The new age of board investigations

The phrase ‘corporate internal investigation’ sends a chill through every boardroom. When prefixed with the term ‘board’, the anxiety only deepens. It signals turbulence and personal exposure of the kind where directors find themselves dissecting decisions with legal scalpels, under the glare of regulators, shareholders and, sometimes, the media.

For a long time, such investigations were rare – the dreaded, once-in-a-career crisis that directors hoped to dodge with prudence and luck. No longer. The governance climate today has made investigations a near-routine part of corporate hygiene, not just because of fraud or criminal misconduct. It can be for ethical lapses, data breaches, whistleblowing and so on.

The US Justice Department and the SEC are adamant on this. Law firm Norton Rose Fulbright’s survey in 2024 revealed that 70 per cent of US companies faced regulatory proceedings that year – with cybersecurity, data protection and employment issues leading the charge. The echoes of this tougher stance are being felt in India too.

SEBI, the ministry for corporate affairs and the Serious Fraud Investigation Office (SFIO) have become more muscular and assertive, except when it comes to one conglomerate. From the NSE co-location scandal to the recent governance meltdown at Byju’s and Paytm, Indian regulators are demonstrating less tolerance for opaque practices and boardroom inertia. SEBI’s recent emphasis on internal control systems and ‘whistle-blower responsiveness’ has also made investigation readiness a core part of good governance.

What has evolved most sharply is how investigations are structured. Independence, both perceived and real, has become non-negotiable. Courts and regulators now scrutinise not just what a board does but how it reacts – how promptly red flags are escalated, how conflicts are ring-fenced and how cleanly potential wrongdoers are quarantined from the investigative process.

Gone are the days when a CEO’s confidant from the legal team could ‘look into the matter’. Increasingly, boards are forming special committees, often bringing in external directors with targeted expertise. Companies like Infosys, ICICI Bank and BharatPe have demonstrated that the optics of impartiality are as crucial as the mechanics of fact-finding. Each of these investigations involving whistle-blower complaints, allegations of misconduct or corporate governance lapses saw boards turn to independent external counsel and forensic experts to rebuild credibility.

What was once a reactive scramble has become a professionalised protocol. Almost every investigation is handled by a board sub-committee, or a special committee is formed, and the companies are increasingly preferring ‘unconflicted outside counsel’. They even avoid their regular law firms, which might later face scrutiny for bias.

By externalising probes, boards gain expert independence and signal sincerity. Indian giants, from Reliance to Infosys, now wield third-party audits as both a shield of credibility and a signal of intent.

Perhaps the most delicate frontier in this new order is deciding when and how much to disclose. Regulators and prosecutors worldwide are raising the stakes on early co-operation. The pressure to self-report and the penalties and risks of not reporting have increased. Boards today must make decisions about engagement with authorities even before all facts are known – a legal and reputational tightrope act.

SEBI’s leniency mechanism for self-reporting insider trading and breaches follows the same line. Early disclosure may invite immediate scrutiny, but it may mitigate punishments later. The recent case of a large bank that pre-emptively disclosed an internal mis-selling issue to the RBI is a case in point – as to how such transparency can prevent reputational contagion.

There is a fundamental shift in what it means to be a director. Competence in reading balance sheets and strategy decks is no longer enough. Directors must now understand the anatomy of an investigation – from the appointment of independent counsel to managing privilege, documentation and disclosure strategy. Ignorance is no longer defensible, as it is negligence.

For India Inc, here’s the bottom line: investigations are not the stuff of crises any more but the price of maturity. With stakeholder trust becoming a critical currency, how a company investigates itself may matter more than the outcome of the investigation itself.

The chill that the word ‘investigation’ sends across the boardroom is thus not just about fear but about accountability catching up. The new corporate governance mantra might well read: ‘Investigate early, disclose wisely and govern relentlessly’. In today’s regulatory climate, it’s not wrongdoing that destroys reputations but how long you pretend not to see it.