Whistleblowing

It is ten years since Britain passed a law giving protection to whistleblowers... employees who felt something was wrong in their workplace and told the bosses about it. However given the revelations of malpractice which have emerged with the current Banking Crisis the question may reasonably be asked “Where were the whistleblowers?”

The Public Interest Disclosure Act 1998 (PIDA) was brought into effect as part of the recommendations of the Nolan Committee on Standards in Public Life whose report is quoted in the introduction;

"All organisations face the risks of things going wrong or of unknowingly harbouring malpractice. Part of the duty of identifying such a situation and taking remedial action may lie with the regulatory or funding body. But the regulator is usually in the role of detective; determining responsibility after the crime has been discovered. Encouraging a culture of openness within an organisation will help: prevention is better than cure. Yet it is striking that in the few cases where things have gone badly wrong in local public spending bodies, it has frequently been the tip-off to the press or the local Member of Parliament - sometimes anonymous, sometimes not - which has prompted the regulators into action. Placing staff in a position where they feel driven to approach the media to ventilate concerns is unsatisfactory both for the staff member and the organisation."

Committee on Standards in Public Life
Second Report, Cm 3270 -1 (May 1996) p. 21

To achieve such a balance which allowed for organisational openness, the Act sets out a framework for public interest Whistleblowing, which protects workers from reprisal because they have raised a concern about malpractice. Though the Act is part of employment legislation, its scope is wide and no qualifying periods or age limits restrict the application of its protection (s.7).

Only a disclosure that relates to one of the broad categories of malpractice can qualify for protection under the Act. These include (s.1, s.43B) concerns about actual or apprehended breaches of civil, criminal, regulatory or administrative law; miscarriages of justice; dangers to health, safety and the environment; and the cover-up of any such malpractice. Cast so widely, and with its emphasis on the prevention of the malpractice, and with the guarantee of full compensation, the Act requires the attention of every employer in the UK.



The new law shielded employees from victimisation, and it followed several highly publicised cases where fear apparently blocked the revelation of eventually fatal shortcomings in public or private organisations.

The background to the Act lies in the analysis by Public Concern at Work of a spate of scandals and disasters in the 1980s and early 1990s. Almost every public inquiry found that workers had been aware of the danger but had either been too scared to sound the alarm or had raised the matter in the wrong way or with the wrong person.

Examples of the former included:

• the Clapham Rail crash (where the Hidden Inquiry heard that an inspector had seen the loose wiring but had said nothing because he did not want ‘to rock the boat’),
• the Piper Alpha disaster (where the Cullen Inquiry concluded that “workers did not want to put their continued employment in jeopardy through raising a safety issue which might embarrass management”), and
• The collapse of BCCI (where the Bingham Inquiry found an autocratic environment where nobody dared to speak up).

Examples of where the concern was raised but not heeded included:

• the Zeebrugge Ferry tragedy (where the Sheen Inquiry found that staff had on five occasions raised concerns that ferries were sailing with their bow doors open),
• the collapse of Barings Bank (where the regulator found that a senior manager had failed to blow the whistle loudly or clearly), and
• the Arms to Iraq Inquiry (where the Scott Report found that an employee had written to the Foreign Secretary to tell him that munitions equipment was being unlawfully produced for Iraq).
• Similar messages have come out of the inquiries into the abuse of children in care (over 30 reports of concern were ignored about the serial sex abuser Frank Beck) and investigations into malpractice in the health service. Two recent examples from the NHS are the Kennedy Inquiry into the high mortality rate amongst babies undergoing heart surgery at the Bristol Royal Infirmary and Dame Janet Smith’s Inquiry into the serial killer Dr Harold Shipman.



Most organisations make curious assumptions about the shared goals of their workforce. The new faces at the top are far away, the corporate change of strategy is a lurching change of direction, messages about new priorities are “cascaded” through the email system so that eventually they percolate through to the people at the bottom ...otherwise known as the people who spend their daily life in contact with the customers, where things really matter.

Whistleblowing is one of the checks and balances organisations put in place to try to keep themselves honest. Whistleblowing hotlines are mandatory under the Sarbanes-Oxley accounting rules rushed in by the US authorities after the corporate scandals (such as Enron) at the beginning for the 2000s.



