Corporate Crime and Investigations - Whistleblowing: Global trends and developments

Ruby Hamid:

Hello, and welcome to the Ashurst Corporate Crime and Investigations podcast series. This is a series that will explore various aspects of corporate crime and investigations, and as part of this series, we're going to bring you a selection of mini-series, which will cover different topics that come up for us day-to-day. Bribery and corruption, money laundering, fraud, sanctions, and the sort of issues that come up for us in investigations, to name a few. My name is Ruby Hamid. I co-lead Ashurst's global Corporate Crime team, and today I'm delighted to be joined by Nathan Willmott and Liz Parkin. Nathan is a Partner and investigations specialist here in London, and Liz is an employment lawyer. She's a Senior Associate in our London team and experienced in employment disputes. And in today's episode, which is part of our investigations mini-series, we will be exploring some of the trends and developments in whistleblowing, which are keeping us busy at the moment. Nathan, I'm going to kick off with a question for you, if I may? Is whistleblowing on the rise? Are we seeing more of it across the sectors in which our clients operate?

Nathan Willmott:

Thanks very much, Ruby. Yes, I think it's a definite yes to that. I think over the last perhaps four or five years, we've seen a real significant increase in the number of whistleblowers, both within organisations and then to external authorities. We saw during lockdown it had a rather strange impact on whistleblowers. In some respects, because there was no access to your normal managers to raise issues and feel that issues were going to be able to be addressed through that normal means, that individuals felt, in some cases it was more necessary to go through more formal processes and raise issues through internal whistleblowing processes, or indeed going to external bodies. But I think also a countervailing factor is that many of the issues that might give rise to whistleblowers simply were not present because people were working from home and therefore not having the same interaction.

Nathan Willmott:

So we saw a real change in behaviour in terms of whistleblowing during that period, but already post-lockdown we're seeing an uptick. We're seeing significant numbers of internal whistleblowers. We're seeing, certainly from the data that are being published by authorities, we've seen that the SEA over the last six months in 2021 received 568 external whistleblowers covering a range of issues. But I think more importantly boards of large corporates now see the importance of dealing with whistleblowers as really important to the culture and proper management of the business. It's become an issue that is discussed much more at board level, and there's the realisation that it's important for large corporates to be thoroughly looking at issues of whistleblowing, to understand what's behind whistleblowers, and to make sure that they're investigated thoroughly and the root causes are properly addressed within the organisation. And I think that's a permanent feature now. So that will have a real impact on not just a number of whistleblowers, but the seriousness with which whistleblowing actions are taken by corporates.

Ruby Hamid:

I think, Nathan, we've seen a rise in our corporate clients of whistleblowing champions on the board and I think a familiarity by non-executive directors of the importance of whistleblowing and how to deal with it. So, non-executive directors who are experienced at and ready to set up independent investigations, subcommittees, and look after whistleblowing issues in a really careful way. And certainly in my experience, that's a relatively recent trend there.

Nathan Willmott:

I think that's right, and I think it's now seen as something that's really critical to the proper governance of corporates and creating a proper culture in which, if people raise issues, they know that they will be investigated properly, the issues will be addressed properly, and that individuals will be commended for raising issues rather than prejudiced as a result of raising issues.

Liz Parkin:

That ties in, then, with the uptick, I think, we've seen over the past five or six years in the employment sphere as well, not just in terms of it being a nuisance tactic when there's a dispute, but actually just generally this being a common theme with people becoming more aware of obligations and rights in the workplace.

Nathan Willmott:

What do you think, Liz, are changes in law or regulation which have helped to fuel this? And we've talked about the change in the style of corporate governance here, but is that driven by anything in particular in the legislative framework?

Liz Parkin:

Well, we've got, at the moment, the EU Whistleblowing Directive. This was supposed to have been in place at the end of December, 2021. Over the next year, maybe year and a half, we're going to see a real visibility on whistleblowing coming to the forefront of our clients that are operating in the European sphere and how that then interacts on the global front with clients that have already got, say, whistleblowing policy in the UK, and clients in the US and maybe in Australia and how that all interacts on this global basis.

