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The Investigating NED

by internationalbanker

By Nick Marshall, Partner, Linklaters

 

 

 

 

From grievances and disciplinaries to complaints from whistleblowers and concerns about an organisation’s culture, the number of internal workplace investigations is on the rise. Increasingly, these investigations involve some of the most senior staff within an organisation (including board members), whether because complaints have been made to them directly or they are the subjects of the complaints.

Whereas in the past, responsibility for investigating workplace issues fell to Human Resources (HR) or senior management, organisations are increasingly looking to their non-executive directors (NEDs) to undertake these investigations and make decisions, especially when the matter involves very senior management. NEDs who have the skills and willingness to take on an investigative role are likely to see their services in increasing demand. But they must adopt this role with their eyes open. Several factors should be considered to best allow NEDs to prepare for and navigate the challenges that come from this evolving responsibility.

Two key factors have driven the growth in workplace investigations. First, more than ever before, employees are willing to speak up and raise concerns. In part, this has been driven by social movements, such as #MeToo and Black Lives Matter (BLM), but it is also because many organisations now encourage staff to come forward when they believe “something isn’t right”. In the financial-services sector, regulators have encouraged (or, in some cases, incentivised) whistleblowing, in part because of firms’ perceived failures to identify and address issues that led to past scandals and crises. Second, there is much closer scrutiny of working cultures and the behaviours of business leaders. Whereas in the past, employees who raised concerns might have been exited quietly, for many organisations, the risks arising from not investigating workplace issues (and the potential criticisms from the press, public and politicians) are now too significant to do nothing. This is particularly true for regulated financial institutions, as regulators will expect allegations of wrongdoing to be investigated robustly, not ignored or swept under the carpet.

For any workplace investigation, the decision-maker needs to be independent and sufficiently senior. Any appeal against an investigation decision (for example, a grievance or disciplinary outcome) should be managed by someone who has not been involved in the process—and, ideally, who is more senior than both the subject of the complaint and any original decision-maker. When the investigation concerns important stakeholders and/or executive directors, options for appointing a decision-maker who meets these criteria might, therefore, be limited. Organisations may need to look to their boards for respected, independent and impartial decision-makers prepared to take tough calls.

NEDs are well placed to investigate and report on sensitive issues, as their roles involve assimilating information, challenging viewpoints and taking independent stances. Further, being a good investigator or decision-maker in an HR process requires strong communication skills, empathy and high emotional intelligence. NEDs’ experiences in navigating boardroom politics are, therefore, helpful. When deciding which NED to appoint, an employer must consider the individuals’ skills, experiences and personal styles. Whilst an HR background may be advantageous, it is not necessary.

NEDs must remain independent and impartial to avoid any challenges to the credibility or fairness of the process. This can be particularly challenging given that NEDs are likely to know (and often have close working relationships with) those they are investigating.

Another challenge is that, as with any investigation, NEDs must maintain confidentiality to protect all those involved in the process (those who have made the complaint, are the subject of the grievance or are witnesses in the investigation). Although NEDs remain subject to their usual director’s duties, it is often inappropriate to share details of their investigations with other board members. If the issues come before their boards for subsequent discussions or decision-making, NEDs will have to consider whether they should recuse themselves or declare their involvement.

Both companies and NEDs should appreciate that a significant amount of time might be required to investigate an issue and reach an outcome (often over several intense weeks), as the NED may need to interview witnesses, review relevant documents (including any previous investigation reports into the same matter), consider any recommendations and write an outcome letter or report. Given this time involvement, NEDs will need help from close and reliable teams from whom they can seek advice and obtain administrative support. Often, this is a function that external legal advisors can perform; to maintain confidentiality and independence, NEDs may not be able to rely on their usual company contacts (e.g., those in HR or Legal) for information and support.

The need for NEDs to have the right support in place is also important because, as with any decision-maker or investigator, NEDs could have personal liability for the decisions they make (e.g., if they reach a discriminatory conclusion or subject a whistleblower to unlawful detriment). NEDs will, therefore, often need independent legal advice on how to conduct their investigations, reach their conclusions and write their outcome reports to minimise the legal risks to themselves and their organisations. Usually, an organisation will instruct lawyers on the NED’s behalf.

If litigation arises, decision-makers are often required to attend as witnesses in any tribunal or court proceedings. Members of the public and journalists can attend hearings—therefore, NEDs need to be aware of the potential publicity involved. Engaging lawyers and public relations (PR) professionals before an investigation can help mitigate some of the risks of legal claims arising, as well as adverse publicity.

An added layer of complexity affects NEDs who sit on boards in the financial-services sector and who may, therefore, be subject to regulatory obligations. For example, any NEDs who are senior managers (SMs) under the United Kingdom’s Senior Managers and Certification Regime (SMCR) (for example, because they are chairs of boards or board committees) need to be approved to carry out their roles by the Financial Conduct Authority (FCA).

To be an SM, the NED will have to satisfy the FCA that he or she is “fit and proper” to perform the role and will also be subject to certain additional “conduct rules”. NEDs need to be mindful of this when conducting investigations and reaching conclusions. Whilst it is unlikely that NEDs who take decisions in good faith and with the support of legal and/or HR advice will fall foul of the rules, they must be prepared to stand behind their decisions, whether before the regulator or in any potential litigation. Failing to do so may suggest that there is a lack of integrity on the NED’s part, which could call into question his or her fitness and propriety.

With the number of investigations into senior individuals likely to increase, NEDs who have the skills and willingness to take on an investigative role will see their services in increasing demand.

Top tips for NEDs who conduct investigations:

  1. Terms of reference: Make sure you are clear on the scope of the investigation; often, it helps to have agreed on the terms of reference with the individual who has asked you to undertake the investigation.
  2. Assemble the right team: Make sure you have the support needed to undertake the investigation (e.g., access to an HR person who can gather relevant documents, legal advice on how to conduct the investigation and any legal risks, as well as a note-taker who can take notes of any interviews).
  3. Reporting lines: Establish clear reporting lines during the investigation process to avoid potential conflicts of interest. For instance, you may need to report directly to the board or an appropriate board committee, depending on the specific circumstances and nature of the investigation.
  4. Documentation and record-keeping: Proper documentation of the investigation process—including witness interviews, evidence gathered and conclusions reached—is essential to demonstrating the investigation’s fairness and what, how and why conclusions have been reached. Discuss with your lawyers what communications and documents are legally privileged and which would be potentially disclosable in litigation, to regulators or in other proceedings.
  5. Communication with stakeholders: During the investigation, you will need to take steps to preserve the confidentiality of the investigation (not least to guard against any accusations of interference by the employer). Be mindful of how, when and to whom you will need to communicate the investigation’s progress and outcome. This could include internal and external stakeholders. It will be useful to engage external lawyers (and possibly PR specialists) to advise you on what you can and cannot say.

 

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