Michael Woodford, Olympus CEO, uncovered a terrible scandal in his workplace.
As a result, his life fell apart. If blowing the whistle can result in blacklisting, unwanted publicity and even jail time, is it worth the risk?
In her keynote speech last October to the Conservative Party Conference, prime minister Theresa May said: “An economy that works for everyone is one where everyone plays by the same rules.” She’d preceded that by saying: “If you are a tax dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you too.”
Indeed, there is a rising determination in the UK to clean up business and shore up corporate governance in a bid to restore public trust, reclaim reputations and reassure investors. A focus on whistle-blowing is part of it, with new frameworks and protections in place. Accounting and finance are just two sectors caught up in the demand for an ethical focus after a period of ‘moral drift’ in the near decade since the financial crisis. This has led to changes in the law governing whistle-blowing. But the extent to which the law reflects the true cost to people who choose to blow the whistle on wrongdoing is not yet clear. And it is striking that the healthcare sector in the UK has seen far more whistle-blowing than the finance sector.
In some areas of finance, this comes down to the money involved. An employment lawyer at a major law firm says: “Anecdotal evidence suggests that in healthcare there has been a real drive on social media and a groundswell of support for whistleblowers. Financial services, on the other hand, are culturally very different. There are all the pressures that go with a certain expensive lifestyle: children in private schools, for example. People are far more likely to stop and think: ‘If I do this, will I be ruined?’”
The passing of the Bribery Act in 2010 increased awareness of the issues and the importance of flagging up illegal (or merely unethical) practices. But, despite this, acting on the knowledge of wrongdoing still requires a huge leap of faith.
Shooting the messenger
There are too many stories of lives destroyed. Some whistle-blowers have even become famous because of it, such as Michael Woodford, the Olympus CEO who blew the whistle on his own company.
Being a whistle-blower changed the life of Paul Moore, former group head of regulatory risk at HBOS, the banking group. He alerted the HBOS board to the bank’s excessive risk-taking, which he said could “lead to disaster”. He subsequently lost his job and spent almost a decade feeling isolated and alone, before a damning report by the UK’s Parliamentary Commission on Banking Standards about the bank’s former leadership led to a public expression of contrition by Sir James Crosby, his former chief executive, in 2013. It wasn’t until 2015 that the Bank of England published a report on the 2008 failure of HBOS.
As I wrote in 2015 in Forbes: “It did absolutely nothing to reassure a jaded general public that there is any such thing as ‘accountability’ for those at the very top.” Although a new inquiry was announced at the beginning of 2016, the length of time involved spoke volumes. The wheels of justice, in this case, are moving at a snail’s pace, extending the anxiety of the individuals caught up in the story. It was not until June that an inquiry into the role of the auditor, KPMG, was announced by the Financial Reporting Council (FRC).
Watchdog versus fat cats
Against this backdrop, it is worth noting that, despite the introduction of whistle-blowing procedures by the Financial Conduct Authority (FCA), designed to encourage and support whistleblowers, there was a 19% drop in whistle-blowing reports in 2015. Research obtained from the FCA by international law firm Pinsent Masons shows that 1,104 whistle-blowing cases were opened in 2015, down from 1,367 in 2014.
In structural terms, the new rules on whistleblowing are designed to be comprehensive in terms of protection for those who speak out, creating channels of internal support for them. But corporate culture is still key, as is protection for individuals who become whistle-blowers. “Since the FCA announced new rules in 2015, we are yet to see much of a shift to an environment in which individuals feel confident reporting bad behaviour. Instead, financial institutions are now finding an increased interest from employees about their responsibilities and ownership, with many escalating concerns internally on a defensive basis,” says Michael Ruck, a senior financial services enforcement lawyer at Pinsent Masons, who was formerly with the FCA.
Part of the aim of the FCA’s rules was to assign responsibilities to a ‘whistle-blower’s champion’ in every company boardroom to put systems in place that create the right internal culture and environment. This requirement came into effect in September 2016. This individual’s role is to visibly promote a healthy environment that encourages responsible reporting and escalation, and to encourage a culture in which individuals feel comfortable about raising concerns and challenging poor practice and behaviour.
“The idea of a whistle-blowing champion is a good one. But you don’t need a fancy title for one person – you need to change the culture from the top down to reinforce it,” says Andrew Yule, partner at law firm Winckworth Sherwood. “The very nature of whistle-blowing is such that it involves someone of less power saying things likely to have detrimental consequences for those higher up in an organisation. You are not going to take that human reality away.”
By the time an individual is in a position to consider being a whistle-blower, they are likely to be mired in what can be very emotional issues. It is sensible, therefore, to have a conversation with a lawyer to ensure that events are chronicled accurately – and they do not have to disclose that they have done so. “The battleground in whistle-blowing claims is what lawyers call causation – the reason for the claim. The Public Interest Disclosure Act is important. There can be many technical traps that you can fall into. At the outset, a little advice can go a long way,” says Ivor Adair, a principal at law firm Slater and Gordon.
Call a friend
Advice is available from charities such as Public Concern at Work, which works with AAT to ensure its members have an independent channel to discuss their concerns. It says that calls to its advice line from the financial services sector have doubled since 2011.
At the end of the day, making a decision about whistle-blowing is likely to depend very much on the particular corporate culture in which you work. This is a critical area of business, currently under scrutiny by the FRC, which set out a strong case for transparency and discussion of corporate behaviour in a recent report.
In its own work and publications about corporate governance, the ICAEW has also repeatedly stressed the need to “tone from the top”. However, “the difficulty still remains in marrying the encouragement of whistle-blowers to come forward and seeing the consequences when they do so”, says Ruck of Pinsent Masons.
In 2015, the FCA imposed a £2.1m fine and placed restrictions on the Bank of Beirut, following whistle-blowing by Anthony Wills, who had been its former compliance officer. Both Wills and internal auditor Michael Allin were also censured. It is unclear whether they stayed in the industry.
“This case is a stark example of the regulator ensuring that no individual can hide behind any attempt to abdicate from responsibility,” wrote Pinsent Masons in its coverage. “Although there has recently been a lot of attention focused on the regulator’s focus on senior management, this case reminds us that nobody is safe. Compliance officers and senior managers alike will be held to account.” Stories such as these do little to encourage people to do the right thing, and little else is being done to counteract this problem.
In the UK, unlike the US, we do not favour financial incentives for whistle-blowers, which Ruck argues is “a strange decision”. “In reality,” he says, “if you are going to ask people to blow the whistle, you are asking them potentially to blow apart their future career.”
Dina Medland is a contributor for Accounting Technician magazine.