We are seeing practice, particularly for large public companies, at least on paper go beyond what is legally required.
The law has traditionally focused on protecting employees and workers who have raised certain types of concerns or 'protected disclosures' from dismissal or detriment. There has been no general legal obligation on companies (save within certain sectors) to have a reporting policy or mechanism to facilitate the escalation or investigation of concerns. Nor has there been a general obligation on staff to speak up about wrongdoing they may witness – save for the most senior members of staff to the extent they are under fiduciary or contractual duties.
However, in recent years a variety of factors has led to increased actual and proposed regulation in the whistleblowing sphere.
Firstly, there has been a series of domestic and global corporate scandals – many in the financial services sector. As a result the pace of legal change has, perhaps, been driven most swiftly within the financial services sector with rules being introduced by the Prudential Regulation Authority and Financial Conduct Authority (FCA) in September 2016. Key requirements of the rules include making it mandatory to have an effective policy and processes for the reporting of concerns, effective protection for those who 'speak up', and personal accountability of a senior individual (referred to as the 'whistleblowing champion') for oversight of whistleblowing arrangements. Training is also mandated and from the top down – with those responsible for the operation of the arrangements subject to more rigorous training.
There are also proposals by the European Commission for a directive guaranteeing a level of protection to whistleblowers within the EU when they report breaches of EU law. If the proposal comes into effect in its current form the rules would require all enterprises with at least 50 employees or with an annual turnover or total assets of more than €10 million to set up internal processes for whistleblowing. The obligation to set up such reporting channels will apply to all financial services firms and firms vulnerable to money laundering or terrorist financing, irrespective of their size or turnover.
We can also see the impact of changing attitudes to corporate loyalty and an increased willingness to challenge the status quo. Businesses are becoming more concerned with demonstrating ethical leadership and a healthy culture. This focus on culture and key stakeholder engagement has culminated in various new aspects within the 2018 Corporate Governance Code relating to the importance of hearing diverse voices at board level as well as whistleblowing arrangements.
Clearly there is increased visibility of whistleblowing arrangements and having such arrangements in place is, at least for large businesses in the UK, now the norm. But while many companies in the UK may be ahead of the curve from a legal perspective, experience to date of how these operate on a day-to-day basis indicates that there are still significant challenges for businesses to tackle.
A key challenge is ensuring that, behind the black letter of the policy, there is effective infrastructure in place so that when people do 'speak up' they are listened to and the concern is dealt with – even if the outcome is that no further action need be taken. The new Corporate Governance Code requires boards to routinely review their reporting measures to ensure that arrangements are in place for the proportionate and independent investigation of concerns and for follow-up action.
Another challenge is how to successfully embed a culture in which people genuinely feel safe to 'speak up'. In the financial services sector the FCA has honed in on senior accountability and training of staff at all levels as being crucial to the success of whistleblowing arrangements.
We head into 2019 against a backdrop of increased scrutiny of corporate culture and encouragement of more open dialogue with employees and key stakeholders. It is inevitable that whistleblowing arrangements will be under greater pressure and need to be stress-tested. We foresee this translating into an expectation of a high degree of awareness and responsibility at board level for ensuring whistleblowing arrangements are more than just words on a piece of paper and are truly fit for purpose.
Jillian Naylor is a partner in the employment and incentives team at Linklaters