WHISTLEBLOWERS & CULTURE

Scary. That’s what it's like sitting across from a United States district attorney facing possible criminal indictment for corporate misconduct.

My objective: establish that the conduct occurred in a different company, at a different time, and we are not that company today. Cop the pain for the crime when and where it occurred, and confine the reputation impact within those boundaries.

United States attorneys are skilled prosecutors, able to read you and what you say, able to sift and weigh the facts from opinion, truth from marketing.

“So”, they say, “you’re a different company today. You have a better culture, better ethics, you would prevent similar criminal conduct today, unlike in the past. Alright, if that's so, how many senior managers have you fired in the last year for detected misconduct?”

The attorneys understand that if you truly have good corporate culture, then you will be firing managers and other employees for egregious breaches of conduct. They know that misconduct occurs in all organisations. The one variable that helps discriminate the organisation in which the board and executive leadership are genuine about building good culture is evidence of disciplinary and consequential action taken against employees or business partners for substantiated misconduct. Terminations for misconduct are an indicator that a program of adequate procedures has been implemented in the organisation and is working.

Back to the prosecutor’s question. If you cannot answer in detail, listing the numbers, the circumstances and associated other actions to prevent or detect further misconduct, it’s game over. You do not pass ‘Go’, you do not collect 200.

Companies in the United States and the United Kingdom have been operating for many years under the presumption they take active measures to prevent and detect criminal conduct, for failure to do so in itself constitutes a breach of law, a breach that comes with heavy penalties. Those measures require that companies establish a way for reports of misconduct (whistle blowing) to be made and addressed. Because these laws have been in place for decades, the data concerning misconduct reporting, substantiated allegations and disciplinary actions is voluminous. There is no question regarding what an adequate record of whistleblowing reporting and response looks like.

Australia has not had the same benefit of a broad-based ‘adequate procedures’ approach to the prevention and detection of misconduct, although this may be rectified with the introduction of the proposed Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023. This bill creates a new, indictable offence for corporations that fail to prevent foreign bribery. A company will have a defence if it can show it had ‘adequate procedures’ in place to prevent the bribery offence. This represents a convergence with the UK Bribery Act, US Foreign Corrupt Practices Act & the French Sapin II law.

To meet the requirements of adequate procedures, you must have a fully functioning misconduct reporting and response system.

The United States Department of Justice has evolved comprehensive and practical guidance for companies on how to do this. The practicality has evolved as US attorneys have become more aware of the challenges in driving conduct in large organisations. The regulator, keenly attuned to the requirements of the law, has also become attuned to the vagaries of behavioural management and the role of corporate culture.

Misconduct reporting and response not only signals to a prosecutor the seriousness with which the board takes these matters, but it also signals this to the company’s employees, managers and external business partners. This reinforces the norms and values which underpin behaviours in the company, key pillars to corporate culture.

I'm sure you believe that your company has good corporate culture. OK, how many managers have you terminated in the last 12 months for misconduct? How many reports of alleged misconduct have you received? How many investigations have you conducted?

If you you cannot call to mind answers to these questions, do you know who can? A fail on both aspects may be grounds for doubting your belief that the company has good corporate culture.

In a corporation, culture starts with leadership. It is crafted through the will of the board and the executive. If you are a business leader, you hold the levers of culture, no one else.

That’s not scary. That’s empowering. Culture need not be some vague intangible. It can be very sharp edged when you know how.

For a detailed discussion on whistle blowing, building corporate culture, risk and compliance, please contact McGregor Wright. https://lnkd.in/eBkRNAe8