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Regulators and the culture conundrum

In my view, the law provides inadequate protection to employees, particularly those in regulated sectors, to incentivise them to raise concerns regarding a poor working culture. 

Recently, the topic of healthy workplace culture has taken centre stage and regulators including the Financial Conduct Authority (FCA) and Solicitors Regulation Authority (SRA) have published extensively on culture and the need for regulated firms to create “speak-up” cultures to aid regulatory compliance.  However, is that enough to truly tackle toxic work environments?

Both the FCA and SRA have beefed-up their respective Principles and Codes of Conduct to address poor workplace cultures.  The rationale behind this is simple; organisations with engaged staff who feel psychologically safe enough to raise concerns will have less regulatory issues.

However, I am doubtful that these enhanced Codes of Conduct will be enough to tackle toxic workplaces. In my view the law provides inadequate protection to employees, particularly those in regulated sectors, to incentivise them to raise concerns regarding a poor working culture.  Until this addressed, are the regulators engaging in wishful thinking?

What is workplace culture?
According to the Oxford Learners’ Dictionary, “culture” (noun) can be defined as follows: “the customs and beliefs, art, way of life and social organisation of a particular country or group”.

Every organisation has a culture, and it will vary workplace to workplace. Countless reports from organisations such as McKinsey Company attest to the fact that a positive culture attracts talent, drives engagement, impacts happiness and satisfaction, and positively affects performance.  Conversely, a poor working culture is credited for creating environments where bullying and harassment can thrive, which – according to the SRA and FCA – has a deleterious effect on employees’ health and wellbeing, which in turn leads to more regulatory issues and a decline in services provided to clients and consumers.

Regulatory requirements
The FCA has said that it measures four drivers of culture: purpose, people, leadership and governance. Further, it has commented that in almost every instance of poor conduct, deep-set cultural issues have been present.  For instance, poor culture often correlates with a breach of the FCA’s Principles, particularly Principle 2 (due skill, care and diligence), Principle 3 (management and control) and Principle 11 (relations with regulators).  Additionally, there are individual requirements on persons working for regulated firms under the Senior Managers and Certification Regime (SMCR) regarding their fitness and propriety, which are elastic enough to cover issues such as bullying and harassment in the workplace. This is particularly so given that in recent years, the FCA has advised regulated firms that it is particularly focusing on non-financial misconduct by approved persons.

Similarly, the SRA has stated that, from a culture perspective, it is focusing on:

  1. Effective systems and controls being in place to monitor staff wellbeing and compliance;
  2. Employers providing safe working environments for employees to raise concerns in a prompt and constructive manner;
  3. Staff being treated with dignity and respect within inclusive workplaces; and
  4. Regulated firms having in place and implementing policies on bullying, harassment, discrimination and victimisation as well as disciplinary procedures for breach of those policies.

Breach of the above is likely to amount to serious breaches of the SRA Code of Conduct, specifically:

  • Paragraph 2 of the Code of Conduct for Firms (Compliance and business systems)
  • Paragraph 4 of the Code of Conduct for Firms (Service and competence, including supervision)
  • Paragraph 3.5 of the Code of Conduct for Solicitors (the personal duty on managers and supervisors)

Further, the above is likely to amount to breach of the following SRA principles:

  • Principle 6 of the SRA Principles (To act in a way that encourages equality, diversity and inclusion)
  • Principle 2 of the SRA Principles (The obligation to act in a manner that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons).

Both regulators have emphasised the importance of their being notified of issues, whether directly by staff or via compliance officers.  However, are there sufficient protections in place for employees who choose to do so?

Summary of employment rights
Since 2012, employees must have at least two years’ service to be eligible to pursue unfair dismissal claims.  Consequently, employers without the requisite service can be unfairly dismissed, so long as it is not: (i) for a discriminatory reason (contrary to the Equality Act 2010); (ii) because the employee blew the whistle; or (iii) for asserting certain statutory rights and other prescribed lists of infractions (such as dismissal due to health and safety reasons).  If an employee does have unfair dismissal rights, the value of the claim is capped to an amount which increases annually in April (currently £93,878) or at one year’s pay, whichever is the lower.  Compensation is calculated by reference to what an Employment Tribunal considers to be reasonable in the circumstances and the employee will be under a positive duty to take reasonable steps to mitigate their loss.

