Hidden skeletons - Farrer & Co

COVER STORY
WHISTLEBLOWING
Hidden skeletons
William Dawson and Eleanor Rowswell of
Farrer & Co discuss the key considerations in
developing a firmwide whistleblowing culture
14 MANAGING PARTNER, APRIL 2012

While in large part your fellow
partners will be individuals
of integrity, every managing
partner knows that, from time to time, you
are likely to come across an allegation of
professional misconduct (or worse) against
a partner or employee.
It’s usually better to find out the facts
sooner rather than later so that you can
take early action and ideally nip the issue
in the bud before it escalates into a more
serious regulatory breach.
Law firms are places where,
surprisingly, there is not much
discussion about whistleblowing. Indeed,
whistleblowing policies are not necessarily
standard in the same way as employee
grievance procedures or disciplinary rules.
“There has been
a tendency for bad
news to be buried
in law firms”
Defining whistleblowing
Whistleblowing is the term used to
describe a situation where an employee or
other worker raises a concern about illegal
practices or other wrongdoing. Depending
on the jurisdiction in which you operate, it
is likely to have a specific legal definition.
In the UK, the Public Interest Disclosure
Act 1998 provides a framework for the
protection of the whistleblower who
makes a “qualifying disclosure”, conveying
information which, in the reasonable belief of
the worker, tends to show that a specified
type of malpractice has taken place, is
taking place or is likely to take place. These
include criminal offences, breach of any
legal obligation, miscarriages of justice,
danger to health and safety, damage to the
environment and the deliberate concealing
of information about any of these matters.
In the context of a law firm, you are
likely to be dealing with the alleged
commission of a criminal offence (most
obviously fraud) or breach of a legal
obligation. The latter category is very wide,
and will cover, for example, breach of
any contractual obligations owed by your
firm to its clients, or even a breach of an
employee’s own contract of employment.
www.mpmagazine.com
15

COVER STORY WHISTLEBLOWING
DEVELOPING A WHISTLEBLOWING CULTURE
Do
Consider adopting a formal whistleblowing policy, but don’t forget the
importance of training on that policy.
Consider as part of good risk management the importance of supervision and
team working in fostering an open culture.
Think carefully about the personality of any whistleblowing officers, to ensure
that they are people who are seen as approachable by your partners and staff.
Don’t
Take on all of the responsibility for the management of whistleblowing
complaints yourself – ensure you have adequate support amongst your
management team and consider appointing dedicated whistleblowing officers.
Allow a culture to develop of burying concerns and letting them fester.
Actively encourage the early reporting of concerns.
Somewhat bizarrely, in the UK there
is not currently a legal requirement that
the disclosure is in the public interest,
meaning that an individual employee can
complain about the way he has been
treated by his employer and can rely on
this complaint as grounds for protection
under whistleblowing legislation. The UK
government’s proposed reforms in this
area to remove this anomaly are welcome.
The UK whistleblowing regime does not
cover a regulatory breach per se if such a
breach does not in itself amount to breach
of a legal obligation. But it will of course
often be the case that a breach of regulatory
obligation will amount to a separate breach
of contract (such as a firm’s contract to
perform services for a client in accordance
with its regulatory obligations). It is prudent
in any event to treat any disclosure of a
regulatory breach as if it were covered by
the whistleblowing regime.
Why a whistleblowing culture
Early warning signals
The most important reason to develop a
whistleblowing culture is to encourage
transparency, so that concerns are
reported to management as early as
possible and therefore can be dealt with
before significant damage has been done.
This is not something which has
necessarily been encouraged in law firms
in the past. In fact, there has, from time to
time, been a tendency for bad news to be
buried in law firms.
However, as firms grow in size
(particularly through mergers or team
bolt-ons), it can become increasingly
difficult for management to keep a
close watch on any potential concerns
without adequate reporting structures
in place.
If staff feel that they will be seen as
disloyal to their colleagues or their firm by
reporting legitimate concerns, then that is
a very dangerous environment to manage.
It is well-nigh impossible for a managing
partner to have oversight of everything that
goes on in any firm, so you need to be able
to rely on your staff to report concerns
upwards – not necessarily directly to
you in every case. You will need a risk
management structure appropriate to your
firm’s size and to share the responsibility of
dealing appropriately with any allegations
of wrongdoing.
Partnership issues
The culture at many law firms sometimes
makes it difficult to manage your partners
to ensure that a bright associate is not
ostracised after making a disclosure about
less than ideal behaviour on the part of
one of your partners.
The nature of law firms is that work is
in the gift of the partners and is allocated
to solicitors who partners feel they can
trust – not to those who are seen as
disloyal or troublemakers. It is very easy
for trust to be broken when a solicitor
has, quite rightly, brought a matter to your
attention (see box: Case study).
Prospect of litigation
In the UK, if a whistleblower who makes
a qualifying disclosure in good faith is
subjected to detriment or dismissal by his
employer (by, for example, being ‘sent to
Coventry’ as in the case study), he can
bring a claim in an employment tribunal
for compensatory damages, which are
theoretically uncapped.
For some, a whistleblowing claim is
the winning ticket to damages that are
not subject to the usual £72,300 cap on
compensatory awards for unfair dismissal
claims or a qualifying period of service.
Some claimants also feel that the
pursuit of a whistleblowing claim does
not carry the stigma of bringing a claim
for discrimination (for which damages are
also uncapped). They may therefore be
more prepared to try their luck at a tribunal,
usually with the aim of doing a deal
somewhere along the line.
“A whistleblowing
claim is the winning
ticket to damages”
16 MANAGING PARTNER, APRIL 2012