Whistleblowing can of course be effective; publicising a hotline is a constant reminder of the decency at the heart of a company which can be appealed to when things go wrong. But the need for a hotline sheds some light on the nature of organisations ...the way that being “organised” detaches ordinary people from the normal responsibilities and decencies and turns them into corporate persons with loyalties mainly to their immediate superiors...the straight line relationships on the organisation chart. Organisations replace human good behaviour with corporate good behaviour, and it is not quite the same thing.

How can the world’s main banks have got engaged in such an orgy of destruction as we have seen in the past few years?

It must have been more than just stupidity.

The trend in organisations is to chip up the tasks into bits that prevent sensible questions being asked about their purpose: the banks and building societies used to find the money, arrange the mortgage and live with the loan until it was repaid, with oversight of the whole process. Then they thought they could streamline the process into component (and outsourced) parts: retailing loans, parcelling them up, selling them to investors, buying them in bulk. In this way they held the real world at bay, created a machine, and chopped up loan arranging into such tiny pieces that overall oversight was removed from the process, along with any grounding in the real world.

Banks created a machine that disabled the oversight and the responsibility mechanism that used to be at the heart of what they did.

And nobody blew the whistle on it.

Whistleblowing is a necessary part of running a modern organisation. But organisations have to be built so that when someone blows the whistle, they know how to respond.

Some Whistleblowing dos and don’ts

Do

• Keep calm
• Think about the risks and outcomes before you act
• Remember you are a witness, not a complainant
• Look for advice

Don’t

• Forget there may be an innocent or good explanation
• Become a private detective
• Use a Whistleblowing procedure to pursue a personal grievance
• Expect thanks

Whistleblowing

It is ten years since Britain passed a law giving protection to whistleblowers... employees who felt something was wrong in their workplace and told the bosses about it. However given the revelations of malpractice which have emerged with the current Banking Crisis the question may reasonably be asked “Where were the whistleblowers?”

The Public Interest Disclosure Act 1998 (PIDA) was brought into effect as part of the recommendations of the Nolan Committee on Standards in Public Life whose report is quoted in the introduction;

"All organisations face the risks of things going wrong or of unknowingly harbouring malpractice. Part of the duty of identifying such a situation and taking remedial action may lie with the regulatory or funding body. But the regulator is usually in the role of detective; determining responsibility after the crime has been discovered. Encouraging a culture of openness within an organisation will help: prevention is better than cure. Yet it is striking that in the few cases where things have gone badly wrong in local public spending bodies, it has frequently been the tip-off to the press or the local Member of Parliament - sometimes anonymous, sometimes not - which has prompted the regulators into action. Placing staff in a position where they feel driven to approach the media to ventilate concerns is unsatisfactory both for the staff member and the organisation."

Committee on Standards in Public Life
Second Report, Cm 3270 -1 (May 1996) p. 21

To achieve such a balance which allowed for organisational openness, the Act sets out a framework for public interest Whistleblowing, which protects workers from reprisal because they have raised a concern about malpractice. Though the Act is part of employment legislation, its scope is wide and no qualifying periods or age limits restrict the application of its protection (s.7).

Only a disclosure that relates to one of the broad categories of malpractice can qualify for protection under the Act. These include (s.1, s.43B) concerns about actual or apprehended breaches of civil, criminal, regulatory or administrative law; miscarriages of justice; dangers to health, safety and the environment; and the cover-up of any such malpractice. Cast so widely, and with its emphasis on the prevention of the malpractice, and with the guarantee of full compensation, the Act requires the attention of every employer in the UK.



The new law shielded employees from victimisation, and it followed several highly publicised cases where fear apparently blocked the revelation of eventually fatal shortcomings in public or private organisations.

The background to the Act lies in the analysis by Public Concern at Work of a spate of scandals and disasters in the 1980s and early 1990s. Almost every public inquiry found that workers had been aware of the danger but had either been too scared to sound the alarm or had raised the matter in the wrong way or with the wrong person.

Examples of the former included:

• the Clapham Rail crash (where the Hidden Inquiry heard that an inspector had seen the loose wiring but had said nothing because he did not want ‘to rock the boat’),
• the Piper Alpha disaster (where the Cullen Inquiry concluded that “workers did not want to put their continued employment in jeopardy through raising a safety issue which might embarrass management”), and
• The collapse of BCCI (where the Bingham Inquiry found an autocratic environment where nobody dared to speak up).

