Board directors need to ensure effective oversight of their firm’s whistleblowing arrangements. If handled badly, a whistleblowing issue can result in significant reputational and financial damage for an organisation.

NED Oversight of Whistleblowing Arrangements: Financial Services and Insurance Industries

In the financial services and insurance industries, board oversight of firms’ whistleblowing arrangements has been embedded through the whistleblowing requirements introduced by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in 2016. This includes the requirement to appoint a non-executive director as a “whistleblowers’ champion” to ensure the “integrity, independence and effectiveness” of the firm’s whistleblowing arrangements, including an annual report to the board regarding the operation and effectiveness of the firm’s whistleblowing systems and controls.

Firms in these industries have experienced serious fallout when their whistleblowing programmes have been exposed as ineffective. In 2018, for example, Barclays’ CEO Jes Staley was fined £642,430 by the FCA and PRA for failing to act with due skill, care and diligence in trying to identify a whistleblower who wrote an anonymous letter to the Barclays board. In December 2018, Barclays received an additional $15 million fine from the New York State Department of Financial Services for violating local banking law and its own procedures during the handling of the matter.

In 2019 the PRA placed Lloyd’s of London under special measures after Lloyd’s discovered that a key whistleblowing hotline serving 1,000 staff was suspended for 16 months, meaning workers had no avenue to report wrongdoing anonymously.

Boohoo: An Example of the Consequences of Mishandling Whistleblowing Matters

For firms in other industries, the impact of mishandling whistleblowing matters can be equally severe, as demonstrated by the recent woes of Boohoo, the online fast-fashion retailer. This Summer, Boohoo came under the spotlight over allegations that some of its garment suppliers in Leicester paid less than a minimum wage to its workers and failed to protect them from Covid-19.[1] Some of the allegations came directly from the workers themselves.[2] In August 2020, The Guardian’s reporting challenged Boohoo’s earlier claims that issues exposed were “the actions of a few”, delivering another blow to the business.[3] An independent investigation commissioned by Boohoo shows that whistleblower complaints were made to the company concerning the abuse at a supplier factory as early as summer 2017.[4]

The public scrutiny resulted in Boohoo’s shares falling by 42% at one point in July 2020, wiping more than £2 billion off its value in just three days.[5] In October, PricewaterhouseCoopers (PwC) resigned as Boohoo’s auditor over reputational concerns, which resulted in another drop in share price.[6] Four more of Britain’s biggest audit firms decided not to bid to replace PwC, leaving Boohoo struggling to find an auditor suitable for the size of its business.[7]

Whistleblowing Programmes—What Good Oversight Looks Like

To ensure adequate oversight of whistleblowing programmes, boards should consider the following questions:

• Are meaningful whistleblowing metrics regularly received and reviewed at the board level?
• Is there “tone from the top” regarding whistleblowing, and clarity regarding the whistleblowing framework and governance arrangements?
• Are there criteria for escalating whistleblowing matters to the board? How are potential conflicts of interest managed?
• Does the whistleblowing policy meet legal requirements? Are there underlying procedures detailing how whistleblowing matters are triaged by the relevant team, and how stakeholders interact?
• Do the firms’ training and communications contain the correct messaging to employees, including the “what” and the “how” of whistleblowing?
• Does the firm offer multiple channels for reporting, including an anonymous reporting hotline, and are hotlines regularly tested?
• Is the whistleblowing programme adequately resourced with qualified staff using a case management system?
• Are investigators trained on how to handle sensitivities, such as dealing with anonymous whistleblowers and ensuring no retaliation?
• Does the firm have in place a response plan for dealing with particularly serious whistleblowing matters, which may include appointing external counsel and investigative firms?
• Are regulatory developments tracked? This is critical for firms with a footprint in the EU, since the EU Whistleblower Protection Directive adopted in October 2019 is a game-changer and must be implemented by EU member states by the end of 2021.

All boards should consider benchmarking their whistleblowing programmes against existing and forthcoming regulatory requirements and industry best practices. Third-party advisors such as K2 Integrity can help provide an unbiased review of an organization’s whistleblowing programme and help implement any necessary changes.

Related posts: Why the UK whistleblowing law needs to include non-executive directors; How to enable an effective audit committee

[1] “Back whistleblowers to stop abuses, says UK anti-slavery tsar after Boohoo fallout”, 9 Jul 2020, Reuters.

[2] “Boohoo and Covid-19: The people behind the profits”, June 2020, Labour Behind the Label.

[3] “Boohoo, the audits and an industry under the spotlight”, 28 Aug 2020, The Guardian.

[4] “Independent Review into the boohoo Group PLC’s Leicester supply chain”, 24 Sep 2020, Alison Levitt QC.

[5] “Back whistleblowers to stop abuses, says UK anti-slavery tsar after Boohoo fallout”, 9 Jul 2020, Reuters.

[6] “Boohoo shares tumble as auditor PwC quits in wake of worker exploitation allegations”, 19 Oct 2020, Independent.

[7] “Four out of five top auditors snub Boohoo after fast fashion scandal”, 19 Oct 2020, The Telegraph.

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