Blowing the whistle

Caroline
Horn reports on the benefits of implementing whistleblowing policies to ensure
the safety of staff who report wrongdoings in the workplace

Companies do not like to hear bad news and it’s doubtful they would want to
encourage staff to deliver it. Employees who do pluck up the courage to point
out corporate mistakes are more likely to be seen as disruptive and disloyal
than helpful or valued members of staff.

But vilifying today’s ‘whistleblowers’ and/or ignoring the issues they raise
can have some rather nasty results, possibly landing your company on tomorrow’s
front pages and your executives in court. Enron, Tyco and WorldCom are recent
examples of how bad things can get when you turn a blind eye to wrongdoing.

In the Tyco International case, three executives were accused of receiving
$170m in unauthorised payments from corporate accounts during a seven-year
period. The Manhattan District Attorney announced the indictments he said he
found it "extremely troublesome… that no whistleblowers had come
forward."

In the UK, however, the Public Interest Disclosure Act (PIDA) introduced in
1998, would (in theory) have prevented such a situation, by putting sweeping
measures in place to protect the whistleblowers.

But even with the new act, Barry Mordsley, head of employment law at Salans,
says: "There’s not total acceptance of whistleblowing and a lot of people
still struggle with the concept. Most people still see it as a negative thing –
companies want to protect themselves against whistleblowing rather than taking
a positive approach and using it to find out what is going on in their
organisation."

Instead of traditionally viewing them as troublemakers, companies should
welcome whistleblowing on two counts, says David Lewis, professor of employment
law at Middlesex University and author of Whistleblowing at Work.

"If there is wrongdoing, companies need to know about it so that they
can act on it – that would avoid disasters like BCCI, Enron and WorldCom,"
he says. "But there is another issue of quality. If something is not being
done right, [or] is being done inefficiently, resources are being wasted."

There is now also the question of legislation and the legal protection of
whistleblowers. PIDA legislation does not force companies to put specific
policies or procedures in place, but it does protect the whistleblower, says
Matthew Tom, partner at Tarlo Lyons. "Any dismissal for making a
‘protected disclosure’ under the Act will be unfair," he says.

The Act’s scope is wide – whistleblowers can legally raise concerns across a
raft of corporate governance issues, such as health and safety, tax fraud and
environmental damage – in fact, any legal obligation to which the employer is
subject. Following more recent judgements, PIDA is also seen to cover an
employer’s alleged contractual obligations to an employee.

The Act will also protect whistleblowers from being subjected to any
detriment, and Tom warns that the usual £52,600 upper limit on the compensatory
award for unfair dismissal is removed. A recent case involved an award of
£293,000.

As Rachael Heenan, an associate with Beachcroft Wansbroughs’ national
employment law practice, adds: "It is important to note that compensation
for whistleblowers is uncapped and there is no qualifying period of employment
required." It has become more important, therefore, for companies to have
a comprehensive approach to whistleblowing.

While there is evidence that public companies are starting to introduce
whistleblowing procedures, private companies appear less willing to do so. A
report from The Work Foundation (July 2002) found that, some three years after
the introduction of PIDA, almost half of the 281 companies it surveyed had not
introduced formal whistleblowing policies.

Media reports on whistleblowing – now a more regular feature on business
news pages – are beginning to raise its profile, though, as is the work of
organisations such as Public Concern at Work (PCAW) and The Work Foundation.

Since the Act was introduced, there have been around 1,300 claims. Anna
Myers, deputy director of PCAW, says: "The nature of calls we are getting
are from people with public interest concerns – they are not mixing it up with
their individual concerns, like wages." But she adds: "While the top
500 private companies do have a procedure in place, smaller businesses aren’t
aware of it and don’t see this as an issue – but of the claims brought, 70 per
cent are in this sector."

The PCWA has been working hard to bring whistleblowing to corporate and
public attention. It offers a training package for companies to explain the
concept of whistleblowing to their staff and discuss why it is important. It
also contains advice on how to discuss the issues with employees and how to put
procedures in place – including identifying the risks, and creating an internal
and external procedure – and offers a model of the policy itself.

The DTI has published a helpful guidance on the PIDA provisions as well,
which is available on its website, while The Work Foundation has a best
practice report on whistleblowing (No 93 Whistleblowing).

Sejal Raja, a member of the Radcliffes Le Brasseur employment group, says
having a policy will help employees come forward by reassuring it is safe to
speak out.

But once a company has drawn up its policy, it should not be tempted to
leave it at that. Chris Walter, head of employment group Covington &
Burlington, says it is easy for companies to get a policy drawn up because they
don’t have to discuss it with their workforce, "but it becomes more
difficult when you try to turn it into a document of practice in the workplace
because it means raising awareness and policing it, and that’s where it tends
to falter".

If you are aiming to encourage people to speak up about their concerns, and
to assure them they will not be penalised for so doing, it requires
communication and training, says Lewis. Companies must ensure people are aware
of the policy and that everyone buys into it.

Myers warns: "A key aspect is commitment from the top of the
organisation, or it won’t work in practice." Because the policy needs to
link into a company’s existing procedures, and because it can relate to other
procedures such as equal opportunities and grievances, responsibility for
putting them in place will generally fall under HR’s umbrella.

But as well as HR support, Myers says: "You need to have champions
either on the board or through risk management or corporate governance
departments – if it’s seen as a risk management or corporate governance issue,
that can be helpful because someone else will champion it."

