leader should also brief the monitor about the members of the senior leadership team and the board, and what they would hope to hear from the monitor at the meeting. It is helpful if the monitor has studied his or her brief and can speak intelligently – even at that early stage – about the company and its business.
Following this meeting, additional efforts should be undertaken to flow down throughout the company the cooperative and respectful tone taken by company leadership. For example, a video message from the CEO to company employees expressing support for the monitor’s work helps to establish the proper company mindset for forthcoming interactions with the monitor and his or her team.
Briefing the monitor and his or her team
Setting the scene
At the outset of the monitorship, the company will also be well served by conducting detailed briefings for the monitor team concerning the business of the company. The briefing should start with a comprehensive overview of the business, then focus in detail on those parts of the business where the problems arose that led to the DPA or plea agreement. Detailed briefing books should be prepared and delivered in advance so that the monitor team can prepare for the meetings and have prepared questions. It is also helpful at these briefings to have the company experts and managers present on the different topics. This approach shows again the cooperative posture of the company, and it instils confidence and trust in the monitor and his or her team. Also, by introducing many of the employees and materials relevant to the scope of the monitor’s work, this approach can help to focus the early work of the monitor team.
As part of its early education effort, the company should also schedule site visits, particularly when manufacturing or engineering issues are critical to the monitor’s work. For example, in the automotive industry, one lacks an appreciation for the complexity and challenge of engineering and manufacturing vehicles until one visits an assembly plant. Witnessing the company’s activities will help the monitor get a perspective on the company and its employees.
Preparing the company’s employees
The company’s employees must also be educated about the DPA or plea agreement, the monitor and pitfalls to be avoided. This can best be accomplished through a programme that includes communications and training.
As part of the DPA or plea agreement, there will undoubtedly have been some communication from company leadership when the agreement was entered with the government. Even so, the company should continue with additional communications concerning the obligations the company is undertaking as a result, including the monitorship. The communication should also make clear to employees the cooperative and collaborative approach the company will take with monitor. Last, the communication should inform employees that they are required to complete a training module on the DPA and the monitorship.
The training module should be prepared and available on day one of the monitorship. It should cover the requirements of the DPA, the details of the monitorship and the company’s expectations of employees in their interactions with the monitor team. Importantly, the training should also identify the internal company monitor team, make clear that the internal team has responsibility for interacting with the monitor team and provide contact information for each of its members. Employees should be encouraged to reach out to those team members if they have questions or concerns, and an internal email or web address should set up to reach out to the internal team. Because many DPAs also require that the monitor establish his or her own hotline at the company during the term of the monitorship, the company’s communications and training should also reference that hotline.
The training must address another critical concern relating to the DPA or plea agreement. The applicable agreement will contain an agreed statement of facts drawn up by the company and the government. The agreement will also contain a provision prohibiting the company or its employees or agents (e.g., external counsel) from making public statements that contradict the statements of facts. While it is critical that company leaders, spokespersons and attorneys are aware of these restrictions, educating all employees on this restriction will help to ensure that no inadvertent mistakes occur.
Living with the monitor
A collaborative, cooperative, transparent and trusting relationship is the key to a successful monitorship for the company. The confidence-building steps described above should give the relationship a strong foundation. Going forward, the internal monitor team must make sure that the relationship is sustained by daily interactions, including the setting of ground rules. The better the relationship, the more likely that ground rules can be established that are less intrusive.
The DPA gives the monitor unfettered access to people throughout the company and the monitor may well be within his or her rights to approach anyone in the company without prior notice to the internal monitor team. From the company’s perspective, however, this approach would be extremely disruptive and it would not serve the monitor’s broader purpose of bringing positive change to the company.
Instead, the company and monitor should agree that the internal monitor team will serve as a ‘clearing house’ for interview requests from the monitor team. The internal team can assist the monitor in identifying the appropriate employees for interviews and making certain they are available at a time convenient for the monitor team. The internal team can also make sure that interviewees locate and provide requested documents, while ensuring that these documents do not include privileged materials. To preserve the independence of the monitor and the integrity of the monitorship, the internal team should agree at the outset of the monitorship that it will not coach the interviewees. One caveat is that the monitor should not object to the internal team reminding the employee before the interview that he or she should not answer questions that touch on legal advice or legal work-product.
However, a monitor will not typically object if the internal monitor team debriefs the interviewee after a meeting, particularly if it is done not just to aid the company in understanding the direction of the monitor’s inquiry, but also proactively to assist the monitor in identifying other employees and documents that may bear on the issue of interest. By engaging in these debriefs, the internal team can keep a running log of all interviews and topics covered (which should be disclosed to the monitor). In addition to helping the company understand the scope and direction of the monitor’s work, the debriefs help to avoid redundant interviews and assist the internal team in checking the accuracy of the monitor’s reports.
