Raising the red flag
24 June 2013 | By Jonathan Ames
24 June 2013
24 June 2013
25 June 2013
24 June 2013
16 August 2013
HBOS whistleblower Paul Moore welcomes new rules to protect his peers and tells The Lawyer that in-house counsel must drive corporate transparency
First they swore at him, then they bullied him and finally they sacked him and tried to blacken his name.
There is no love lost between Paul Moore, the famously dismissed risk analyst at HBOS and several of the bank’s former and now themselves largely discredited senior executives. Moore jokes that he has been tempted over the eight years since falling out the with bank to change his name by deed poll to the “HBOS whistleblower”, as he will be forever known by that moniker to journalists, parliamentarians and the banking sector itself.
When he puckered up and blew in the autumn of 2004 – claiming that overly-aggressive sales targets and cavalier management would send HBOS into an irreversible downwards spiral – Moore triggered the demise of the bank’s senior team and arguably heralded its sale five years later to Lloyds. He also forced politicians to shine a spotlight on corporate treatment of whistleblowers and state protection for them, resulting in this week’s reforms to legislation.
From this Wednesday, amendments to UK legislation come into force that will expand protection even to those whistleblowers who make disclosures in bad faith. Fresh provisions will also ensure that protected disclosures must be in the “public interest”, although clarity around that phrase is still in short supply (see box, below).
Perhaps most importantly, according to specialist employment lawyers – businesses will become liable for the acts of individual employees and employees themselves will be individually liable for behaviour towards whistleblowers.
Moore – who qualified as a barrister at 2 Crown Office Row in the Temple – now runs a risk-management consultancy and is an unabashed proselytiser for corporate transparency and whistle-blowing when necessary. And he says in-house heads of legal and general counsel need to take a more muscular role at their businesses, both in protecting whistleblowers and indeed as whistleblowers themselves.
Creating a three-point plan for in-house lawyers is not a position he adopts lightly, fully recognising – through no shortage of personal experience (see box, below) – that the ramifications of “speaking truth to power” can be profound and painful. “The practicalities of speaking up – irrespective of whether it exposes legal wrong doing or ethical issues – is a very dangerous business,” Moore told The Lawyer in an exclusive interview before a roundtable discussion on lawyers and whistleblowing organised by the publication in London last week.
“I now know a lot of genuine whistleblowers who speak up from points of view of conscience and competence – they have the evidence, they think it is wrong and they need to do something about it. But this is what happens to them. They get ignored, demeaned and rubbished internally within their organisations – and ultimately dismissed. And then if they speak up publicly they are denounced as lunatics and publicly rubbished. Worst is that all their friends and all their opportunities to get work scatter to the four winds. That’s because they become toxic waste, they become pariahs, persona non GRATA.”
Despite that apocalyptic picture, Moore is adamant that in-house lawyers can play key roles in improving the landscape. After all, he says: “If we can’t rely on lawyers to be of the highest integrity and to act on behalf of society as a whole, then we’re in a bit of trouble.”
But crucially, he says, senior players at corporate in-house legal departments must beef up their profiles within organisations to have a chance of making a difference. “For lawyers to manage risk,” says Moore, “they’ve got to get involved right at the front end of the equation. But how do they get there? And why do so many feel powerless when it comes to advising on the importance of decision making?’
The key, according to Moore, is for lawyers to integrate themselves into the fabric of their businesses. To an extent and somewhat ironically, that means turning their backs on years of legal academic doctrine and becoming more commercially savvy. “The first task of any professional adviser is to understand the business thoroughly,” he says, “because when you do, people will come to you early with issues. This is something US in-house lawyers have done really well.”
When Moore first arrived at HBOS as head of risk at the bank’s insurance and investment division after having been a partner at global accountancy giant KPMG, his opening move was to ask his team to list the business-specific journals they read regularly. The query was met with stoney silence. “Not a single one could say they read a business journal. But if you want to get involved in the business, you need to care and be interested in the business.”
Once they have got to grips with what their company actually does and how it does it, in-house lawyers must expand their profiles within businesses if they are to have an impact on corporate ethics. “In-house counsel must build their profile; connecting themselves much more closely to risk and compliance is essential. They should absolutely be part of risk management.
“Then they need to advertise and market to the business that they are available for quick questions. When you answer quick questions, executives will start to value you and you will inspire trust, confidence and respect, and they will increasingly get you involved from the beginning in policy making.”
Indeed, Moore suggests that in-house legal departments at large corporates should create heads of business and client development, who would be charged with “getting under the skin of the business”. However, he laments: “We are miles away from that at the moment.”
Structure and reporting lines form the third plank in Moore’s programme for bringing the legal profession to the fore of corporate ethics and whistleblowing policies. He maintains there is a strong argument for integrating the roles of legal, risk and compliance as a unified “control function” within businesses. He even argues that finance departments could conceivably fall under that ambit. However, Moore points out that current corporate practice dictates that chief executives “get the numbers they want by appointing chief financial officers who do what they are told and keep the auditors under control”.
While Moore acknowledges that allowing general counsel to report direct to chief executives gives legal departments much more power, it is still not the ideal structure. “I don’t think the control function should report to the executive board at all; it should report to the non-executive. That is for the obvious reason that if a whistleblower raises the red flag and the executive board doesn’t like it, they chop heads off. That happens all the time.”
