On the 21 June the recently established whistleblowing commission’s consultation examining the effectiveness of existing arrangements for workplace whistleblowing will close. Responses will be summarised by the end of the year and recommendations for change will follow.
The commission throws a spotlight on an area that, in the wake of the recent banking and NHS scandals, is clearly in need of reform and there is every indication that the government will be looking again at whistleblowing as an important component in an overall strategy of encouraging good corporate governance for minimal cost. Many businesses have little or no whistleblowing provision in place and in-house counsel/management would do well to consider implementing a clear, robust policy for what many accountants and auditors consider the most effective and cheapest fraud deterrent available to any entity, regardless of size.
Given events in recent years it is not surprising that whistleblowing is receiving this attention. The background to the consultation is well known: the banking crisis of 2008, MPs’ expenses in 2009, ‘piegate’ where Rupert Murdoch and James Murdoch appeared before a parliamentary select committee and left many with the impression that, at best, they were out of touch with what was going on in their own News Corporation organisation and of course the culture in place at the BBC and elsewhere that enabled Jimmy Savile to continue abusing for so many years.
It can be seen that an effective whistleblowing policy will help provide a defence not only against financial damage but, more importantly, reputational damage. For most individuals and businesses reputational integrity is absolutely critical in order to continue operating. By way of illustration it is just a little over 10 years ago that we had the Big Five accounting organisations with arguably the strongest brand belonging to Arthur Andersen.
However, within only a few months in 2002 following the Enron scandal and allegations of document shredding, this accounting superbrand disappeared, and we were left with the Big Four. Following the demise of Andersen, approximately 90,000 people lost their livelihoods and the scandal contributed to the introduction of landmark reforms in the shape of the (US) Sarbanes-Oxley Act. It did not matter that Arthur Andersen’s conviction for obstructing justice was ultimately overturned – the damage had already been done.
The lesson has been repeated in more recent years with the public perception of banks, politicians, newspapers and the BBC impacted by the various scandals that have engulfed these institutions. So, a little time spent now, putting in place procedures that will allow you to respond and deal with events that could potentially cause the loss of everything that you have built, plus the loss of your own hard-earned good reputation, must be time well spent.
You may even find that an investment of this nature now puts your organisation ahead of what is likely to be coming down the statutory rail track. At present the UK Corporate Governance Code requires listed companies to have whistleblowing policies in place or explain why they do not but corporate governance really is the new black. The government might well extend a revised whistleblowing policy requirement to all businesses as part of an overall strategy to both reinforce good practice and implement ‘joined-up’ reform.
By this I mean that you may well have seen the launch of deferred prosecution agreements (DPAs) last year in the UK – a key feature of this initiative is self-reporting by businesses that encounter or discover illegal practice within their own organisation. DPA practicalities are still being developed and at the same time there is a widespread expectation within the business community that the provisions of The Bribery Act 2010 will be revised in the next few months.
The provisions of the act with respect to facilitation payments have been causing businesses to pull back from trading in certain areas of the world (often emerging markets) for fear that what some countries view as usual business methods could expose companies to unlimited fines and individuals to up to 10 years in jail. However, revisiting the act presents the government with a great opportunity to address not only the issue of facilitation payments but also to clarify the other key area of uncertainty – that called ‘adequate procedures’.
An organisation can defend itself against a charge of failing to prevent persons associated with them from bribing another person on their behalf if it can prove that it has adequate procedures in place to prevent bribing. Unfortunately, adequate procedures are addressed in principle rather than defined and it is claimed that the resulting uncertainty has caused some business leaders to pull out of various markets or contracts rather than run the risk of incurring devastating penalties or custodial sentences.
As part of its review the government could do a lot worse than require every business to have in place proper whistleblowing policies and procedures, clear internal and external reporting lines together with some latitude when dealing with business environments where facilitation payments are expected or required.
If we have learned one thing in recent years it is that government and regulators will always be playing catch up when it comes to dealing with businesses that prefer to walk on the shadier side of the street. Even if we had the funds most would not view increased or heavy-handed regulation as a desirable outcome. The smart way for the government and UK business to protect its reputation and at the same time promote good corporate governance is to use the most important resource or asset that any organisation has – its people.
Paul Smethurst is a partner and a forensic and corporate investigation specialist with accountancy firm, Carter Backer Winter LLP