The DPA empowers the monitor to obtain documents from the company, except those subject to attorney–client or work-product privilege. The monitor will want to keep these documents in its own database, which will be off limits to the internal company team. Here, too, however, the company – with notice to the monitor – should keep a log of all documents that are produced to the monitor during the term of the monitorship. As is the case with the interview log, the document log helps the company to understand the scope and direction of the monitor’s work and anticipate next steps. As described below, tracking the documents will also help the company team review monitor reports for accuracy and completeness.
The DPA will direct the monitor to file periodic reports with the government, the frequency depending on the preference of the government regulator involved in the case. Some agreements require annual reports and some require them as often as every four months. In any event, the company should attempt to persuade the monitor to give the company a role in reviewing the draft reports for factual accuracy before they are submitted to the government. Not every monitor will accede to this request, particularly if the relationship with the company is the least bit adversarial. However, a compelling argument can be made to the monitor that he or she does not want to suffer the embarrassment of submitting a report that contains factual errors or inadvertent misrepresentations of employee interviews.
Assuming the monitor agrees to this request, the internal team can use the interview and document logs to assist in reviewing the draft report. Those logs will also help the team to locate the appropriate company personnel to review factual assertions and recitations of employee interviews. By thus farming out relevant portions of the report for review, the internal team can quickly provide comments to the monitor that will result in a more accurate report.
Occasionally the monitor team and the internal team will end up at loggerheads over a factual assertion, an inference drawn or a quotation taken from an employee interview. In these cases, if a resolution cannot be reached by the monitor and the company’s lead, the company could take the issue to the government through its external counsel. However, this should be done only in extraordinary cases as it risks undermining the relationship with the monitor, and the government will be loath to side against the monitor.
Throughout the monitorship term, the monitor will make recommendations to the company to make changes that will fix the problems that led to the DPA. From the company’s perspective, these recommendations should proceed from a thorough understanding of the company’s structure and operations. The internal team should make it a priority from the outset to assist the monitor team in developing that understanding. Ideally, the monitor will agree to hold off on making recommendations until his or her team has developed sufficient understanding and credibility with company employees so that the recommendations are well designed, substantive and effective at solving the identified problems. Recommendations for the sake of making recommendations should be discouraged by the internal team.
Ideally, the monitor will agree that recommendations will be finalised only after consultation with the company. While the monitor is certainly empowered to make recommendations even when strongly opposed by the company, a better result will be achieved if the monitor and company reach consensus on the proposed recommendation. An effective approach used by some monitors involves raising proposed recommendations as ‘discussion items’, engaging in dialogue with company experts on the feasibility and effectiveness of the proposal, and finalising the recommendation for submission to the government after consensus is reached.
The internal team should keep detailed records of the recommendations. A spreadsheet listing the recommendations, the date each was finalised by the monitor, the target date for completion and the internal owner of each recommendation are useful factors for tracking implementation progress. To ensure there is a plan for implementing the recommendation, the internal team should require an implementation plan to be created and maintained by the internal owner of each recommendation. From time to time, the monitor will ask to be updated on the company’s progress with recommendations and these records, kept current, can be used for this purpose.
Interactions with the board, chief executive and senior leaders
The relationship established at the outset between the monitor and those at the highest levels of the company should be maintained throughout the monitorship. This relationship helps the monitor to appreciate the importance assigned to the monitorship by the company, and it affords the company leadership the opportunity to hear of any issues of concern directly from the monitor. An effective approach can be to have the monitor present to the board of directors periodically and participate in a regularly scheduled short meeting with the CEO and other senior leaders whose responsibilities intersect with the scope of the monitorship.
Some potential pitfalls
Reporting ‘bad news’ and avoiding surprises
The internal team must make sure that the monitor learns of new issues from the company, particularly if the problem relates to a matter within the jurisdiction of the monitorship. More problematic is a situation involving a new issue, potentially criminal in nature, not within the monitor’s bailiwick. The DPA will include a requirement that any such issue be taken up by the government, and not necessarily to the monitor. In these cases, the company should nonetheless provide the monitor with a high-level, factual summary of the matter, being mindful of protecting privileged advice and information. The monitor should not hear about an issue for the first time from the new media. By being transparent and proactive, the company will instil confidence and trust in the monitor that the company is committed to doing the right thing.
Privilege and work-product
The typical DPA allows the company to hold back materials but obliges the company to use best efforts to provide the requested information in a manner that does not jeopardise the asserted privilege. At the beginning of the monitorship, the internal team leader should obtain the monitor’s agreement that the monitor team members will not seek information protected by privilege, and that the company team will be permitted to educate employees about privilege before they are interviewed by the monitor team.