Unless it involves issues such as fraud, it should be possible to deal with
most whistleblowing concerns internally, using agreed procedures. A company
could designate a person responsible for dealing with such issues. If the
concerns raised are quality or efficiency issues, a line manager is more likely
to be able to deal with them. Issues such as unequal pay or equal opportunities
should be handed to HR.

PIDA legislation suggests that as well as putting a safe internal route in
place for individuals to blow the whistle, there also needs to be a safe
external route.

"Some companies will struggle with the internal/external idea,"
says Myers, "but offering a safe internal path and external route will
work in the company’s favour, because staff will know that you are taking their
concerns seriously."

If the allegations concern senior management and major fraud at director
level, it is an issue for external bodies – possibly the police – and HR may
have to help make the decision to ‘go outside’.

But what protection do companies have against troublemakers, or staff with
their own personal vendettas? Widening PIDA to include employers’ alleged
contractual obligations to employees could, says Walter, lead to "tactical
use of this act by employees pursuing a litigious vendetta."

To avoid such problems, Lewis says: "The company must emphasise that
the whistleblowing process relates to serious concerns and the employee must
not be making malicious allegations. If they are trying to get at a colleague
out of malice, it must be made clear that this is a disciplinary offence."

Whistleblowing will often be about processes rather than individuals,
however, and a preliminary screening by HR can assess whether to pursue any
allegation. The priority will be to keep things at the lowest level, "not
hiding it, but dealing with it speedily", says Lewis.

Once a whistleblower has come forward with their concerns, any issue raised
has to be recorded, which has implications for data protection and deciding who
will have access to that information.

Heenan of Beachcroft Wansbroughs’ national employment law practice also
points out how important it is to keep the whistleblower informed.

"Don’t forget to give feedback to the member of staff who raised the
concerns and the final result of any investigation. If you leave them out in
the cold, they will feel vulnerable, and other employees may not wish to raise
concerns."

There are concerns that although the PIDA legislation is broad, it does not
offer enough protection to whistleblowers, and Lewis says this remains "a
very big issue".

"My own feeling is that these procedures should not be introduced to
cover companies’ backs from troublemakers, but should be seen in a more
positive light. I’d equate it to the kind of ‘suggestion schemes’ we had in the
1970s. That is, ‘if we can make financial improvements or hear of deficiencies
in production or in health and safety, the mechanism is there to deal with it’.
My view is that it should be seen as a good thing."

This does happen, as in the Abbey National case, where the whistleblower was
congratulated and promoted (see left). Whatever approach your company chooses
to take, Heenan warns: "Never opt for the quiet life by not dealing with
the problems – they will not go away."

US v UK law on Whistleblowing

Prior to the Sarbanes-Oxley Act of
2002, whistleblowers in the US were offered limited protection and redress
under varied federal statutes.

The Sarbanes-Oxley Act introduced comprehensive and potent
whistleblower protections to corporate America, but with important differences
from the UK PIDA act, says Chris Walter, head of employment group at Covington
& Burlington.

– The Sarbanes-Oxley Act only applies to people who have been
involved in investigations. In the UK, people can report their suspicions
without having been involved in an investigation

– The US law is related to securities law only, covering
criminal activities of a financial nature – or fraud. In the UK, PIDA applies
to a wide range of issues including health & safety, environmental damage
and so on – any legal obligation to which the employer is subject. It could
also include any alleged contractual obligations to an employee

These differences reflect the cultural differences between
Europe and the US, where employment is less regulated.

Case study: The good the bad and Robert
Maxwell

Abbey National In 1993, Gary
Brown was working in Abbey National’s marketing department when he noticed some
potentially fraudulent activities. He reported them internally in May 1994, and
the man suspected of wrongdoing was suspended. In 1997, the suspect was found
guilty of stealing £2m. Brown was commended by the judge, received £25,000 from
Abbey National and an invitation to rejoin the bank. Since his return in March 1998,
Brown has been promoted three times.

Bristol Royal Infirmary Dr
Stephen Bolsin worked as a consultant anaesthetist at the Bristol Royal
Infirmary in the UK, but during the 1980s and 1990s he became concerned about
the higher than normal death rate following open-heart surgery on babies. He
raised his concerns with fellow colleagues and hospital managers, but they were
not addressed. After the death in 1995 of Joshua Loveday after open-heart
operation, his parents complained to the General Medical Council. Bolsin
supported their complaint. Consequently, three hospital staff were found guilty
of professional misconduct.

Enron Sherron Watkins was vice-president of corporate
development at the US energy company, Enron. In August 2001, she sent a memo to
Enron chairman Kenneth Lay warning him about accounting practices in the
company. Lay instigated a limited investigation by Enron’s lawyers, which found
that there was no major problem. Watkins also raised her concerns with people
at Andersen, Enron’s auditors. Last month, Enron admitted it had overstated its
profits dating back to 1997 by $600m. Sherron Watkins, who had remained with
the company, resigned last month.

Maxwell Pensions Scandal Harry
Templeton worked as a printer on newspapers owned by Robert Maxwell’s Mirror
Group. In 1985, Templeton was appointed as a trustee of the Mirror Group
Pension Scheme, but was fired in 1988 after challenging Maxwell’s misuse of
pension funds. Only after Maxwell’s death a couple of years later was it
revealed that Maxwell had stolen £400m of staff pension money.

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