Responding to Allegations of Non-Financial Misconduct: Getting It Right

Responding to Allegations of Non-Financial Misconduct: Getting It Right

Blog WilmerHale W.I.R.E. UK

This article was first published by PM Daily on May 12, 2023.

The UK’s Confederation of British Industry (CBI), which provides a voice for UK corporates, is facing a crisis following recent serious and well-publicised allegations of sexual misconduct. At the time of writing, multiple high-profile UK corporates have severed ties with the CBI, while others have paused engagements pending the outcome of an internal investigation.

Unrelated, but in a similar vein, the UK’s Deputy Prime Minister recently resigned following the publication of an external report by an independent lawyer that found he had acted in a way which was intimidating and had been unreasonably and persistently aggressive in meetings with civil servants.

These evolving situations serve as opportune reminders to corporates of the significant risks associated with non-financial misconduct and the vital role of putting in place a timely, coordinated and carefully thought through multi-disciplinary investigative response. This article highlights some of the key legal and practical matters for corporates to consider should such allegations arise within their organisation.

What conduct is captured?

Non-financial misconduct is an umbrella term that includes myriad inappropriate behaviours such as inappropriate sexual contact, bullying, harassment, discrimination, and inappropriate use of social media.

There has been increased regulatory focus on this issue in recent years. UK FCA-regulated firms are required to consider non-financial misconduct in two key respects. First, the FCA’s Conduct Rules, applicable to nearly all staff, require employees to ‘act with integrity’ in the performance of their roles and responsibilities. Second, firms must certify annually that individuals holding a Senior Manager Function are ‘fit and proper’ to perform their role, an assessment which considers their honesty, integrity, and reputation inside and outside the workplace.

Non-financial misconduct is relevant to compliance with these regulatory standards and has resulted in a number of enforcement actions being taken by the FCA, most recently in the case of Ashkan Zahedian, a director of a consumer credit firm who was banned from working in financial services after a violent criminal conviction.1 Similarly, as regards the London insurance market at Lloyd’s of London, enforcement action has been undertaken against senior individuals for gross personal misconduct, as well as firms for systemic failures to address such conduct.

These issues can impact any business, however, regardless of regulatory status. In today’s media environment, news is made instantly, and social media provides a platform for stakeholders to hold companies to account directly. Hard won reputations can be lost overnight in response to misconduct allegations, which can have serious financial, reputational and commercial repercussions.

A rushed and poorly thought through response to the issues raised will add to a corporate’s challenges by prolonging negative press and inviting potential legal claims from complainants and investigation subjects alike. It is therefore essential for corporates to make decisions following a fair, rigorous and independent investigation process that promotes confidence in the outcome and can stand up to external scrutiny, for example, under the spotlight of an employment tribunal.

Key considerations for responding to allegations

An exhaustive summary of all the steps that companies should take in response to being put on notice of allegations of serious non-financial misconduct falls outside the scope of this article, however the following key considerations should be borne in mind:

  • Take a breath.  Decisions around how to respond to allegations of serious non-financial misconduct are typically taken at speed, under significant pressure, based on incomplete information and at a time when the business and the individuals involved in the allegations are under overwhelming internal and external scrutiny.

    Decisions taken early in the response can have unfortunate subsequent repercussions, if rushed.  It is essential that time is taken early on in the response by those running the investigation to pause and properly think through the objective and strategy of the response, including whether it is or may become a criminal matter, whether there is a whistleblower involved, whether there is a need to notify any authorities and the possible sources of evidence.

  • A coalition of all the talents.  An effective response requires a coordinated multi-disciplinary approach led by the corporate’s senior management team.  This will typically include the company’s HR team and external employment counsel, PR and crisis response teams and external data forensic specialists, amongst others. Non-financial investigations can become all-consuming for senior management and core functions, who still have their day jobs to keep the corporate running effectively.
  • Secure the evidence. Given the range of behaviour that non-financial misconduct covers, including activity outside the workplace, investigations will typically involve non-traditional forms of evidence, such as social media posts, CCTV, and communications from private messaging applications.  It is therefore vital that evidence-gathering and review complies with data protection legislation, especially if employee personal devices need to be searched.  The use of expert eDiscovery providers may save time and costs, as well as provide the chain of evidence for future potential proceedings.

    Securing witness first accounts promptly and determining whether and in what form to document those accounts is a key consideration.

  • Consider appointing external counsel.  There are compelling reasons to appoint external legal counsel to lead the investigation.  Chief among them being expertise, independence and helping to ensure that the investigation is protected by legal privilege.  This final point is critical to giving the company the best possible opportunity of asserting control of the process and the narrative. Maintaining confidentiality is key to asserting privilege, but also vital for preserving the integrity of the investigation more generally. Leaks and unnecessary sharing of information can increase the risk of retaliation against whistleblowers and can have a chilling effect on employee morale and willingness to speak up in future.

The above principles are some of the key, general purpose, considerations for any corporate investigating allegations of non-financial misconduct.  No two situations are identical, however, and it is important to ensure the response is tailored to the individual circumstances of the case.


1 https://www.fca.org.uk/news/press-releases/fca-bans-director-financial-services-violent-criminal-conviction

Authors

More from this series