Whistleblowing and fostering a culture of psychological safety in firms

Adam Gates, Becky Mackarel and Richard Plaistowe, Odgers Interim Financial and Professional Services Practice, held an event exploring the legal and regulatory landscape for whistleblowing and the critical role of psychological safety where people feel safe to speak up without fear of harm.

On 28 February, we held another in our series of events on ESG and Sustainable Business, this time focusing on issues relating to whistleblowing. We were delighted that Tracey Groves and Euros Jones, both partners at law firm DWF Law LLP were able to share their expertise on this fast-evolving topic. Tracey is DWF’s Head of Sustainable Business & ESG, helping clients design, develop and implement sustainable business practices across their business; while as Head of Corporate Crime, Euros represents corporate and individual clients in financial crime and regulatory investigations and prosecutions.

It was certainly valuable to have their differing perspectives given that whistleblowing is relevant across several important areas, from workplace conduct and behaviours through to regulatory affairs, employment law and potentially even reporting of criminal wrongdoing. As for the latter, that may be on the part of the organisation, the whistleblowing employee, or possibly both.

Interestingly, just two weeks before our event, Nick Ephgrave the newly appointed Director of the Serious Fraud Office,  gave a speech, his first since assuming the role in September 2023.  Mr Ephgrave told an audience at the Royal United Services Institute ('RUSI') that he believed the SFO’s work could be sped up by paying whistleblowers and that he was in favour of this approach. Since 2012, he elaborated, 700 UK nationals have gone to America to whistle blow rather than do so on our shores where there is no incentivisation. It should be added that RUSI is developing research on the idea of incentivising whistleblowers.

“A clear paradigm shift may be coming,” says Tracey. “The speech was a clarion call for action and organisations should be prepared for the fact that at some point in the not-too-distant future, there could be some form of financial recognition for whistleblowing. We need to ask ourselves two questions (1) why do we need to pay whistleblowers to 'do the right thing'; and (2) how does this fit with corporate compliance programmes who may essentially encourage internal reporting as an initial step and encourage behaviours that are aligned to the firm's values?   If this is not on your radar right now, then it absolutely should be. A firecracker has been set off, but many people may still not be aware of it.”

The possibility of legislation to introduce incentivisation should be looked at in the context of a broader, evolving patchwork of whistleblowing laws and standards that organisations must comply with. The recent Financial Reporting Council ('FRC') consultation on the Corporate Governance Code proposes a series of changes to encourage companies to report on the effectiveness of embedding a desired culture into underlying policies and procedures, including whistleblowing.

Meanwhile, the UK Government has just concluded a review of whistleblowing laws, seeking to gather evidence on the effectiveness of the current regime in enabling workers who speak up about wrongdoing and protect those who do so.  Although the UK is no longer part of the EU, the EU Directive on whistleblowing requires attention because for larger companies it has implications that extend beyond EU borders.

For example, if you have a subsidiary operating in France or Germany for example, that is going to fall under EU jurisdiction. This is significant because the EU Directive is more favourable to whistleblowers than current UK legislation. Therefore, international companies will have to apply the highest standard across their entire group.

Whistleblowing is a complicated and fascinating issue that cannot simply be enshrined via a policy and procedural framework.  Implementing an effective whistleblowing policy and framework means not only meeting legal and regulatory requirements but also fostering a climate of ‘voice’ that encourages psychological safety and creates an inclusive and evidence-based culture.

The tension between whistleblowing and psychological safety is inherent in any firm where good corporate governance is a priority.  On the one hand, a psychologically safe workplace is one where people feel they can share concerns about business conduct without fear of harmful consequences, as well as positive ideas and innovation to enhance performance. On the other hand, whistleblowing brings with it an underlying current of 'telling tales' and a history of high profile cases of negative life-changing experiences to the whistleblower, which acts as a deterrent to speaking up. The question firms should be asking themselves is this: how can we meet the regulatory requirements by embedding a robust whistleblowing framework whilst concurrently fostering a workplace where inappropriate behaviours and poor conduct can be addressed 'in the moment' without fear of consequence, thereby minimising the need for whistleblowing as a formalised process to happen?

"Recent changes to economic crime legislation under the Economic Crime and Corporate Transparency Act 2023 ('ECCTA') will make it easier to prosecute corporates for economic crime," says Euros. "Those changes have brought into focus the importance of corporates embedding a culture of psychological safety. Having an open and transparent culture helps corporates identify issues at an early stage, which if addressed appropriately at source may prevent the need for enforcement activity and in circumstances where an uptick in prosecutions for economic crime is anticipated under ECCTA."

With much still up in the air, it will be interesting to see what moves are made by regulators, the judiciary and enforcement agencies over the next few years. From a corporate standpoint, businesses must be mindful of evolving regulation while creating a culture with psychological safety at its heart: a self-regulating cultural environment where people feel safe to question, challenge or raise concerns in a way that allows for problems to be addressed before a line is crossed, irreversibly.

Now it’s time for us to blow the whistle. Piece over.