What Impact Will the Senior Managers Regime Have on Internal Investigations Involving Senior Employees?

Imagine you are a designated senior manager or perhaps simply someone subject to the Financial Conduct Authority’s new certification regime. Out of the blue, you are asked to attend a meeting with the company’s general counsel. After the initial pleasantries the GC says:

  • I represent the company. I’m not your lawyer.
  • I’m going to ask you questions regarding a certain situation; our conversation is privileged.
  • It is the company’s choice whether or not to waive that privilege.
  • If the company decides to waive the privilege, the information you provide may be disclosed to others including the regulators without further reference to you.
  • Are you willing to be interviewed regarding the situation?

Does this sound far-fetched to you? Does it seem as if this would or could only happen if a substantial cloud of suspicion was hanging over you for good reason?

Privilege in the U.S.

Well, the chances are if you are from the U.S. or have experience working there you may recognize this as an Upjohn Warning named after the Supreme Court case of Upjohn Co. v. United States. In that case, the principle was established that for a company to be able to claim privilege over communications with its employees, warnings of this type needed to be given routinely so as to avoid later challenge by the employee concerned.

The principle is not limited to formal internal investigations. Indeed the trick, from a company’s point of view, is to ensure the warning is given at an early enough stage for it to gain the benefit. The more substantive the interview and the more senior the employee concerned, the greater the likelihood that a warning will be thought necessary or prudent.

The whole issue has been given a new impetus in the U.S. as a result of the Yates Memorandum (about which I have also blogged). That’s because if a company is to take advantage of any prosecutory dispensation or deferral, it is critical that it retains control over the information it obtains.

Having said that, there is a fine balance to be struck here. From the company’s perspective, it wants the employee to be candid and honest. Beginning a meeting with a warning of the kind set out above may not be the best way of putting an employee at his or her ease!

Privilege in the U.K.

What of the equivalent position in the U.K.? Whilst we may not have such a clearly formulated doctrine here, the same perils and pitfalls for both the company and the employee exist. (See the Keydata Investment Services case about which I have blogged before, in which this very question of who the privilege belonged to arose; and the earlier case of Ian Norris and Morgan Crucible, which involved a U.K. director extradited to the U.S. to stand trial based on company documents which he thought were privileged.)

Will Disputed Privilege Cases Continue to be a Rarity?

Although these disputed privilege cases are still relatively rare I think there is strong reason to suppose that they will become more frequent. That’s because the focus under the new Senior Managers’ Regime is on personal accountability at a senior level. Questions as to what the senior manager is responsible for, the area of the business which has given rise to the “situation” knew about it, and what steps were taken to prevent it from occurring or minimising its impact will be of critical importance in the event of any regulatory intervention. The company and its legal advisers will be acutely aware of this as will any well-advised senior managers.

The challenge is that the interests of the company and of the individual concerned may not always be perfectly aligned. The company will wish to use the information provided by the senior manager to present its position to the regulator in the best possible light, whereas the senior manager may be seeking advice and guidance.

In the absence of a clear warning of the type set out above there is a risk of confusion and dispute at a later date. Yet the delivery of this type of warning in all “situations” may be unduly confrontational.

There are no easy answers here but the ability to spot the danger and allow access for the individual to independent legal advice at a suitably early stage may be both in the company’s interests and those of the individual.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
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