Maxwellisation: Necessary for an internal investigation, or going overboard?

Overview

Many firms are looking for ways to ensure individuals are treated fairly in an internal investigation. Linklaters partner Alison Wilson and managing associate Ben Packer argue that the much-maligned practice of “Maxwellisation”, borrowed from public inquiries, could offer a solution.

Internal investigations can lead to significant consequences for individuals. Depending on the investigation’s findings, an individual may find themselves subject to enhanced supervision, a change to their role or responsibilities, disciplinary action, or other adverse consequences.

Often, by the time an individual has an opportunity to make their own representations in a disciplinary process, the narrative has been set, the authorities or regulator informed, and decisions made. Given the severity of the potential consequences for individuals, firms are increasingly looking for ways to ensure that individuals are treated fairly in the prior internal investigation. Often, this means affording the individual an opportunity to comment on an investigation’s findings before they are settled.

Whether this is appropriate depends on the circumstances at hand. For instance, if a criminal investigation is afoot, the authorities may not want an individual to be presented with a summary of the evidence against them. However, where it is appropriate, one approach is to adopt the “Maxwellisation” process often used by public inquiries.

“Maxwellisation” is the process of sending proposed criticisms of an individual to them for their comment. Oddly, despite being a feature of many public inquiries over the past 30 years, English law is clear that such a process is not required. The case of Maxwell v Department of Trade and Industry [1974] provides that an individual must be afforded the opportunity to respond to any criticisms an inquiry may make of him or her. But this can take place during the evidence-gathering phase, for instance through questions put to a witness.

Furthermore, the process itself has acquired a bad name in recent years. In the UK, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) were heavily criticised by Parliament and the press for allowing senior managers to submit over 1,600 representations on their report into the failure of HBOS; a process that caused significant delay to the report’s publication. Similarly, there was a chorus of complaints after the Chilcot report on the Iraq war was delayed by round after round of comments from individuals criticised in the report. The scrutiny around this practice was such that in 2016, the UK Treasury Committee commissioned a report by Andrew Green QC at Blackstone Chambers in London to work out how the process could be avoided or accelerated.

Yet, in our experience, done right, a Maxwellisation process for an internal investigation can be valuable. There are three main reasons for this.

1. The first is that following this process affords an additional element of procedural fairness for the individual, over and above the opportunities they have had to give their account in interview or in a later disciplinary process. Before senior management makes a decision that could affect their future, the individual is given the opportunity to understand the “charges” and the evidence against them in a way which may not have been clear in the original fact-finding stage. They can then rebut those findings that they perceive to be unfair and provide any additional context or information that they may not have recalled or chose not to share at their earlier interview. Allowing the individual an opportunity to do this before the investigation concludes can pre-empt issues later down than line, for instance during the disciplinary process or when remuneration adjustments are proposed.
2. The second reason is that, around the world, regulators and authorities are increasingly focused on individual accountability. From the Yates Memo and the DOJ’s cooperation policy in the US to the Senior Managers and Certification Regime in the UK, more and more regulators and authorities prioritise holding individuals to account. This has raised the stakes for individuals. Even if a regulator or authority does not investigate the individuals themselves, the findings of an internal investigation may have ramifications for their careers.
   
   For instance, in considering whether to grant individuals “Senior Manager” status, the UK regulators may consider any intelligence gathered through enforcement work, even if the individual was never personally investigated. Similarly, where a regulatory breach or material control weakness is found, the PRA and FCA will expect firms to consider adjusting individuals’ variable remuneration. Indeed, this is a factor the regulators may take into account when considering whether and how to settle with the firm. While performance adjustment processes are generally separate from the “fact find”, there will often be a reliance on the facts identified by the internal investigation. By giving individuals an opportunity to comment on the investigation team’s findings, you afford a degree of due process that may otherwise have been missing.
3. The third, and perhaps most important reason, is that, in our experience, the process can have the effect of making the investigation’s findings more robust and credible for both internal stakeholders and regulators. Any misapprehensions or mistakes can be corrected. Any crucial context can be considered. And the investigation team, senior management, and ultimately any authority receiving the report can take comfort in the fact that the investigation team’s findings have been tested by those with the most at stake.

So how to do it?

The essence of Maxwellisation is taking the findings that are adverse to that individual and either providing them as an extract or, more commonly, providing a summary or gist of them and asking the individual to provide their comments. At the outset then, a firm will need to decide what amounts to an “adverse” finding, how these findings should be communicated to the individual, and what supporting documents should be made available.

The greater challenge, though, is to ensure the investigation team does not fall foul of the same pitfalls that afflicted the HBOS and Chilcot inquiries. This means that the process needs to be carefully and robustly managed. The guidance in Green QC’s report for the Treasury Committee is helpful for this. It advocates setting short but fair time limits for representations to be submitted, only allowing for one round of representations (unless there are exceptional circumstances), using templates or setting word limits for representations, and avoiding a back-and-forth dialogue about the conclusions of the investigation.

Provided those challenges are faced head on, in our experience, the process can be valuable. Done correctly, it need not add a significant amount of time to an investigation and the benefits it confers, both for the firm and the individual, can be material.