The federal government’s plans to change how it deals with corporate wrongdoing by focusing on individuals “substantially” involved in alleged misconduct and allowing companies to earn partial credit for cooperating with regulatory probes could increase demand for directors and officers’ liability insurance.

But the shift has more uncertain implications for defense and investigation costs, experts say.

Deputy U.S. Attorney General Rod Rosenstein announced modifications to the 2016 Memorandum on Individual Accountability for Corporate Wrongdoing — better known as the “Yates memo” after its author, former Deputy Attorney General Sally Yates — at a conference in Washington late last month. Among other things, the new approach says that companies have to identify individuals who were “substantially” involved in the alleged misconduct, but holds that investigations should not be delayed to gather information about people who were not substantially involved and who are unlikely to face prosecution.

“We revised our policy to make clear that absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability,” Mr. Rosenstein said at the conference. “Our revised policy also makes clear that any company seeking cooperation credit in criminal cases must identify every individual who was substantially involved in or responsible for the criminal conduct.” 

“The most important aspect of our policy is that a company must identify all wrongdoing by senior officials, including members of senior management or the board of directors, if it wants to earn any credit for cooperating in a civil case,” he said, adding “if a corporation wants to earn maximum credit, it must identify every individual person who was substantially involved in or responsible for the misconduct. “

“When a company honestly did meaningfully assist the government’s investigation, our civil attorneys now have discretion to offer some credit even if the company does not qualify for maximum credit,” said Mr. Rosenstein. “When we allow only a binary choice — full credit or no credit — experience demonstrates that it delays the resolution of some cases while providing little or no benefit.”

“The new policies promise to crack down on individual criminal violations, while providing (U.S. Department of Justice) attorneys with more discretion to reward corporations for partial cooperation in civil matters,” wrote Kevin Muhlendort, a partner at Wiley Rein LLP in Washington and Madeline Cohen, an associate at Wiley Rein, in an analysis of the changes. “This increased discretion is intended to promote the efficient resolution of civil investigations by permitting corporations to cooperate — and obtain cooperation credit — without spending excessive resources to uncover every individual with even an attenuated connection to the company’s misconduct. Companies, however, cannot use the policy to shield individuals the company knows engaged in misconduct. And companies must still disclose all individuals substantially involved in the misconduct, particularly senior managers and directors, if they wish to receive any credit for their cooperation.”

“With all these policies, it sort of remains to be seen” what the impact will be, said Mr. Muhlendorf in an interview. He added that the changes should “give companies a little bit of comfort.”

“It’s quite clear that they’re still going to focus on individuals,” he said. “It will change slightly how companies approach investigations. People need to recognize when you’re doing one of these investigations, you as the company’s counsel still need to know all of the relevant facts.”

Companies still need to conduct “very thorough investigations,” Ms. Cohen said in an interview.

“Having an appropriate compliance program is still the best defense in all of this,” added Mr. Muhlendorf.

“They’ve really indicated that the minimum to get credit from the government is that the company has to give up its senior management and the board who had involvement,” said Lauren Randell, a partner at Buckley Sandler LLP in Washington.

That could lead to a greater demand for expanded D&O liability insurance, she said. The revised Justice Department policy puts a focus on senior management without defining what that means in terms of the memo, said Ms. Randell.

Companies may be asked for greater indemnification provisions, she said. “You’re going to end up with more employees with individual counsel and that will increase costs.”

If the policy shift means that companies seeking cooperation credit don’t have to identify every single individual who may have been involved in the wrongdoing, this may eliminate some inefficiencies in the investigations required under the original Yates memo approach, said Laura Foggan, a partner in Crowell & Moring’s Washington office, and chair of the firm’s insurance/reinsurance group.

What the change could mean for risk management is that that some investigative costs could be eliminated, she said.

“That’s important because one of the controversies in D&O is whether there is any coverage under D&O policies at all for the investigative costs,” said Ms. Foggan. “Bringing those costs perhaps more into control could potentially have a big impact for companies who are otherwise searching for relief” in that “they’re trying to shoehorn those costs into their insurance program.”