COMMENT The furore over the ill-judged comments on Zoom by KPMG’s UK chair, Bill Michael, in February – telling staff “to stop moaning” – triggered the launch of an internal investigation.
Internal investigations, once for financial crime or regulatory misconduct, are now launched for bullying, harassment, #metoo, discrimination, cultural concerns and even management style. And the differing generational attitudes to the Meghan and Harry interview have illustrated that millennials are more likely to call out perceived behaviours they don’t like.
Internal investigations are not “fireside chats”. They can signal the beginning of the end. Michael, who resigned within days, probably wishes he could press re-record for his “off the cuff”, but arguably ill-judged remarks.
For those at the top, the stakes are higher than ever. CEOs tend to choose their words carefully, fearing the consequences of saying anything controversial. You can be straight-talking to what some may dismiss as the “snowflake generation”. But when words or beliefs encroach on diversity, equality or bullying there may be a problem from an employment or regulatory perspective. And that’s aside from employee engagement, customer or investor ramifications.
Firms and their leaders are answerable to regulators, the public and their clients. When a furore is brewing, a firm’s immediate response to the crisis will be scrutinised, as well as the protagonist’s actions. KPMG was speedy to announce an investigation, with independent lawyers instructed to oversee. Some viewed those actions positively.
Internal investigations are billed as fact-finding exercises, but there can be ramifications. What might appear initially as an invitation to a low key internal “chat” can lead to often serious, interrogative, lengthy, formal interviews run by company lawyers and corporate investigators. They are stressful and humiliating. Even the most senior and (previously) trusted personnel can describe them as brutal.
Internal investigation findings can lead to disciplinaries, pay review, notification to regulators, or cultural reviews – and, at worst, job loss, regulatory investigations, third-party litigation or remediation and redress programs. A resignation may not be end of it.
The FCA’s stance
Those in the property fund management industry or other financial regulated sectors will know that the Financial Conduct Authority is taking conduct, culture and diversity seriously. It is likely other regulators will follow suit if they aren’t already. Leaders of the property industry would be wise to learn from what is going on in parallel industries. The lessons learned from what happened at the Presidents Club in 2018, when the industry acted in a way that was an anathema to current thinking and standards, should not be forgotten.
The FCA has sent out clear signals that what it calls “non-financial misconduct” is within its regulatory remit, saying “non-financial misconduct is misconduct, plain and simple”. In March 2021, its chief executive Nikhil Rathi labelled tackling diversity concerns as a “regulatory issue” not just a social issue. He referenced the “social background” of colleagues being a strand of diversity, saying a “lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs”. Property industry, take note.
Good for business
Aside from the legal risks, why should firms engage in this agenda? A healthy culture underpins productivity and profitability, employee engagement and morale, meaning talent will not go to competitors. McKinsey’s research suggests the most diverse companies are 35% more likely to outperform the least diverse. Research also suggests that greater gender diversity improves risk management culture and reduced the frequency of EU banks’ misconduct fines. You may cause harm to your consumers if you do not understand their community.
Your fitness and propriety obligations do not end after the business day. Something that takes place in the pub or across the garden fence or on personal social media may constitute misconduct in the eyes of regulators.
And when a bullying, sexual harassment or management style case emerges, it tends to have a life of its own, with reputational harm internally with staff and externally to your brand if the matter ends up in the press.
Regulated individuals must therefore take steps to ensure behaviour falls within policies and how they can be proactive to challenge behaviour that may be contrary to the expectation of firms and their regulator. Firms can help staff speak up about diversity issues by having effective speak up programmes which give the message that reporting is a positive and not a negative.
Lead from the top
CEOs and firms must be on message and practice what they preach, positively addressing perceived cultural problems. Firms may need to start looking to longer term change – not just box-ticking exercises. An understanding and appreciation of the Equality Act 2010 is a good starting place.
But what else can firms do? Undertake a culture audit and training. Build a diverse board and senior leadership team to reflect and understand your consumer base. Senior leaders should take ownership of the culture and conduct agenda. Elevate your head of human resources or chief people officer to the right shoulder of your CEO. Review recruitment, retention and whistleblowing policies and procedures. Assess whether your communication and workplace diversity and inclusion practices – including in relation to employee engagement, unconscious bias, wellbeing and mental health – need improvement. Look at your culture and inclusion from your consumers’ perspective.
Choice of words and actions matter. Senior leaders or those close to the top must set, champion and challenge the cultural tone – and ideally believe and embody it. If they don’t, they may come unstuck.
Sarah Wallace is a regulatory partner at Constantine Law
