Governance Challenges Arising From “Corporate Cooperation” Concepts

Michael W. Peregrine is a partner at McDermott Will & Emery LLP. This post is based on an article by Mr. Peregrine, with assistance from Joshua T. Buchman and Kelsey J. Leingang; the views expressed therein do not necessarily reflect the views of McDermott Will & Emery LLP or its clients.

The current Department of Justice emphasis on “corporate cooperation” in the context of government investigations creates the potential for significant tension to arise between governance and executive leadership, which potential should be recognized and addressed proactively by the board.

The DOJ Criminal Division has, with notable frequency this spring, sought to increase public transparency as to the process it applies when making a decision with respect to corporate prosecutions. A principal goal of DOJ’s public effort is to clarify the parameters it considers in deciding how to proceed when made aware of alleged corporate wrongdoing. This goal includes making the value of cooperation, and the consequences of noncooperation, more clearly apparent to corporations and their advisors. [1]

Government policy has long spoken to the benefits of corporate cooperation, should a corporation choose to cooperate. [2] The basic principles of corporate cooperation as they relate to a prosecution decision are set forth within the so-called “Filip Memo” (i.e., DOJ’s “Principles of Federal Prosecution of Business Organizations”). [3] The Filip Memo makes clear that two of the many factors DOJ will consider in making a prosecution decision are “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents.” [4] So, the concept of corporate cooperation is not new.

What is new, however, is the intensity with which the DOJ is publicly emphasizing the concept. [5] In its “spring speaking initiative” senior DOJ Criminal Division officials have sought to add clarity on both the value of cooperation, and the government’s expectations regarding cooperation; i.e., that it “be candid, complete and timely.” [6] In the current regulatory environment, this is a message that governing boards in general, and their audit and legal compliance committees in particular, must hear, and take appropriate note.

Of particular governance significance is the importance attributed by DOJ officials to corporate efforts to identify culpable individuals. “Complete cooperation by a company across the board” [7] clearly includes providing the government with internal investigation-produced evidence “about the individuals who committed the crimes, no matter how high those individuals might have been on the corporate ladder.” [8] According to DOJ, this expectation is consistent with its broader focus on “holding executives responsible for their criminal wrongdoing.” [9]

DOJ can be expected to “pressure test” whether the corporation made a concerted effort to identify the source of the wrongdoing and the responsible parties. [10] In any presentation made by a corporation to prosecutors, the government will look for extensive evidence of the corporation’s efforts to secure evidence of individual culpability. [11]

Thus, DOJ perceives a clear linkage between “corporate cooperation” and the potential investigation or prosecution of individuals. It is a linkage that the governing board, and its key committees, must recognize in the context of not only internal investigations, but also in their broader approach towards legal compliance—as well as in their regular interaction with the executive leadership team (“ELT”).

Yet, it’s not hard to see how ELT members might interpret this negatively—as the government incentivizing the board to “throw its employees under the bus.” Will the board “have management’s back” in the context of a governmental—or internal—investigation? Will it be predisposed to identify individual wrongdoers as part of its cooperation strategy? Will it limit the ELT’s defense strategy, or its leadership of an internal investigation? These are legitimate management concerns.

This particular element of corporate cooperation places unique, and significant, pressure on the governing board: how to maintain the loyalty and morale of senior executive leadership while prudently weighing the merits of “full and complete cooperation” with the government. Doing so requires a particularly difficult balancing act, given the high fiduciary standard of care applicable in circumstances involving government investigations. Is there a point where loyalty to potentially culpable executives outweighs the benefits of cooperation with the government? In some situations, the board might find that a tough call.

The potential for management/board tension will increase as the government’s emphasis on corporate cooperation becomes more widely known within the organization. The more that ELT members are aware of the board’s potential conflict, the greater the potential for mistrust. Thus, the attentive board will move pro-actively to address these and other potential concerns. Fortunately, a wide variety of relatively easy-to-implement responses are available to the board.

Some of these responses are intended to support the bona fide compliance activities of the ELT; some are intended to address the unique pecuniary concerns of the ELT; and some are intended to reorient the governance structure to be more attentive to corporate cooperation challenges. All of these measures are intended to preserve management’s confidence in the board, while at the same time addressing the broader Caremark/risk management/asset protection obligations of the board.

Response Category One. Perhaps the most obvious, “win-win” response of the board could be a series of steps designed to support the efforts of the ELT to maintain effective legal compliance and internal audit programs. This is something of a “give them the tools to do the job” approach, and requires the board to be supportive with respect to matters of budget and resource allocation.

This would likely include assurances to management of budget resources sufficient to engage appropriate levels of staffing—and individual competencies—in the legal, compliance and internal audit departments. This is particularly important for companies that have grown rapidly through acquisition and otherwise in recent years, without any concomitant increase in its legal/compliance/internal audit budgets. It would also include reciprocal assurances that these departments would not be disproportionately affected in any necessary organization-wide workforce reduction. Similarly, the board can support “surge” legal and compliance capacity when necessitated by particular transactions or emerging regulatory challenges.

A corollary of this approach is for the board to support the expansive view increasingly attributed to the role of the general counsel. Many new corporate governance and legal department surveys over the past year have noted the emergence of the general counsel as a valued business partner of management. Injecting the general counselor’s “wise counselor” role into ELT deliberations has the potential for increasing focus on the “is it right?” question [12] and decreasing the legal risks associated with particular arrangements under consideration by the ELT.

Response Category Two. Another response of the board could be to confront those issues which may be of almost visceral concern to members of the ELT; issues relating to compensation and indemnity as they may arise from compliance matters and from government scrutiny. For example, the board could consider updating and expanding the indemnification and insurance protection currently available to members of the ELT (whether or not they are all officers). Particular focus should be on the issue of whether indemnification is mandatory or permissive, and on the circumstances under which advancements can be made to pay the legal fees of ELT members. This continues to be an active area of the law, and the board will want to work with its general counsel to assure that it is considering the latest judicial precedent.

