UK: The Whistle blower's dilemma.

UK: The Whistle blower's dilemma. - Blowing the whistle on a colleague can cause years of financial distress and heartache as Hugh Salmon discovered. How can companies encourage their staff to do the right thing.

by Matthew Lynn.
Last Updated: 31 Aug 2010

Blowing the whistle on a colleague can cause years of financial distress and heartache as Hugh Salmon discovered. How can companies encourage their staff to do the right thing.

Even though it is now more than three years distant, Gary Brown can still recollect the acrid fear of the moment. 'I was very nervous,' he says. 'It had taken me about a year to collect all the information I needed, but my emotions still went from the uncomfortable to the very scared.'

Brown was working at the time as a marketing executive at Abbey National, a place where you wouldn't expect to encounter anything more terrifying than the occasional overdue mortgage payment. And yet, throughout 1994 and 1995, he became increasingly suspicious of his boss, Michael Doyle, marketing services director at the bank.

He suspected that Doyle had been taking bribes from outsiders to put false invoices through the company; and in the process he had defrauded Abbey National of hundreds of thousands of pounds. 'It was not very sophisticated,' Brown says. 'He took advantage of the fact that in marketing, nobody really knows what an idea or a piece of creative work might be worth.'

Doyle was a respected manager with Abbey National; he was young and regarded as a high-flyer with great prospects. In short, he was the type of person you might want as an ally or mentor and certainly not the sort of person you would want as an enemy. If crossed, he would undoubtedly fight to defend himself, even if that meant ruining the career of anyone making accusations against him.

Brown faced a classic dilemma of the modern workplace: to tell or not to tell. It is a theme that has preoccupied people in different shapes and forms for countless generations - about half of all westerns use it as the main thread of their story lines - and yet few companies are aware of how little help or encouragement they give their employees to do the right thing.

'It goes right back to childhood,' Brown says. 'Nobody ever wants to be the person who grasses on the others. Nobody wants to be a snitch.'

Eventually, Brown decided the behaviour he had witnessed was immoral and that he himself could no longer stomach it. After looking around for a few months, he was offered another, slightly better job in marketing at the Automobile Association, so he took the wise precaution of making sure his links with Abbey National had been amicably severed before he made his move. Then, having made sure he had marshalled his facts, he took what he knew to the board of the company.

'For me it had become personal,' he says. 'It was clear what was right and what was wrong. I knew it would be difficult for the company to deal with. It's not the sort of thing it has any experience of, so people aren't sure what to do. I was really worried when it finally came to making a report. You know some people are going to be reluctant to believe you.'

Abbey National responded to the allegations with commendable speed and diligence. It investigated Brown's allegations, found evidence of fraud totalling around £1 million and handed it over to the police. Last year, Doyle was found guilty and sentenced to eight years in jail.

During the trial, Brown preferred to carry on working at the AA, but after the trial was over he received a letter from Lord Tugenhadt, chairman of the bank. It thanked Brown for the efforts he had made on the company's behalf, offered him £25,000 as a reward for the stress he had been through, and also asked him to come back to Abbey National in a more senior job.

'The bank behaved fantastically,' Brown says of the employers he has now returned to. 'It was good to come back to the company, but I wouldn't have wanted to be working there while the trial was going on, and I was giving evidence in court.'

Brown's experience of the life of the whistleblower had a storybook ending: the kind of thing you might find in the epilogue of a thriller, where everybody lives happily ever after. In real life, of course, such stories do not always work out so well. Earlier this year, a new piece of legislation made its way onto the statute book. It aims to give employees some rights and protection if they want to expose corrupt or illegal practices within their companies. But, as many people have discovered, the whistleblower can easily find that he or she's become an isolated and unpopular figure.

'The official reports in recent years into the Zeebrugge ferry disaster, the rail crash at Clapham Junction, the explosion at Piper Alpha and the scandals at BCCI, Maxwell, Barlow Clowes and Barings have all revealed that staff were well aware of the risk of serious physical and financial harm but they were either too scared to raise their concern or they did so in the wrong way or with the wrong person,' Lord Borrie said in a recent House of Lords debate on the Public Interest Disclosure Bill that has now become law.

'This culture, which encourages decent ordinary citizens to turn a blind eye when they suspect serious malpractice in their workplace has not only cost lives and ruined livelihoods, but it has also damaged public confidence in some of the very organisations on which we all depend,' Lord Borrie said.

The reception which Abbey National gave Brown, though encouraging, is probably an exception. So too, one would hope, would be the experience of Hugh Salmon. But, in truth, his version of how a whistleblower can easily be turned into a victim is probably closer to what would happen within most organisations.

In June 1992, Salmon had started working as managing director of the advertising agency CM Lintas, a subsidiary of Lintas Worldwide, which was itself owned by Interpublic, a New York listed company. Run with a strong discipline by Phil Geier, Interpublic is among the largest and most respected players in the advertising industry, with a host of blue-chip clients. As Salmon observes, there are spivvy and marginal players in the ad game, but Lintas, which does work for Unilever, was at the respectable end of the trade.

Or so he thought. It seemed like an excellent job, a good career progression from his previous job as director on the Unilever account at Ogilvy & Mather. Lintas had given him a basic salary of £70,000, plus a new Saab, insurance, bonus scheme and pension. The package, he calculated, was worth about £94,000. Within five months of starting in his new office, he was fired by Chris Munds, chairman of CM Lintas. Out of the blue one afternoon, Munds called Salmon into his office and told him that some of the agency's clients had complained about him. He even made allegations which Lintas later withdrew as a reason for his dismissal that he had been fooling around with girls in the office (a serious matter for a married man and father). He was fired.