Employees can pursue claims of discrimination or whistleblowing without any length of service requirement.  Unlike unfair dismissal claims, there is no cap on the compensation that can be awarded, although it will remain subject to what an Employment Tribunal considers to be just and equitable in the circumstances as well as a claimant’s duty to mitigate their loss.  However, it is notoriously difficult for claimants to successfully bring such claims in the employment tribunals, not least due to their complexity.  For instance, for a whistleblowing claim to be successful, an individual (who meets the definition of “worker” for these purposes) must show that: (i) they have conveyed facts or information regarding one of six types of “relevant failure” covered by law; (ii) in the reasonable belief that their disclosure of the relevant wrongdoing was being made in the public interest; (iii) that the disclosure was being made to the appropriate person(s) in order to be protected; and (iv) that blowing the whistle caused the dismissal/detrimental treatment complained of . Additionally, unlike with ordinary unfair dismissal claims, the initial burden of proof with most discrimination and whistleblowing claims (particularly if the individuals lacks unfair dismissal rights and is pursuing a dismissal claim) rests with the employee who must establish a prima facie case for the burden to then shift to the employer to provide a justification for the said treatment.

This highlights that it is not particularly easy for employees to enforce legal rights in the event that they are dismissed or have to resign following raising concerns about a poor working culture.  Employees without unfair dismissal rights are likely to be reticent to raise concerns about a bullying manager, for fear that they can be dismissed without much legal recourse.  For instance, if they are the sole recipient of a bullying manager’s treatment, does that meet the “public interest” test which was imported into the whistleblowing legislation in 2013?   For many high earning employees in both law and finance, the statutory cap on unfair dismissal compensation makes it an unattractive option to pursue such claims.  Further, the sheer expense of pursuing employment claims, both in terms of time and cost, often dissuades disgruntled employees from wanting to pursue claims, instead preferring to find another job elsewhere and leave quietly, or otherwise settle on confidential terms following raising grievances.  This is particularly so, given that employees who publicly blow the whistle tend to have significant difficulties in continuing to pursue their chosen careers thereafter.

So where next?
We appear to be living in times of seismic change.  The #metoo and #blacklivesmatter movements, have irrevocably changed perceptions regarding permissible behaviours in the workplace, and this has led to regulators focusing upon increasing diversity, equity and inclusion in regulated firms.  At the same time, there has been a push for employees to bring their authentic, “whole” selves to the workplace, which arguably can only be achieved where staff feel safe to do so.

While it is clear that the FCA and SRA (along with other regulators) are focusing on regulated firms creating health workplace cultures, more needs to be done to manifest this. In my opinion, there are things that the regulators can do to bolster a situation.  One of them is to have adequate resourcing to actual consider the complaints they receive.  For example, the FCA only assessed 1 in 4 of the 1,024 reports it received of whistleblowing it received in 2021. If the FCA seriously wants to address poor working cultures, staff need to feel confident that the concerns they raise will be investigated, and in good time.

Further, it would be useful if regulated firms had to self-refer more, to reduce the requirement for individuals having to raise concerns, whether internally or externally.  For instance, it is often well known within organisations if someone is deemed a poor manager.  However, if they are profitable, oftentimes their poor treatment of staff is excused and high staff turnovers within their teams is considered par for the course.  In such circumstances, requiring regulated firms to self-refer teams with high staff turnover, or where a number of employees raise concerns as part of exit interviews, grievances etc., would mean that organisations would be less willing to tolerate such conduct.

In addition, regulators could require regulated firms to place more focus on management skills, with KPIs to monitor how managers are performing in this regard, since there is truth to the adage that you cannot monitor what you do not measure.  If managers were aware that how they were perceived by staff and team morale would impact their bonuses and financial packages, I am sure this would have a positive impact on behaviour.

There is no silver bullet to addressing workplace culture, but making lasting positive change is likely to be a two-pronged approach: greater legal protection coupled with a proactive and automated regulatory oversight.

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