Examples of where the concern was raised but not heeded included:

• the Zeebrugge Ferry tragedy (where the Sheen Inquiry found that staff had on five occasions raised concerns that ferries were sailing with their bow doors open),
• the collapse of Barings Bank (where the regulator found that a senior manager had failed to blow the whistle loudly or clearly), and
• the Arms to Iraq Inquiry (where the Scott Report found that an employee had written to the Foreign Secretary to tell him that munitions equipment was being unlawfully produced for Iraq).
• Similar messages have come out of the inquiries into the abuse of children in care (over 30 reports of concern were ignored about the serial sex abuser Frank Beck) and investigations into malpractice in the health service. Two recent examples from the NHS are the Kennedy Inquiry into the high mortality rate amongst babies undergoing heart surgery at the Bristol Royal Infirmary and Dame Janet Smith’s Inquiry into the serial killer Dr Harold Shipman.



Most organisations make curious assumptions about the shared goals of their workforce. The new faces at the top are far away, the corporate change of strategy is a lurching change of direction, messages about new priorities are “cascaded” through the email system so that eventually they percolate through to the people at the bottom ...otherwise known as the people who spend their daily life in contact with the customers, where things really matter.

Whistleblowing is one of the checks and balances organisations put in place to try to keep themselves honest. Whistleblowing hotlines are mandatory under the Sarbanes-Oxley accounting rules rushed in by the US authorities after the corporate scandals (such as Enron) at the beginning for the 2000s.



Whistleblowing can of course be effective; publicising a hotline is a constant reminder of the decency at the heart of a company which can be appealed to when things go wrong. But the need for a hotline sheds some light on the nature of organisations ...the way that being “organised” detaches ordinary people from the normal responsibilities and decencies and turns them into corporate persons with loyalties mainly to their immediate superiors...the straight line relationships on the organisation chart. Organisations replace human good behaviour with corporate good behaviour, and it is not quite the same thing.

How can the world’s main banks have got engaged in such an orgy of destruction as we have seen in the past few years?

It must have been more than just stupidity.

The trend in organisations is to chip up the tasks into bits that prevent sensible questions being asked about their purpose: the banks and building societies used to find the money, arrange the mortgage and live with the loan until it was repaid, with oversight of the whole process. Then they thought they could streamline the process into component (and outsourced) parts: retailing loans, parcelling them up, selling them to investors, buying them in bulk. In this way they held the real world at bay, created a machine, and chopped up loan arranging into such tiny pieces that overall oversight was removed from the process, along with any grounding in the real world.

Banks created a machine that disabled the oversight and the responsibility mechanism that used to be at the heart of what they did.

And nobody blew the whistle on it.

Whistleblowing is a necessary part of running a modern organisation. But organisations have to be built so that when someone blows the whistle, they know how to respond.

Some Whistleblowing dos and don’ts

Do

• Keep calm
• Think about the risks and outcomes before you act
• Remember you are a witness, not a complainant
• Look for advice

Don’t

• Forget there may be an innocent or good explanation
• Become a private detective
• Use a Whistleblowing procedure to pursue a personal grievance
• Expect thanks

Economic Crisis Update

Luckily the Chancellor Gordon Brown and the Deputy Chancellor Alistair Darling have kept on top of events since, led from the front and not looked like rabbits caught in headlights; There is no shubshitite fur eshperience ash Ghordon ofthen sheys!


A financial crisis unmatched since the Great Depression, say analysts

Guardian, London, March 18th 2008

A century after John Pierpont Morgan rescued the New York stockmarket from a 50% sell off in share prices, his blue-blooded Wall Street bank was yesterday once again at the heart of attempts to contain the deepening global financial crisis.

In an echo of the "bankers' panic" of 1907, JP Morgan responded to what is being billed as a meltdown of historic proportions by agreeing to buy its stricken rival, Bear Stearns.

The length and severity of the crisis that broke over global markets last summer has had analysts delving into their history books. George Soros, who was largely responsible for Black Wednesday, the last bout of serious financial turmoil to afflict the UK, believes there has been nothing to match the events of the past nine months since the Great Depression.

Alan Greenspan, the former chairman of the Fed and the man blamed by many for setting off the boom-bust in the US housing market, agrees with the man who broke the Bank of England. Writing in the Financial Times yesterday, Greenspan said: "The current financial crisis in the US is likely to be judged as the most wrenching since the end of the second world war."

The first 25 years after the war were relatively trouble free. Britain had devalued the pound in 1949 and 1967, but the first real systemic threat to the financial system arrived in 1973 with the secondary banking crisis that affected the "fringe banks" that had provided money to speculators during the property boom. When the crash came, the Bank of England launched a "lifeboat" to prevent the crisis spreading.

