Independent outside counsel play a critical role in assisting audit committees in internal investigations, while reinforcing their core missions of independence and oversight. In this article, we provide practical guidance on the value of engaging outside counsel in corporate investigations, including the legal requirements applicable to audit and special committees, the important roles that outside counsel play in internal investigations, and the serious risks that companies may face by conducting internal investigations without the use of independent outside counsel.
Dating back to the 1940s, in order to encourage accurate financial disclosures, the Securities and Exchange Commission (“SEC”) has encouraged publicly traded companies to adopt policies and procedures for the use of independent audit committees. Today, acknowledging that managers may face market pressures exacerbated by compensation incentives focused on short-term stock appreciation — and the resulting potential for managers’ personal interests to diverge from the long-term best interests of the company’s shareholders — the SEC enforces substantive rules requiring the use of independent audit committees. In 2003, the SEC issued Final Rules to implement Section 301 of the Sarbanes-Oxley Act of 2002.
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