This is all the more likely given that
the tribunals do not carry the same costs
regime as the civil courts and, therefore,
there is not the same financial downside
to pursuit of a claim when it is only in very
limited circumstances that the loser can be
required to pay the winner’s costs.
Tribunals have made significant
awards in the past. In 2010, Public
Concern at Work reported that the highest
whistleblowing award had been £3.8m
and the average award was £113,677.
These statistics do not, however, take into
account the vast majority of cases that
settle under confidential terms (all the
more likely in the legal sector).
Where your whistleblower claimant is
a lawyer with ambition (which, let’s face
it, most of us are), then it is relatively easy
for the disgruntled solicitor or salaried
partner (who may well be an employee
and therefore covered by whistleblowing
CASE STUDY
Jane, an ambitious young associate, makes a disclosure to her managing partner about
an inappropriate relationship between the head of her team, John, and a young solicitor
on the other side of a transaction. She feels that there is potential for a conflict of
interest and/or breach of confidentiality obligations.
She genuinely believes that there is cause for concern, but John is outraged that
she has approached the managing partner to “tell tales”. John point-blank refuses
to work with her, thereby removing her from some rewarding and high-profile work.
To make matters worse, John makes clear to other partners within the team that he
considers her commitment and work performance to be poor.
In this scenario, clearly the managing partner needs to conduct an investigation to
get to the bottom of the allegation and take action accordingly. It is important not to
lose sight of the need to support Jane and make clear to John that it is not acceptable
for him to ‘send her to Coventry’ and isolate her from his work, particularly if Jane is part
of a small team and is unlikely to be allocated challenging work from other sources.
This is especially important if it transpires that Jane’s concerns, albeit genuinely
held, were not substantiated and/or John had already taken steps to manage the
potential conflict of interest. In these circumstances, he is all the more likely to remain
intransigent and unwilling to work with Jane in future.
There is also a question over what other partners should be told about the
allegation, assuming that they do not know about it already and therefore take John’s
concerns about Jane’s performance at face value.
It is therefore crucial that someone takes responsibility to ensure Jane’s career is
not hindered by John’s behaviour, both in the interests of retaining talent and avoiding
a potential whistleblowing claim.
legislation) to argue that, by being
marginalised or sacked, he has sustained
potentially career-long losses and should
be compensated accordingly.
There are many lawyers around but,
when it comes to litigation against law
firms, it is a very small world and, as we
all know, it can be career suicide for a
young lawyer to sue. As a result, high
damages in some cases are a very real
possibility, at least to the extent that the
claimant has leverage to negotiate a
settlement package in six and, in some
cases, seven figures.
Limiting liability
Whistleblowing policy
So, do you need a formal policy In the
UK (unlike jurisdictions like the US),
there is no legal obligation to have a
whistleblowing policy in place, but there
are a number of good reasons to do so.
The aim must be to create an
environment where your staff do not feel
that they are likely to be victimised if they
draw attention to wrongdoing and have
the confidence to do so. The advantage of
having a written policy in place is that you
have a document accessible to all, where
it is expressly stated that victimisation is
prohibited and will not be tolerated, and
that disclosure of suspected wrongdoing
is actively encouraged.
A second (but also important) reason
to have a written policy in place is that
if you are unlucky enough to need to
defend a whistleblowing claim in an
employment tribunal, you will immediately
be on the back foot (particularly if you
manage a medium to large firm) if you
cannot point to a document which sets
out your approach to managing
whistleblowing complaints.
There then needs to be a structure
in place to ensure that individuals know
whom to approach with a concern and,
in particular, to enable them to bypass
the person or management level to which
the concern relates. In law firms, it is not
always obvious who that person should be
unless you have a clear policy in place.
Think carefully about who you
nominate to consider and investigate
any disclosures. It is not always sensible
simply to name the head of a business
function in every case. In order to facilitate
internal disclosure, it is important to select
www.mpmagazine.com
17