Still, inevitably, the monitor team will ask for information or materials that implicate attorney–client privilege or work-product doctrine. When this issue arises, it should be elevated to the monitor and the internal team leader, who should involve the company’s legal department in negotiating a solution. Generally, a compromise can be reached. If not, this is an area where the company may well need to go the government with its concerns. A company subject to a DPA is probably subject to related civil litigation, and the company should not have to risk waiver to remain in compliance with the DPA.
Ending the monitorship
At the end of the monitorship, amid well-deserved elation, the company must remain mindful of several important close-out matters. The company should put together a plan for bringing the monitorship and government supervision to a close, and then execute that plan. To develop that plan, the company should work towards closure in parallel with the monitor and, with the assistance of external counsel, begin a dialogue with the government about bringing the matter to a close.
Company counsel should work through external counsel to make certain the government, too, understands and agrees that the monitorship is winding down successfully. The communications should begin several weeks – if not months – before the end date specified in the underlying document that establishes the monitorship. There should ordinarily be no surprises at this point; presumably any government concerns would have been communicated to the company through external counsel for the monitor’s company. Still, the waning days of a monitorship can be fraught, as employees, managers and leaders at the company sometimes grow complacent and less diligent, figuring – wrongly – that the government may have lost interest in the matter. To the extent that the company can get the government’s agreement that, assuming no late-breaking problems, the monitorship and pending charges (in the case of a DPA) will end on a certain date, the company can construct its plan accordingly.
The company should also communicate closely with the monitor during this time. Ideally, the relationship between the monitor and the company is productive and strong at this point and the monitor can be the company’s ally in going to the government about closure. Of course, the monitor cannot take on that role if unaware of the company’s efforts, and therefore the monitor should be generally aware about the company’s conversations with the government. Indeed, it can be very helpful if the monitor, the company and the government engage in discussions about the end game, including the date on which the government will end its supervision of the company.
By this point in the monitorship, the company and the monitor should be aligned on the progress the company has made and the justification for ending the relationship. Typically, the monitor will have made its final set of recommendations several months prior, and the final few months are spent monitoring implementation and sustainment of those recommendations. To ensure alignment as the closing date approaches and conversations with the government begin, the company should take several proactive steps.
First, the company should proactively schedule reviews for the monitor, designed to show the progress made on recommendations and positive results therefrom. While often a company will not be able fully to implement all recommendations by the end of the monitorship (and generally this is not required), it is important to demonstrate continuing progress to the monitor – and the government – and to show the company’s commitment to complete the effort and its willingness to continue devoting necessary resources.
To underscore that commitment, the company should also make senior management and board members available to the monitor in the closing weeks of the monitorship. Inviting a final report by the monitor to the board of directors bookends the beginning of the monitor’s relationship with the company, and will provide evidence of both the company’s continuing commitment to remediation and its appreciation for the work the monitor has done. Further, there should be a wrap-up meeting with the CEO at which the monitor is given explicit assurance that the company will continue the corrective course set out by the monitor. It is also helpful at these meetings for the CEO, or other senior leader, to sketch out how the company will continue to monitor implementation of the recommendations. Often, for instance, companies will commit to using their internal audit functions in such a role.
Finally, while respecting the monitor’s need for independence, the company should work closely with the monitor team as it prepares its final report to the government. The company team should be quick to provide requested documents, witnesses and other materials necessary for that report, and the team should look for fitting examples of significant remediation successes that can be brought to the monitor’s attention for inclusion in the final report. The goal of the company is for that report to conclude without reservation that the monitorship has accomplished its goal.
Despite all these best efforts, sometimes a last-minute brush fire will occur. Perhaps an employee engages in a fraud that is attributable to the company, or a compliance lapse takes place, or an important recommendation has simply been ignored. In these cases, the trust and mutual respect that has been established during the preceding few years is what should spare the company from further trouble (in the form of, say, an extension of the monitorship). The hard work and good corporate behaviour exhibited by the company should convince the monitor (and in turn the government) that the late-breaking issue represents not backsliding, but truly aberrant behaviour that will be dealt with appropriately by the company.
In connection with the end of the monitorship, the company should consider whether and to what extent it desires publicity about the matter. Should there be a press release? Does the company want to have a hearing in open court at which the judge will dismiss the pending charges in a DPA? Does the company need to make a disclosure under securities laws? The answers will differ depending on the facts of each case, but the questions need to be studied by the appropriate company personnel in the run-up to the end date.
Finally, once the monitorship ends, the charges are dismissed and the government supervision ends, the company must attend to the voluminous records and files it undoubtedly will have amassed during the monitorship. Proper storage and retention protocols should be followed. It is also important to hold the monitor to the engagement letter requirement that the monitor return all documents to the company or destroy them, and certify that the destruction has occurred.