Independent Investigations In Higher Education

Author:Mr Kenneth Wainstein and A. Joseph Jay, III
Profession:Cadwalader, Wickersham & Taft LLP
 
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Colleges and universities are increasingly finding themselves embroiled in high profile controversies over allegations of serious misconduct by their staff or students, and many are now opting to commission independent investigations to find the facts and resolve those controversies. Recent examples include the independent investigation into Penn State's handling of the Jerry Sandusky scandal; the review of the University of Virginia's sexual assault policies and procedures after the later retracted Rolling Stone article about an alleged gang rape on campus; and the authors' investigation into allegations of academic irregularities involving student athletes at the University of North Carolina at Chapel Hill (UNC).

This trend in higher education follows a similar movement in corporate America toward outside investigations over the past decade and a half.1 American companies, even those with ample legal and compliance staff, are now using outside investigative counsel to handle all sorts of allegations ranging from bribery by low level employees to revenue manipulation by CSuite executives. They have come to recognize the value in certain cases of outsourcing this work to independent, outside counsel whose work and findings are generally accorded more credibility and deference than an internal investigation by company employees.2

This article examines how higher education is now following that same trend. It identifies the motivations behind the rise of independent investigations in corporate America and explains the extent to which college administrators dealing with controversy are guided by these same motivations. It predicts that independent investigations in academia will only become more common as colleges and universities continue to confront high stakes controversies that threaten their stature and reputation. It then concludes that this trend will continue—with the resultant societal benefits of greater accountability and transparency—only so long as those schools that choose to commission independent investigations of alleged misconduct receive sufficient credit for making that choice in any NCAA or other proceeding that judges and sanctions that misconduct.

The Motivations for Independent Investigations in Corporate America

Companies have been steadily increasing their use of independent investigations since the corporate fraud scandals–like Enron and WorldCom–of the early 2000's and the ensuing enactment of the strong fraud prevention measures in the Sarbanes Oxley legislation.3

Reasons for Trend

There have been two basic motivations behind this trend. The first is the interest in preventing damage to a company's brand and reputation when misconduct allegations arise. A company's reputation for propriety and honesty is a financially important asset, and corporate management has a fiduciary duty to protect that reputation. When that reputation is challenged by allegations of misconduct, corporate boards and officers look for measures that will show the priority they place on compliance. Often the appointment of a well respected outside party to investigate the allegations is the most direct way to make that showing.

The second–and more practically compelling–motivation is the desire to avoid the sanctions that have been applied to corporate misconduct over the past 15 years. The death of Arthur Anderson after the Enron fraud and the eye popping

financial penalties in recent cases–such as the $1.9 billion money laundering penalty for HSBC and the $800 million foreign bribery penalty for Siemens–have highlighted the serious and sometimes existential threat posed by such enforcement actions and have sharpened the interest of CSuite executives and corporate board members in wrapping themselves in the mantle of an independent investigation when misconduct issues arise. Thanks to those massive corporate penalties, corporate leaders now have a different calculus when they weigh the benefits of a particular outside investigation against its financial costs. This calculus has been further tipped in favour of independent investigations by the federal laws and policies that provide for reduced penalties for those companies that fully investigate and disclose violations. Those provisions include the sentence reductions prescribed in the U.S. Sentencing Guidelines for companies that self investigate and disclose criminal conduct4, the Justice Department's internal guidelines directing federal prosecutors to consider a company's investigative efforts in their decision whether and what charges to file against a company,5 and the Securities and Exchange Commission's similar guidance to its enforcement attorneys.6 These provisions are frequently applied to reward companies that commission independent investigations,7 thereby demonstrating the tangible value of an independent investigation to a company trying to stave off or mitigate the impact of an enforcement action.8

The Motivations for Independent Investigations in Higher...

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