COVER STORY WHISTLEBLOWING
individuals to whom staff feel comfortable
reporting concerns. To get this right,
you need to think carefully about the
personality of any potential whistleblowing
officers and, in particular, how they are
perceived throughout all levels of your firm.
In the UK, the Solicitors Regulatory
Authority’s code of conduct requires
firms to notify the regulator promptly of
any serious misconduct by any person or
firm authorised by the SRA or any of its
employees, managers or owners.
One of the indicative behaviours the
regulator suggests would tend to show
that you have complied with the SRA
Principles is to have a whistleblowing
policy in place (IB (10.10)), yet this is still
not standard procedure in many law firms.
That in itself is a good reason to have a
written whistleblowing policy.
“There is little point
in having a policy
in place unless you
draw it to the
attention of staff”
Firmwide training
There is little point in having a policy in
place unless you draw it to the attention
of staff.
If you are rolling out a new
whistleblowing policy, then it makes sense
to have some form of consultation with
staff on the policy and to ensure that, once
it is implemented, staff are made aware
of its content and purpose. The extent of
that consultation will of course depend
on the size and culture of your firm,
and whether you already have a staff
consultation body in place.
Firm culture
In reality, of more importance than a
formal whistleblowing policy is adequate
supervision and team working to foster the
appropriate culture where mistakes come
to light early.
If this culture is not proactively
developed, then there is a risk that
mistakes will be covered up and fester,
rather than being dealt with properly
and sensitively.
Legal privilege
An area that requires very careful
management is where an individual
becomes aware of client wrongdoing
(in which your firm may be complicit).
Clearly, it will only be in extremely
rare circumstances that legal professional
privilege can be broken. For example, in
the UK, there is a limited exception in the
anti-money laundering regime where the
information received from the client is
communicated or given with the intention
of furthering a criminal purpose.
However, you will still need to have
a system in place for concerns to be
reported upwards so that decisions can
be taken at an appropriate level about
whether, for example, your firm should
continue to act for that client.
The reality is that sometimes the
partner with responsibility for a big
client is not the best person to take
that judgement call (at least not in isolation
without objective input), and therefore
your reporting systems need to take
that into account.
External perspective
If there are conflicting opinions amongst
the partnership and you decide to seek
external advice, be wary of using the
firm’s money to pay for such advice,
unless the firm’s management
arrangements permit this.
If your partners have helped to pay
for that advice as an expense of the firm
but have not authorised it under the firm’s
management arrangements, you may
be placed in a tricky position when they
ask to see a copy of it in circumstances
where you would wish to keep that advice
confidential to a handful of partners.
Internal support
Above all, ensure that you have adequate
support from your management team to
deal with the complex issues that can
arise in a whistleblowing scenario. Careful
planning in advance to ensure that you
have support in place before a concern
is raised is key. It will ensure that you are
best placed to deal with the potential
fallout both from the person about
whom a complaint has been made
and the whistleblower.
WILLIAM.DAWSON@FARRER.CO.UK;
ELEANOR.ROWSWELL@FARRER.CO.UK
18 MANAGING PARTNER, APRIL 2012