The board may also wish to consider implementing compliance-based incentive compensation for ELT members. Such types of compensation arrangements (i.e., incorporating achievement of compliance related goals in the executive incentive compensation plan) are gaining in popularity as a more discreet component of the board’s portfolio of individual accountability measures. They often include goals related to the effectiveness of compliance “hotline” mechanisms; assuring proper funding and staffing of compliance programs; adopting enhancements in the way risk and compliance concerns are reported “up the organizational ladder;” achievement of specific targets in terms of compliance-based training and monitoring, and other similar operational goals and objectives. [13] Determination of whether particular incentive goals have been met could be made by the executive compensation and audit/compliance committees of the board coordinated.

Compliance-based incentive compensation may be more appealing to the ELT as an accountability measure than more “punitive” compensation based arrangements such as “clawbacks.” They also have a solid foundation in the highly regarded guidelines set forth in the federal Sentencing Guidelines, promulgated by the U.S. Sentencing Commission, that establish the seven essential elements of an “effective” corporate compliance plan. [14]

Response Category Three. Another board level response would be structural in nature—to revise certain governance policies and procedures to provide risk management and legal compliance oversight and related support to the ELT. Several of these are related to reducing the potential for conflict between the ELT and the board that could arise in circumstances where laying the groundwork for “corporate cooperation” may become a consideration.

For example, the board could revisit its protocol regarding board-management lines of authority to provide greater clarity on certain risk related matters; e.g., the circumstances under which the board is responsible for working with the ELT to develop and manage internal investigations and litigation defense strategy. The board could also seek to clarify with the ELT those developments (e.g., “things that keep management awake at night”) that must be reported immediately to the board or an appropriate committee for consideration and possibly action.

The board could also review its existing committee structure as it relates to risk management and legal compliance oversight, and the division of labor between those committees. The goal would be to increase the efficiency and responsiveness (to both the board and the ELT) of these critical committees. A particular target of such a review would be the audit committee, which is increasingly viewed as the “kitchen junk drawer” of board committees.

Another option would have the board directing the general counsel to review with the ELT the “sticky issues” associated with dual legal representation of the corporation and individual ELT members, particularly in the context of a government investigation or legal proceeding. Such a review could support the ELT by helping to avoid any misunderstanding with respect to circumstances under which the general counsel can be considered as serving as counsel to ELT members—and most importantly, when she is not. The general counsel can provide additional support by maintaining a list of competent outside counsel available to represent ELT members should the need arise. [15]

A separate option would be for the board to revisit its existing policies with respect to those circumstances when the board may require counsel separate from the corporation’s general counsel. While that may be a necessary step it should be discreetly undertaken to reduce the potential for creating concern within the ELT.

In the final analysis, however, resolving internal “corporate cooperation”-based tensions is not solely a governance issue. Acting through its general counsel, the attentive board will also seek the advice of its outside white collar counsel as it considers its relationship with the ELT in “corporate cooperation” circumstances. The input of white collar counsel will be critical to a balanced evaluation of the DOJ’s perspectives and of the unique corporate defense issues that may arise in the context of a government investigation.


[1] Leslie R. Caldwell, Assistant Att’y Gen., U.S. Dept. of Justice, Remarks at the New York City Bar Association’s Fourth Annual White Collar Crime Institute (May 12, 2015) [hereinafter Caldwell, May 12th Remarks].
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[2] Id.
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[3] Memorandum from Mark Filip, Deputy Att’y Gen., U.S. Dept. of Justice, to Heads of Department Components, United States Attorneys (Aug. 28, 2008).
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[4] United States Attorneys’ Manual, § 9-28.300(A)(4).
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[5] Ms. Caldwell has delivered at least five public presentations on this topic since Mid-April, to a broad cross section of prominent Bar Association, law school and compliance-oriented forums.
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[6] Caldwell, May 12th Remarks, supra note 1.
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[7] Id.
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[8] Leslie R. Caldwell, Assistant Att’y Gen., U.S. Dept. of Justice, Remarks at the American Bar Association’s 25th Annual National Institute on Health Care Fraud (May 14, 2015).
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[9] Id.
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[10] Marshall L. Miller, Principal Deputy Assistant Att’y Gen., U.S. Dept. of Justice, Remarks at the Global Investigation Review Program (Sept. 17, 2014).
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[11] Id. (“At the risk of being a little too Brooklyn, I’m going to be blunt. If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.”).
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[12] Benjamin W. Heineman, Jr., The General Counsel as Lawyer-Statesman, Harv. L. Sch. Forum on Corp. Governance & Fin. Reg. (Sept. 5, 2010),
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[13] Michael W. Peregrine, Andrew C. Liazos & Timothy J. Cotter, Clawbacks, Compliance and Incentive Compensation: A Supplemental Approach, The CLS Blue Sky Blog: Columbia Law School’s Blog on Corporations and the Capital Markets (June 17, 2014),
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[14] United States Sentencing Commission, Guidelines Manual, §8B2.1 (Nov. 2014); see also Office of Inspector General, U.S. Department of Health and Human Services; Association of Healthcare Internal Auditors; American Health Lawyers Association; Health Care Compliance Association, Practical Guidance for Health Care Governing Boards on Compliance Oversight (Apr. 20, 2015),
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[15] Michael W. Peregrine, William P. Schuman & Anne M. Murphy, Who is the General Counsel’s Client? An Important New Development, AHLA Weekly (Feb. 6, 2015),
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