Ruby Hamid:

That's really interesting. Liz - what is the impact, then, for UK companies post-Brexit? Why are they interested in what an EU directive is telling them?

Liz Parkin:

Well, I think the EU directive itself is very prescriptive. So on the UK side, we don't really have any set deadlines, although clients may or may not have a written policy. This EU directive actually prescribes what you need to do. You need a written process in place. You need to have a dedicated personal department to actually deal with a whistleblowing complaint. That person has to be impartial. You've got seven days to acknowledge a whistleblowing complaint, and then generally a three month period to actually go back to that whistleblower. And trying to fit that in with what is probably a slightly more flexible, for example, UK process, is going to be a consideration for businesses.

Liz Parkin:

We're also then faced with the fact that if you've got a global presence, you're going to have local jurisdictions that are going to have probably gold plated whistleblowing rules that are more prescriptive. Trying to take a global approach to that is actually going to be quite difficult. And quite a lot of our clients are now looking at whether they need a regional approach to things or whether they can trying and be a bit more cohesive in the way that they approach whistleblowing.

Ruby Hamid:

That's really interesting because we have seen a trend, haven't we, in recent years of companies trying to look for ways to harmonise their investigation approaches across their sectors, across their business lines, across their jurisdictions so that there's some consistency about the way they're dealt with. But if what we're looking at now across Europe is a range of differing requirements with differing time scales, then it may be that it's no longer "one size fits all".

Liz Parkin:

Yeah, and I think it's going to be quite difficult to take from a practical perspective that "one size fits all" approach. It might be that some clients are happy to do that and that they're happy to go with the most prescriptive approach, but at least from a UK perspective, you probably don't want to tie yourself to some of those quite tight deadlines.

Ruby Hamid:

Nathan, we spotted that there are some proposed changes to the law in France about whistleblowing, which have been quite interesting to the team here, and in particular an encouragement to whistleblowers to report directly to authorities as opposed to reporting to the company that they are employed by or they're registered in. It doesn't sound to me as though companies would welcome that.

Nathan Willmott:

I think companies ought to be encouraging their employees to raise issues in whatever the way their employees feel most comfortable, whether that's to line management, whether that's through more formal internal processes, or going externally to the relevant authorities. But I think the preference for firms would be to have a culture where people are comfortable raising things internally in order that the corporate is able to understand the issue, investigate itself, to feel confident it understands what has driven those concerns, and then take appropriate remedial action, whether with individuals or more broadly in terms of risk management systems or other processes within the firm.

Nathan Willmott:

I think that whenever an individual goes externally, particularly to a regulatory body, you have that concern that the regulator's going to take control of it and conduct its own investigation, and then the firm will be very much on the back foot. There's also the dynamic sometimes with whistleblowers where they have the threat; they report the issue internally and have the threat of then going to the external regulator as a way, sometimes, of trying to secure a positive outcome for the individual. That's normally a very thin threat in that one of the first things the firm tend to do will be to speak to the regulator themselves so that they're the ones telling the regulator rather than hearing it from a whistleblower. But yeah, to answer your question, I think the strong preference for firms is that they retain control over a matter by investigating it internally.

Nathan Willmott:

We've also seen with some clients that their regulators have increased their scrutiny of the entity, their supervisory scrutiny, because of the number of external whistleblowers that they've seen, which has caused them to be concerned about the culture within the organisation. We've also seen the regulators telling firms that they're going to be conducting section 166 skilled person reviews in relation to financial institutions where they send a professional body in to examine how they deal with whistleblowing issues. And that's obviously something that is to be avoided if at all possible for a financial services firm.

Ruby Hamid:

It's a very intrusive exercise, isn't it, being under scrutiny in those sort of circumstances?

Nathan Willmott:

Absolutely. And it's interesting that although within the financial services sector, the rules on whistleblowing only apply to a relatively small community, there's an encouragement that the rules should be applied more broadly as guidance. And the reality is we see that the regulators are treating that guidance as if it's binding rules on all firms. So, encouraging firms to have whistleblowing champions, to make sure they have proper processes in place that, although their rules don't prescribe that, in practice that's something that's very much expected across the board.