Similar action by the Federal Reserve in 1998 contained the fallout from the collapse of Long Term Capital Management, a hedge fund that lost money in the aftermath of Russia's decision to default on its debts. By comparison with recent events, LTCM now seems to be a minor market wobble.

Students of the markets say the only recent parallel with the current turmoil is Japan in the 1990s, but other than that they have had to study the 1930s, when 9,000 banks failed, 1907 when JP Morgan told Wall Street enough was enough after a 50% drop in shares, and even to the series of economic and financial upheavals during the final quarter of the 19th century.

New York Fed Warns On Hedge Funds

New York Times - May 3, 2007

In what Reuters describes as its “sternest warning to date” on the state of the hedge-fund business, the New York Federal Reserve said Wednesday that the funds could represent the biggest risk for a financial crisis since 1998, when the implosion of Long-Term Capital Management threatened global markets.

“Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998,” according to a paper written by Tobias Adrian, capital markets economist at the central bank.

Regulation — or lack thereof — of the $1.4 trillion industry has become a battle ground for regulators and lawmakers. The meltdown of Long-Term Capital is often cited as a cautionary tale by those arguing for more oversight of the lightly-regulated investment pools. The crisis at Long-Term Capital took the market by surprise and resulted in The Fed forcing an unprecedented $3.6 billion bailout.

The Fed’s latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.

Economic Crisis Update

Luckily the Chancellor Gordon Brown and the Deputy Chancellor Alistair Darling have kept on top of events since, led from the front and not looked like rabbits caught in headlights; There is no shubshitite fur eshperience ash Ghordon ofthen sheys!


A financial crisis unmatched since the Great Depression, say analysts

Guardian, London, March 18th 2008

A century after John Pierpont Morgan rescued the New York stockmarket from a 50% sell off in share prices, his blue-blooded Wall Street bank was yesterday once again at the heart of attempts to contain the deepening global financial crisis.

In an echo of the "bankers' panic" of 1907, JP Morgan responded to what is being billed as a meltdown of historic proportions by agreeing to buy its stricken rival, Bear Stearns.

The length and severity of the crisis that broke over global markets last summer has had analysts delving into their history books. George Soros, who was largely responsible for Black Wednesday, the last bout of serious financial turmoil to afflict the UK, believes there has been nothing to match the events of the past nine months since the Great Depression.

Alan Greenspan, the former chairman of the Fed and the man blamed by many for setting off the boom-bust in the US housing market, agrees with the man who broke the Bank of England. Writing in the Financial Times yesterday, Greenspan said: "The current financial crisis in the US is likely to be judged as the most wrenching since the end of the second world war."

The first 25 years after the war were relatively trouble free. Britain had devalued the pound in 1949 and 1967, but the first real systemic threat to the financial system arrived in 1973 with the secondary banking crisis that affected the "fringe banks" that had provided money to speculators during the property boom. When the crash came, the Bank of England launched a "lifeboat" to prevent the crisis spreading.

Similar action by the Federal Reserve in 1998 contained the fallout from the collapse of Long Term Capital Management, a hedge fund that lost money in the aftermath of Russia's decision to default on its debts. By comparison with recent events, LTCM now seems to be a minor market wobble.

Students of the markets say the only recent parallel with the current turmoil is Japan in the 1990s, but other than that they have had to study the 1930s, when 9,000 banks failed, 1907 when JP Morgan told Wall Street enough was enough after a 50% drop in shares, and even to the series of economic and financial upheavals during the final quarter of the 19th century.

New York Fed Warns On Hedge Funds

New York Times - May 3, 2007

In what Reuters describes as its “sternest warning to date” on the state of the hedge-fund business, the New York Federal Reserve said Wednesday that the funds could represent the biggest risk for a financial crisis since 1998, when the implosion of Long-Term Capital Management threatened global markets.

“Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998,” according to a paper written by Tobias Adrian, capital markets economist at the central bank.

Regulation — or lack thereof — of the $1.4 trillion industry has become a battle ground for regulators and lawmakers. The meltdown of Long-Term Capital is often cited as a cautionary tale by those arguing for more oversight of the lightly-regulated investment pools. The crisis at Long-Term Capital took the market by surprise and resulted in The Fed forcing an unprecedented $3.6 billion bailout.

The Fed’s latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.