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Governance Explainer Whistleblowing

Criminal exposure

Michael Woodford was fired suddenly in 2011, just two weeks into his job as the first foreign chief executive of Olympus, the Japanese medical equipment and camera maker.

His ‘crime’ was that he had persistently queried unexplained payments. Woodford then alerted global authorities and the media – he became a whistleblower.

He exposed around $1.7 billion of investment losses and other dubious fees and payments in what The Wall Street Journal would later call “one of the biggest and longest-running loss-hiding arrangements in Japanese corporate history”.

Olympus initially said Woodford was fired for failing to understand its management style and Japanese culture. But the company later admitted it had used improper accounting to conceal investment losses and restated years of financial results. In September 2012, the company and three former executives pleaded guilty in Japan to cover-up charges.

It sparked criminal and civil lawsuits, crippling fines, prison sentences for executives and the widespread vilification of the business.

The chaos that unfolded at Olympus is reminiscent of the crisis that has engulfed the Countess of Chester Hospital, where hospital bosses ignored whistleblowing claims by senior doctors about nurse Lucy Letby, who was recently convicted for the murders of seven babies.

These scandals serve as stark reminders to boards about what can go wrong if whistleblowing claims are not properly dealt with.

UK review

In the UK, whistleblowing – increasingly referred to in the corporate world as ‘speak up’ or ‘speak out’ policies – is protected by law. Employees are protected if they expose criminal wrongdoing or something that is in the public interest.

In March 2023, the government said it was beginning a review of its whistleblowing framework in order to assess how effective the current regime is and to strengthen whistleblower protections.

There is no legal requirement for an organisation to have a whistleblowing policy, although under the UK Corporate Governance Code listed companies must have whistleblowing policies in place, or explain why they do not.

Protect is the UK’s whistleblowing charity and has a free, confidential advice line that supports more than 3,000 whistleblowers each year who have seen malpractice, risk or wrongdoing in the workplace. It has handled 45,000 cases since it was formed in 1993.

Protect also works with organisations supporting, advising and training teams on improving their speak-up arrangements.

Cashing in

The US operates a very different system, offering whistleblowers large financial rewards in return for information.

In May 2023, the Securities and Exchange Commission (SEC) paid out its largest-ever award to a whistleblower, almost $279 million. The award was more than double the previous record amount of $114 million, announced in October 2020.

The US regulator did not name the person who was paid the reward, nor did it say which enforcement actions resulted in the payment, a policy designed to protect whistleblowers who want to remain anonymous.

Nicole Creola Kelly, Head of the SEC’s whistleblower office, said:

“The whistleblower’s sustained assistance including multiple interviews and written submissions was critical to the success of these actions. While the whistleblower’s information did not prompt the opening of the SEC’s investigation, their information expanded the scope of misconduct charged.”

Established as part of the 2010 Dodd-Frank Act, the SEC’s whistleblower office is designed to encourage people with information about financial misconduct to help the agency bring cases.

To get paid, whistleblowers must provide information that leads to an SEC enforcement case of more than $1 million. Whistleblowers can be paid between 10% and 30% of the total of the fines collected.

The SEC has paid out more than $1 billion since the start of the programme in 2011.

A board responsibility

Should such a financially driven approach to whistleblowing be introduced in the UK? The Chief Executive of Protect, Elizabeth Gardiner, has argued against such an approach.

In her experience, most whistleblowers simply want the wrongdoing to stop – they are not seeking massive financial rewards.

Furthermore, there is no shortage of whistleblowers coming forward — for example, almost 14,000 reported concerns to HMRC in 2020-21. The real issue is that too many are ignored or victimised when they raise a concern.

It’s the board’s responsibility to ensure that ‘speak up’ processes are working effectively and are safe havens for employees and other stakeholders.

Ideally, a non-executive director should be appointed as whistleblowing champion, and boards should keep a close eye on whistleblowing data and trends. Too few whistleblowing reports may be just as concerning as too many.

In the words of one guide to whistleblowing:

“There is a small window of time for organisations to hear about risks – most whistleblowers are not persistent and will raise their concern only once. Every interaction with the whistleblower counts – from the first line manager to the board.”

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