Why your company should consider outside counsel for internal investigations

No business wants to face allegations of fraud, misconduct, or regulatory violations. But when these claims arise, a company’s response can have far-reaching consequences for its legal exposure, reputation, and future operations. And while it may be tempting to rely on in-house legal teams to handle internal investigations, there are compelling reasons to engage outside counsel for these sensitive matters. Here are the top three:

1. Protecting Confidentiality and Maintaining Attorney-Client Privilege

The most important reason to engage outside counsel is to maximize the legal protections of attorney-client privilege and the attorney work-product doctrine. While in-house counsel can theoretically preserve these privileges, practical challenges often arise. In-house lawyers frequently wear two hats—advising on both day-to-day business matters and legal compliance—which can blur the line between privileged legal advice and ordinary business communications. This makes it harder to maintain confidentiality and can risk the loss of privilege.

In-house counsel may also not be perceived as sufficiently independent, especially if they have been involved in or are aware of the conduct under investigation. This can create conflicts that undermine privilege protections and the appearance of impartiality.

Outside counsel, by contrast, provides independent assurances that all communications and attorney work product are created for the purpose of providing legal advice to the company’s board or committee. Outside counsel firms are adept at managing the involvement of third parties—such as forensic accountants, investigators, and data processing firms—ensuring these agents are properly walled off and that their communications remain within the scope of privilege. This is particularly important, as courts have held that statements made to private investigators or other agents employed by outside counsel are protected, while communications outside this relationship may not be.

Outside counsel can also act as a liaison with counsel for other parties relevant to the investigation, such as vendors or customers, further protecting privileged information by avoiding unnecessary involvement of management or in-house attorneys. This approach is especially important in cross-border investigations, where many jurisdictions do not recognize privilege for communications with in-house counsel, viewing them as insufficiently independent from the company.

2. Avoiding Ethical Conflicts and Promoting Credibility

Another key reason to use outside counsel is to avoid ethical conflicts and enhance the credibility of the investigation—both internally and with external stakeholders. In-house lawyers, by virtue of their roles within the company, may face real or perceived conflicts of interest, particularly if the investigation involves senior management, board members, or influential business units. Even the appearance of bias can undermine the integrity of the investigation and erode trust among employees, regulators, and the public.

Outside counsel brings independence and objectivity to the process. They are not embedded in the company’s reporting lines or culture, allowing them to conduct investigations free from internal pressure or loyalties. This independence is especially important when the investigation’s findings may need to be reported to the board, disclosed to regulators, or used in defense of the company.

Regulators increasingly expect companies to demonstrate not only that they conducted an investigation, but that they did so in a manner consistent with global best practices and ethical standards. The use of outside counsel is more likely to be viewed as credible and objective, which can be crucial if the company seeks cooperation credit or needs to make disclosures to authorities.

3. Mitigating Potential Penalties

A third compelling reason to engage outside counsel is their critical role in helping companies mitigate potential penalties and regulatory consequences. When allegations of misconduct arise, how a company responds can significantly influence the outcome of any subsequent enforcement action, litigation, or regulatory review. Engaging independent outside counsel signals to regulators, prosecutors, and courts that the company takes the matter seriously and is committed to a thorough, objective, and credible investigation.

Outside counsel are experienced in conducting investigations that meet the expectations of enforcement agencies such as the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and other global regulators. Companies that engage external counsel are better positioned to demonstrate cooperation, transparency, and a willingness to remediate any identified issues—factors that enforcement agencies routinely consider when determining whether to bring charges, the severity of penalties, or the availability of cooperation credit.

Moreover, outside counsel can help companies navigate the process of self-reporting to authorities, if appropriate, and can advise on the timing, scope, and content of any disclosures. Their independence and expertise lend credibility to the company’s findings and remediation efforts, making it more likely that regulators will view the company’s response as genuine and effective. This can result in reduced fines, deferred prosecution agreements, or even a declination to prosecute in certain circumstances.

In sum, internal investigations are moments of high risk and consequence for any business. Engaging outside counsel enhances the protection of privilege, ensures independence and credibility, and provides the expertise and resources needed to address what are often high-stakes matters. For companies facing allegations of wrongdoing, regulatory scrutiny, or the need to demonstrate a robust compliance culture, hiring external lawyers is not just prudent—it is a strategic investment in protecting the organization and its stakeholders.

Aaron Clark is a shareholder in Dentons’ white-collar defense, government investigations, and business litigation practice groups.

Clark is a seasoned trial lawyer and former Assistant United States Attorney (in both Utah and Southern California) with nearly two decades of litigation experience, including dozens of federal jury trials. In recent years, Aaron has helped prosecute and defend some of Utah’s most complex white-collar cases, and his experience as both a prosecutor and defense attorney provides a full perspective of the legal process for client companies navigating potential criminal and employment-related investigations.

Clark is licensed to practice in both Utah and California and is committed to providing top-notch legal representation across different jurisdictions. He serves on the Criminal Justice Act (CJA) Panel for the District of Utah and has mentored new attorneys through the Utah State Bar’s New Lawyer Training Program, demonstrating his dedication to ensuring fair, just, and skilled representation within the legal system.