An uncontrollable budget-buster, an independent investigation of some internal actions

“Independent internal investigations are very frustrating for management and in particular for general counsel. Not only can they not be involved, very often the outside lawyers are being paid out of the general counsel’s budget.” The quote is from Dan Bookin, an O’Melveny & Myers partner in Corp. Bd. Mbr., First Quarter 2011 at 61.

A law firm hired to conduct a sensitive investigation probably reports to a Board committee. That arrangement brings benefits (See my post of March 9, 2010 #4: independent counsel impresses regulators and preserves attorney-client privilege.). The rationale for the engagement of independent investigative counsel may be different from other reasons why directors hire their own counsel (See my post of Aug. 3, 2009: independent law firm serving a Board of Directors with 9 references.). In either case, the general counsel may be helpless to control free-wheeling spending that clobbers the law department’s budget.