These days, the answer has often been Gary G. Lynch, the former director of enforcement for the Securities and Exchange Commission. In 1994, Kidder, Peabody & Company chose Mr. Lynch, who is now a lawyer at Davis Polk & Wardwell, to look into whether one of its bond traders, Joseph Jett, created $350 million in phony profits. Bausch & Lomb Inc. recently asked him to investigate some questioned accounting practices. And in July, Mr. Lynch completed an investigation for Mattel Inc. into accusations that it was inflating its earnings.
The hiring of an outside lawyer to conduct an independent investigation is seen as a signal that a company accused of wrongdoing is committed to getting to the bottom of the situation. And Mr. Lynch, whose high-profile career at the S.E.C. involved bringing cases against Michael R. Milken and Ivan F. Boesky, lends a company not just his expertise in finding the facts but a golden reputation for integrity.
''Gary has an enormous degree of credibility with government officials,'' John M. Liftin, a senior vice president and general counsel for Kidder, said. ''They believe him. They trust him.''
But as much as companies would like the public to believe otherwise, Mr. Lynch's reports, which cleared top executives at Kidder and Bausch & Lomb, and exonerated Mattel, are not necessarily the last word. Critics note that Mr. Lynch was representing Kidder in a case against Mr. Jett even as he was conducting his fact-finding inquiry. Bausch & Lomb's board kept Mr. Lynch's report under wraps. So did Mattel, whose accusers objected that Mr. Lynch too readily shared information with Mattel during his inquiry.While there is no evidence that Mr. Lynch failed to uncover the truth in these cases, experts say that independent investigations like Mr. Lynch's, even the most thorough and objective, are still no substitute for Government inquiries or court proceedings.
''There are certain inherent limitations on any effort,'' Richard C. Breeden, the former S.E.C. chairman, said.
Mr. Lynch strongly defended the quality of his work. ''I've worked very long and hard over a number of years to earn my credibility,'' he said. Although he declined to discuss the inquiries in detail, saying he was not authorized by his clients to do so, Mr. Lynch said that he would never do anything to ''tarnish or compromise'' his reputation.
Mr. Lynch is just one of several former Government officials whom companies have hired in hopes that these people's good names will help restore sullied corporate images. The group also includes Lynn Martin, a former Secretary of Labor; Griffin G. Bell, a former Attorney General, and Harvey Pitt, a former counsel at the S.E.C.
''Sometimes you do have to choose a name player to regain the credibility that has been stolen from you by the alleger,'' said Peter B. Frank, the vice chairman of Price Waterhouse L.L.P., which has helped companies look into charges of wrongdoing.
But critics say that a good name alone is not good enough. Shareholders and prospective investors are left at a loss to assess the quality of any inquiry, they say, unless important information about how an investigation was conducted and how the conclusions were reached is also disclosed. ''The idea that somehow the name alone is the answer is foolishness,'' said Neil V. Getnick, a lawyer in New York who has helped draft a series of guidelines for independent investigators.
''An investor,'' agreed Ralph V. Whitworth, a prominent shareholder advocate, ''can't find comfort in just the reputation of the investigator.''Problems can arise because management may seem to have too keen an interest in the outcome or the investigator may appear to have a conflict that could affect his conclusions. Inquiries also vary greatly in quality, depending on the resources and latitude given the investigator.
''A lot of what is called an independent investigation is really advocacy,'' said Edwin H. Stier, a lawyer in Washington and in Bridgewater, N.J., who has conducted many of these investigations.
Mr. Lynch said he did not dispute the idea that his findings must often stand up to someone else's scrutiny, either that of regulators or of private plaintiffs' lawyers. ''In many instances, the results are tested in one way or another,'' he said. ''That's certainly their job to do it.''
Each of Mr. Lynch's investigations illuminates different points in the broader debate.
In the Kidder case, Mr. Lynch raised eyebrows because he conducted his investigation at the same time he was representing the brokerage in its arbitration case against Mr. Jett. ''The role of advocate and umpire is in tension,'' said John C. Coffee Jr., a professor of securities law at Columbia University.
Kidder, which was then a subsidiary of General Electric, filed an arbitration case in April 1994 with the New York Stock Exchange, asserting that ''Mr. Jett had been engaging in a scheme that created phantom profits.'' As Kidder's lawyer in the case, Mr. Lynch was required to serve as an advocate for the firm's views, which were that Mr. Jett acted alone and that Kidder was the victim of his actions.
Mr. Lynch said there was never any pretense that his inquiry, which he concluded that July, was purely independent, since Kidder had hired Davis Polk to represent it in the case against Mr. Jett. He described the inquiry as ''thorough and objective.''
And Mr. Liftin, Kidder's counsel, dismissed arguments that Mr. Lynch was wearing two hats at the same time. ''We don't think there was any conflict of interest,'' he said. ''I never took any of that seriously.''