Ruby Hamid:

Liz, have you had experiences where whistleblowers have been directly to authorities, and what sort of issues have come up there for you?

Liz Parkin:

It's one of those ones, as you say, it's often a threat held. Particularly in an employment relationship, we had quite a nasty one last year that ran for a long time and that was a global client in a heavily regulated sector. Despite the fact that it was traditionally an employment executive financial dispute on an exit, that person, because of their intrinsic knowledge of the workings of the business, decided to then use the whistleblowing regime in the UK to raise multiple issues that fed into FDA concerns in the USA, modern slavery issues across Europe, and then some really quite nasty tactics used to particularly try and target some of the finance and executive team, pulling the SEA and potentially other regulators into it.

Liz Parkin:

I think the difficulty there was, despite the fact that often is the way, that we were quite comfortable that there was probably no real threat there, the time and the cost taken to actually go and look at that and look at it properly and thoroughly in and of itself was a massive cost and nuisance to the client. I think the risk of going to the external regulators, particularly with cross-border issues as well, becomes a massive issue particularly when you're trying to settle matters from our perspective.

Ruby Hamid:

Lots of people with differing views, all in the discussion at once.

Liz Parkin:

Lots of different departments. You end up with privilege issues with documents going in and out of different departments, legal compliance, and then things like data privacy issues as well with information having to go, particularly things like the United States.

Ruby Hamid:

We've talked about the legal structure around whistleblowing and what we see a lot of are the investigations that are triggered by whistleblowing. I'm interested in your views on why companies investigate whistleblowing. Why does it matter to do this properly? Why is it an important part of the way that companies do business? Nathan, do you want to go first?

Nathan Willmott:

Yeah, I guess there are a number of different layers as to why it is so important. Obviously, at a base level, if there are concerns that the company is not adhering to the law or has other ethical issues, that those are issues that are properly investigated, identified, and action taken appropriately in order to deal with those issues. More broadly, though, I think as we discussed earlier, I think the cultural aspects, the compliance culture within an organisation, encouraging a positive "speak up, listen up" approach, is really cemented by having a good whistleblowing regime. That goes to encouraging people to raise issues where they see them. It goes to knowing that where people do raise issues, they will be properly looked at and appropriate action taken.

Nathan Willmott:

It furthermore goes to the confidence of an organisation in wanting to be doing the right thing, wanting to be seen to be doing the right thing, and encouraging and empowering its employees to be stakeholders in that, in wherever they see something that they have concerns about, they have the confidence to raise it and to know that will be dealt with positively rather than negatively. So I think it's very important to those cultural aspects, as well as the more specific concern of wanting to identify wrongdoing.

Ruby Hamid:

And Liz, from your perspective, thinking about the employees and the employer and the relationship between the two, presumably it's a key part of showing responsibility and safeguarding the welfare of employees.

Liz Parkin:

Yeah, and going from what Nathan said, that wellbeing concept of having a thorough, thriving workplace - the wellbeing of the employees is paramount. And there are two elements to this, really, both in the fact that yes, there's legal protection for whistleblowers across various countries and particularly in the UK, and that in itself triggers a requirement to actually think about how you're going to deal with this, dealing with things properly, not allowing them to fester. But fundamentally actually, if there are issues being raised that are being raised by employees about their workplace, about colleagues, about processes, about situations that have happened and concerns, then the employers actually owe a duty of care to their employees to provide a safe workplace to protect their wellbeing.

Liz Parkin:

That feeds into the duty of trust and confidence to actually ensure that the business is properly listening to its employees, considering those, and not turning a blind eye to issues. Because if you do ignore them and things aren't dealt with early on, what often happens then is you end up with grievances, disciplinaries or people feeling that they've not been heard, that they will formally whistleblow, that they'll go externally to the regulators, and in worst case scenario sometimes to the press. And you don't really want to leave those things to get out there and getting ahead of it is really important.

Ruby Hamid:

When you say "getting ahead of it", Liz, do you mean a company getting its arms around a whistleblowing issue quickly? Getting to the meat of it and getting a resolution for everyone involved as rapidly as possible?

