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Congressional Investigations: What Every Exec Should Know

Pharmaceutical ExecutivePharmaceutical Executive-08-01-2011
Volume 0
Issue 0

When faced with legislative scrutiny, be prepared, be truthful, and don't be afraid to say 'I don't know'...

Most pharmaceutical executives are familiar with traditional government investigations. congressional investigations, however, unfold differently and present disparate challenges than conventional grand jury investigations. Whereas traditional investigations are usually conducted in secrecy before a grand jury, congressional investigations play out in public. Indeed, the publicity generated by congressional investigations is often the main point of the whole affair. Congressional leaders want the opportunity to speak publicly about pressing issues, and prosecutors like to use the fruits of the investigations to launch their own criminal investigations.

In light of the political pressures to reduce federal spending, particularly spending on healthcare programs, pharmaceutical companies should expect increased scrutiny from Congress. If you are called to testify before Congress, you want to be fully prepared so that you can put your best foot forward on behalf of the company. The hallmarks of successful testimony are clear, direct, and honest answers that present the company's viewpoint, while acknowledging any mistakes that the company has made in the past.

Authority and Public Scope

There is no explicit Constitutional authority for conducting congressional investigations. Nevertheless, the practice has long been recognized as "inherent in the legislative process." Congress first exercised its investigative power in 1792 to review General Arthur St. Clair's defeat in a battle against Native Americans in the Northwest Territory. Congressional investigations gained more prominence during the Progressive era, when they were used to examine monopolistic trusts and to expose the Teapot Dome scandal. During the Great Depression, New Deal economic investigations led to the creation of numerous new securities regulations.

Congressional investigations came to further prominence during the 1950s, when the full power television added to the hearing process was demonstrated by Senator Joseph McCarthy's inquiries of suspected communists and was watched by over 80 million people. This ushered in the modern era of mass-media congressional investigations familiar to the public—think Watergate, Iran-Contra, and Whitewater investigations.

Modern congressional investigations unfold under their own, unique rules. Pharmaceutical companies should understand these procedures so they can be best prepared when and if they are summoned to appear before Congress.

Processes and Best Practices

The following are some key points to remember if you are facing a congressional investigation:

1) Congressional investigations unfold squarely within the public eye. The media coverage can be intense. Congress uses its investigative power to shine light on topics of public concern, and tends to view the proceedings as a public record to be drawn on not only by Congress and the Executive branch, for legislative and regulatory purposes, but by prosecutors for criminal investigations. Indeed, it is common for both the Chairman of the committee conducting the investigation, and each member of the committee, to begin the proceedings with a speech addressing their concerns with respect to the subject matter of the inquiry. The media coverage surrounding the investigations color the proceedings.

2) Congressional investigations unfold quickly. Grand jury investigations typically take months, or even years, to complete. Congressional investigations usually unfold much more quickly. This is driven in part by the public nature of the proceedings: Intense media coverage often generates a sense of urgency that compresses the time frame of the investigation.

3) CEOs often testify. Congress tends to call different witnesses than prosecutors pursuing traditional investigations. In grand jury investigations, it is often those employees closest to the conduct who testify. In contrast, Congress tends to call representatives from the highest levels of the company to testify, often including the chief executive. The witness may testify alone, or may be sworn in as part of a panel. Sometimes the panel may be made up of witnesses from several different companies, or even different industries. CEOs from competing companies may find themselves testifying on the same panel, sometimes at cross-purposes.

4) The proceedings are scripted at the start, and then veer into uncharted waters. The witnesses will be asked to come to the hearing with prepared opening remarks. Congress always requires these remarks to be provided in advance, and the remarks are often fertile ground for questioning from the committee members. After reading their opening remarks, the witnesses can expect to be peppered with questions from the various members of the committee, and the questions may veer into unexpected areas. To the extent there is a panel of witnesses testifying, the testimony of other witnesses may also unfold in unexpected ways, and lead to unexpected questions directed to your company's witness. To the extent the company is publicly traded, the witness's responses can have a significant effect on the company's stock price. If you are testifying, you want to stay on script, as it is often the unanticipated, unscripted statement that makes headlines.

How to Prepare

The first step is to understand what type of investigation you are facing. Some investigations are primarily fact-finding exercises. In these cases, Congress may issue requests for documents (often in the form of letters from the committee chair), without requiring testimony.

In other cases, Congress will issue subpoenas seeking testimony. In those instances, it is critical to understand the political landscape of the investigation. In some cases, the investigation may be partisan or bipartisan, in which some members of the committee may be friendly to your industry or company. If the investigation is nonpartisan, the committee will likely take a more uniform view.

Whether an investigation is partisan or bipartisan, it is important to identify any committee members who will be receptive to your company's story. The company's lobbyists provide relevant political background to your outside counsel for this purpose. Your counsel can then cautiously work with the member's staff to understand the committee's areas of focus and to provide the staff with information, documents, and briefing books that will help prepare the committee member for the hearing.

As you prepare your witness or witnesses to testify, bear in mind that congressional staffers will be scouring the Internet for publicly available information about the witnesses. You will need to do the same, so you or the witnesses are prepared for any potentially embarrassing questions. Remember, it is critical that your witness stay on script. In order to do so, your team must anticipate as many of the committee's questions as possible, and prepare exhaustively.

At the same time, some questions will inevitably arise that the witness simply does not expect, and has not prepared for. In those cases, it is critical that the witness remain scrupulously truthful and accurate. While it may seem awkward for the CEO to not know the answer to a question, it is far better to respond, "Senator, we will get back to you on that," than to make a misstatement. In addition to violating the general prohibition on making false statement to the government, lying to Congress is a separate indictable offense.

After testimony concludes, Congress usually writes a report stating its findings. In the most successful congressional investigations, no further action is taken beyond the report. In some instances, legislation may be passed that relates to the issue being investigated. In the worst-case scenarios, congressional investigations can spawn criminal investigations brought by the Department of Justice, relating either to the subject matter of the congressional investigation, or relating to allegations that witnesses lied to Congress.

The Aftermath

The political pressures on Congress to reduce government spending on healthcare will only increase over time. These pressures inevitably lead to efforts to identify "wasteful spending," with a ready link to corrupt practices. These factors, coupled with the public perception of high pharmaceutical profits, make pharmaceutical manufacturers a likely target of increased congressional focus. Because congressional investigations tend to unfold very quickly, the best practice is to have your "first aid kit" ready—know who your experienced lawyer will be, who your lobbyists are, and your press relations consultant, so you have your team ready when and if your company receives a congressional subpoena.

David Ryan is Partner and Danielle Pelot is Associate in Nixon Peabody's Government Investigations and White Collar Defense practice. They can be reached at dryan@nixonpeabody.com and dpelot@nixonpeabody.com, respectively

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