Like any outside counsel, Mr. Lynch's investigation of Kidder was handicapped by his inability to subpoena documents or force the parties involved to talk and to punish them for lying. Mr. Jett, for example, refused to be interviewed.
Some questions arise, however, from what was left out of Mr. Lynch's 85-page public report. He concluded that Mr. Jett acted alone. But some interviews, disclosed in subsequent S.E.C. proceedings, at least raised a doubt about whether others at Kidder knew what Mr. Jett was doing and countenanced his actions. For example, according to notes from a Davis Polk interview, David Bernstein, who served as an assistant to the head of the fixed-income division, described the trading profits as ''not really false profits, rather advanced profits.''
''We didn't view it as false, just accelerated,'' he was quoted as saying.
The lawyer for Mr. Jett, Kenneth E. Warner, said, ''My client is an innocent man, and the report was grossly unfair to him.''
Mr. Lynch stands by his report. ''There is nothing in any of the interviews that is inconsistent with the facts,'' he said. And the S.E.C., which conducted its own investigation, essentially supported Mr. Lynch's conclusions and found that Mr. Jett's superiors were not responsible for anything but a lack of proper supervision. It has been two years since Mr. Lynch finished the investigation, and, he said, ''the conclusions in the report hold up extremely well.''
Mr. Lynch estimated that his firm billed Kidder for roughly 10,000 hours of work on the investigation, which, if billed in a conservative range of $200 to $300 an hour, would mean that Kidder may have spent $2 million to $3 million for legal services.
In contrast to the Kidder report, the Bausch & Lomb case raises questions about whether outsiders can trust an inquiry that remains largely cloaked. Mr. Lynch, who was brought in last fall to conduct an independent inquiry concerning accounting irregularities, reported directly to a special committee of the board, which was made up of independent directors. When he completed his investigation, most of what the public was told was contained in a few paragraphs in a company news release.
''The Special Committee found no evidence that any executive officer of Bausch & Lomb participated in or was otherwise aware of the irregularities that led to the restatement or any other irregularities within the scope of the Special Committee's review,'' the April release said. Earlier, the company restated its 1993 and 1994 financial reports.
But experts question whether such limited disclosure is enough. ''A report has value,'' Mr. Stier said, ''only to the extent that it can withstand attack from all conflicting opinions.''
In fact, Mr. Lynch did not actually write a report. Bausch & Lomb's board, which continues to be under investigation by the S.E.C., chose to have Mr. Lynch explain his findings orally. In general, such oral reports ''would have much less utility,'' Richard H. Walker, the general counsel for the S.E.C, said.
Neither Bausch & Lomb nor Mr. Lynch would comment on why there had been no written report.
''I've never seen a blue-ribbon panel do an investigation, make a report and then have nothing in writing,'' said Matthew Fusco, a lawyer who represents some shareholders in a suit against the company.
The other question that arises in such cases is just how independent the investigator is from management. In the Mattel case, Mr. Lynch reported to the board's audit committee about his investigation of charges by a former employee, Michelle Greenwald, that the company improperly accounted for certain transactions. When he finished in July, the committee issued a news release stating that the inquiry ''found no evidence that Mattel accounted for sales and costs associated with sales in a manner which is inconsistent with generally accepted accounting principles.'' and that the company's accounting of certain royalty payments also conformed to those principles.
But questions were raised by Mr. Lynch's decision to forward quickly to Mattel officials a letter from Joel M. Kozberg, Ms. Greenwald's lawyer, outlining concerns about the investigation and referring to additional evidence. Mr. Lynch denied doing anything improper at the time, and Mattel said the letter was sent to it simply for follow-up. ''We saw this as entirely appropriate,'' said a company spokesman, Glenn Bozarth.
But Mr. Lynch's move, critics say, raised questions because the letter appeared to have been sent without Mr. Lynch's first examining it. ''It's something that should not happen,'' Barbara Ley Toffler, head of Arthur Andersen & Company's consulting business on ethics, said in an interview earlier this year.
The company released Mr. Lynch's findings a few days after receiving the letter.
Since details of the investigation were never disclosed, it is also unclear how Mr. Lynch arrived at his conclusions. There appears to be some contradictory evidence, including a summary of a slide presentation given by a Mattel executive, which describes two quarters of results as ''manufactured,'' according to an internal memo obtained by The New York Times. Another internal Mattel document called for the company to develop better systems to account for product-related costs associated with certain sales tactics.
While companies can always choose to conduct an internal inquiry, hiring an outside lawyer for an independent investigation calls for further safeguards, experts say. Not only is it important to emphasize the investigator's need for independence and an array of skills, as called for in the guidelines set forth by Mr. Getnick, but companies are also likely to find that investors and other interested parties will expect a fair disclosure of much of the evidence found during the inquiry.
''The most important thing,'' Mr. Pitt, the former S.E.C. counsel, said, ''is to restore confidence, both internally and externally.''