Liz Parkin:

Yeah. We're talking about that triaging concept of identify complaint, work out what it is. Is this a compliance issue? Is this a personal issue? And then making sure that that gets fed into the right channels internally and it's actioned promptly, and that these things don't fundamentally drag on.

Ruby Hamid:

I'm going to wrap up now with a question for you both about what your whistleblowing trend is at the moment. If you had to pick out one trend which you're seeing come up again and again, what would that be?

Nathan Willmott:

So my whistleblowing trend, I think, is one where we're going to see, certainly within the financial services sector, a much closer attention by the regulators to the processes that firms have in place. Real detailed scrutiny of the processes, but also the approach to how they're applied, how issues are investigated, whether people feel comfortable in terms of how they've been dealt with. But linked with that, the question of how those who've raised issues with the regulator can then be kept informed and updated about the outcome of that investigation. The financial regulators are very constrained by what they can say in terms of investigations to those that have raised issues through whistleblowers.

Nathan Willmott:

There's a recognition that if people feel that issues are not being addressed properly, then they'll stop going to the regulators and therefore a need to be able to go back to the complainant, to the whistleblower, and to give them a pracy of the steps that the regulators taken. And they haven't been able to do that in the past, but I think that they are looking, quite actively, for a route to be able to do that. So I think that may be a trend or a feature in the short to medium term.

Ruby Hamid:

I'm going to chip in with mine, and then Liz, you can wrap up the session. What I've been seeing a lot of in the economic downturn that is around for most industries at the moment, cost of living increase, financial pressure, is a focus on the way that contracts are modelled in terms of their costs and profit. And we've seen whistleblowing increase in the area around financial modelling and financial forecasting. And I think an eagerness or a willingness on the part of whistleblowers to come forward with issues around accounting and audit. And because particularly for listed companies, there is so much scrutiny of annual accounts and audit exercises, and for anybody who's listed, there's the market disclosure risk, each of those could be impacted by a financial modelling exercise which is conducted inappropriately or which is manipulated improperly. We've seen quite a few of those so far, and my prediction is as the economic downturn continues, I think we'll see more of that.

Liz Parkin:

So albeit I never want to say this word, COVID is probably going to be one of the elements that we continue to see coming through into this year. We saw an enormous increase in health and safety based whistleblowing issues, as you'd expect, with both home-working and providing a safe workplace over the last 18 months to two years. That is going to continue. A, because there are delays in the tribunal processes, but also more from ARFO because of home-working. Safety, wellbeing, all those kind of core concepts of being a responsible employer and some of these different hybrid working arrangements now that businesses have got in place, bring with them concerns - concerns about management, concerns about visibility, communication and health and safety.

Liz Parkin:

I think the second one that we're probably going to continue to see is this building on the diversity side, out of the back of the 'MeToo' movement. The real focus seems to be, particularly early this year, on boards and senior management and this real push for diversity and really looking inwards as to whether businesses are actually diverse and inclusive, and if it's not, more of those whistleblowing issues being raised in terms of actually what are we doing on a fundamental basis as opposed to specific allegations.

Ruby Hamid:

Yeah, that sounds like that's got all the hallmarks of a topic that's going to run and run. Liz, Nathan, thank you very much indeed for your wisdom and thoughts and contribution today. That's where we're going to leave it for this podcast. Thank you very much for joining me on this episode. If any of our listeners would like to get in touch with Nathan, Liz, or me, then our details are on the Ashurst website, which is ashurst.com, and if you'd like to learn more, do look out for other podcasts in the series.

Ruby Hamid:

We are going to be talking about managing employee welfare during investigations. We're going to be talking about how to scope investigations. We're going to be talking about when is an investigation an investigation. And we're going to be looking at some of the risks and best practises in specific sectors - financial services, mining, oil and gas, infrastructure - to name but a few. So, do keep tuning in by subscribing on Apple Podcasts, Spotify, or your other favourite podcast platform, and do keep the conversation going by leaving us a rating or a review. Until then, thank you very much for listening and we'll see you next time.