What makes an investigation independent?

Independence is perhaps the single overriding principle of the Sarbanes-Oxley Act and the proposed New York Stock Exchange and Nasdaq corporate governance listing requirements. These new standards set forth detailed guidance of what independence means in the board composition and other contexts. But while the same law and rules also dictate that listed companies provide their audit committees with the authority and funding to undertake independent investigations of whistle-blowing complaints, no similar direction is given regarding independence in this setting. So, what independence standards should boards apply in the high-stakes situation of selecting counsel to investigate wrongdoing-whether based on a whistleblower report or other source-within their companies?

Relational independence

On the most obvious level, there is a relational component to assessing investigative independence. One aspect of this type of independence is whether the investigating law firm had a prior relationship with the subject matter of the investigation. For instance, a federal court overseeing various claims arising from the Enron matter said that "serious issues of conflict of interest" had been raised when a law firm that was alleged to have participated in certain wrongful activities was retained to investigate that conduct.