Moore boils down managing risk to two key elements: a required culture of “openness, ethics and excellence”, combined with a separation of the balance of power in a business. Again, he bemoans what he sees as yawning gaps between his view of the ideal and the reality.
“At the moment, executives at large companies do exactly what they like – non-executive directors don’t apply proper governance over them. You can have the best governance processes on the planet, but if they are carried out in a culture of greed, unethical behaviour and indisposition to challenge, they will fail.
“In-house lawyers should therefore be involved in the leadership of culture and people at businesses. If you get the right people in the room with the right culture, you can forget policy and process, they’ll make the right decision.”
Apart from the specifics around boosting in-house lawyer participation in corporate behaviour and whistleblowing, Moore is highly vocal on the subject of government and parliament’s role in providing encouragement and protection. While this week’s reforms go some distance, Moore promotes a much more comprehensive redesign of whistleblowing policies.
Understandably, he focuses on protections for those whose “professional job is to speak up”, a cadre of in-house lawyers, risk and compliance managers and internal -audit staff. There needs to be fundamental change regarding that group, argues Moore. “It is one thing to pay compensation to people who have been fired, but it is much better to prevent them from being fired in the first place. If someone in that category speaks up, they should not be dismissed until there has been a full minuted meeting of the non-executives. And individuals concerned should have the right to representation at that meeting, so they can bring their own lawyer or whomever they’d like.”
Moore rounds out his proposal by suggesting that if it emerges that a whistleblower has been dismissed for genuinely raising a red flag over protected disclosures, then the executive wielding the axe should be subjected to performance management measures. “So, if it were the chief executive, then the chief executive possibly has to be fired for gross misconduct.”
Blowing the whistle on corporate maleficence can be intensely stressful, but the impact on the whistleblower’s career prospects can be even more profound. Moore wants the government to legislate so employers discriminating against past whistleblowers can be brought to book. “There needs to be a law saying not only can you not be discriminated against for purposes of employment on the grounds of race, gender, age and sexual orientation, but also if you have been a whistleblower.”
Ultimately, says Moore, there should be much more rigorous statutory duties on all professionals – doctors, actuaries, accountants, as well as lawyers – to report suspicions of unethical behaviour. And he calls for “very serious penalties for failure to do so when it is discovered later. After all, the whole point about professions is that they are supposed to be the best educated, of the highest integrity and the most independent”.
This week’s legislative amendments are a first step, but there is no chance that the HBOS whistleblower will ease off the pedal in his crusade for greater openness and protection for those following in his footsteps.
‘A hiding to nothing’
From the moment Paul Moore suggested to the senior executive team at HBOS that the bank’s sales techniques and indeed its entire business model was certainly unsustainable and arguably unethical, he was on a hiding to nothing.
At a session last October of the parliamentary commission into banking standards, Moore said senior figures swore and threatened him following his disclosures in 2004. Ultimately, following an investigation by Big Four accountancy practice KPMG (where Moore had been a high-performing partner before moving to HBOS) the inevitable happened and he was fired by James Crosby, then the bank’s chief executive.
“I was fired by Crosby on his own,” claims Moore, “with no human resources director, in a strange office, left on my own after 10 minutes. And then, after demanding a proper explanation, he [Crosby] wrote me a memorandum in which he told me the decision was ‘mine and mine alone’.”
A Financial Services Authority investigation followed, but Moore claims that it too was faulty to the point of negligence.
“If the regulator had done its job properly it should have said let’s make sure Paul Moore agreed the terms of reference of the KPMG investigation. Did he get an opportunity to check the facts? Did he get an opportunity to put his views forward? The answer being no to all those, we’d better call him back in and see what he’s got to say. They never called me back in. They acted wrongly, there is no doubt about that.”
But the saga did not end happily for Crosby either, who was forced to step down from his subsequent deputy chairman position at the FSA, forfeit his knighthood and hand back a large chunk of his HBOS pension.
In the public interest
In-house legal departments should start gearing up training programmes now so they are prepared for fresh claims under the amended whistleblowing laws, advise specialist employment lawyers.
The main change, argues Linklaters partner Nicola Rabson, is that individual staff members can now be held joint and severally liable for behaviour towards a whistleblower.
“Employers should train their staff in relation to what amounts to a disclosure, what amounts to detriment, and the fact that individuals may be personally liable. [The reforms] will lead to whistleblowers not only naming the employer but also individuals that act detrimentally.”
Rabson illustrates the changed approach with the 2008 case of Fecitt & Ors v NHS Manchester, in which three nurses blew the whistle over allegations regarding the qualifications of another health-care worker. As a result of making the disclosures, the three claimed they were threatened daily by other staff. Under the law at the time, the nurses could not bring an action against those individuals, and the employer could not be held vicariously liable.
Rabson maintains the reforms will also spark a battle over the definition of “public interest”. She is advising in-house legal teams that even if an employee’s complaint appears to be purely personal, they should be open to assessing possible public interest elements.
Whistleblowers will have to convince a court that it was in their reasonable belief that the disclosure was in the public interest. “That is pretty vague,” says Rabson. “You can imagine someone whistleblowing over a colleague having too big a bonus.”