Salmon was never given a proper explanation of why he was sacked but he suspected it might have something to do with financial irregularities at the company, which he had tried to straighten out. After Munds had said he wanted him out of the company, Salmon took his reports first to the holding company, Lintas Worldwide, and then to the ultimate parent company, Interpublic in New York. Salmon hoped the company would start a proper investigation but, instead, they dismissed his allegations, and backed their man in charge of the local office.

For Salmon, that turned into the beginning of a four-year fight to clear his name. As far as he was concerned, he had been sacked for objecting to some of the practices taking place within the company, and yet, since he was ostensibly sacked for incompetence, it was likely to prove impossible for him to find another job; advertising is a small, closed world where there are very few secrets.

After taking advice from his lawyers, Salmon realised he had little choice but to bring a case of malicious falsehood, first against his direct boss, Munds, and then later for negligence against Lintas. A malicious falsehood claim is essentially a libel case, but the plaintiff has to prove the allegations were made out of malice rather than error. For Salmon, the benefit of pursuing a malicious falsehood claim rather than a straightforward libel action was that he was able to claim legal aid. As a young parent, with a mortgage and no real savings, Salmon could not afford bring a case himself, particularly against the legal muscle a big American company could afford to hire.

'If you have got the stomach, you should succeed,' Salmon recalls his lawyer telling him before he decided to go ahead with the case. 'But it will long, drawn-out and dirty. Don't make it the crusade of your life.'

So it proved. Fighting a libel battle is never easy, and for an individual it can be particularly tough. 'I suppose it became personal,' Salmon says.

'As managing director of the business, responsible to Lintas and its shareholders, I tried to stop Munds, rather than shop him. I certainly didn't feel I could go along with what he was up to. Sometimes in life you are faced with a great moral dilemma. I was completely convinced I was right, and that gave me a lot of determination.'

The saga went through several different chapters before it was finally resolved. Salmon, working with his lawyers, had to collect the evidence to prove his case beyond any shadow of doubt; up to this point, he only had suspicions that things were amiss at the company. He also had to collect hard evidence that the allegations against him were all untrue. Both tasks meant finding a lot of evidence himself - by, among other techniques, taping telephone conversations with people in the industry. He also had to hire a private detectives to collect evidence he was unable to gather himself. At times, Salmon's story sounds more like something from the pages of a John Grisham thriller (which typically features a lone yuppie who comes up against a faceless and vicious corporation) than anything you would expect to encounter in real life.

Eventually, four years after he was sacked, the case was ready to come to court. At the last moment, Lintas started to back down. It made an offer of more than £300,000 in compensation to end the legal action.

'For me, out of the blue, the full £300,000 target my wife and I had set ourselves was on the table,' Salmon wrote in a diary he kept of the legal action. 'It would change our lives forever.'

Salmon was still enough of a businessman, however, to realise he was negotiating from a position of strength. If Lintas would offer that much unexpectedly, then no doubt its final figure would be much higher. He resolved to refuse to accept anything less than £500,000, a sum which he felt more adequately reflected four years' lost earnings and the damage done to his career. After all, had he stayed at Ogilvy & Mather, he would probably have been in a senior position by then, earning considerably more than £100,000 a year.

Over several days, offers were knocked back and forth between the two sets of lawyers. Finally, Salmon settled for £475,000 plus interest. The company also made a public statement - or grovel as his QC prefers to call it - conceded he had been wrongfully dismissed and that the allegations made against him were untrue. At last Lintas admitted Salmon had been respected by clients and staff. The company even admitted he had been justified in bringing the proceedings against it.

The money, he concedes, was useful; short of winning the lottery, it is rare for anyone to be given such a large amount in a tax-free lump sum. Even so, he would rather not have had to fight the case in the way that he did. 'The process held my life up for five years,' he says. 'I was 35 when I left that company, and I was 40 by the time I got another job. Those can be the most important years of your career.' In November last year, Salmon was appointed managing director of advertising agency Summerfield Wilmot Keene.

For the Interpublic Group, the case ended up costing well over £1 million, including costs, instead of the £80,000 Salmon had asked for to go quietly.

Salmon's case illustrates the essential dilemma any whistleblower faces: 'The might of what they are taking on frightens most people,' Salmon says.

In many ways, it's like walking down the street and seeing someone being mugged by a giant thug; the gut reaction is to do something to stop it but there is always the temptation to look the other way to avoid getting thumped yourself. Few people have the confidence and self-belief to put their careers on the line just to prevent corruption continuing within a company.

And yet, corruption and fraud can cost businesses vast sums of money.

The annual survey of corporate fraud conducted by accountancy firm Ernst & Young, reveals that the UK suffers badly from fraud in the workplace compared with its international competitors. Although British companies represented only 11% of the survey respondents, they suffered one in five of all reported frauds with a value of $1 million and more. Four British companies reported losing more than $25 million through fraud in a single year. Nine out of 10 British companies were concerned they could fall victim to a significant fraud from within their organisations, and 95% of companies said they expect the incidence of fraud to rise considerably over the next five years.

Public Concern at Work, an organisation established to try to stamp out fraud, says the activity has become a major business cost. But it says companies are not good at clamping down on it; they tend to regard it as a matter for the police and courts to solve, in much the same way as someone who left the door of their house open all day might regard the fact they keep getting burgled as purely a police matter.

Company fraud is usually committed by middle or senior managers who have access to company accounts, and it will usually be spotted by more junior employees. Despite this, few companies give any encouragement to staff to report malpractice. Some companies, such as Abbey National, respond quickly, and with the right sort of tough action. Others, as Salmon discovered, sack you on the spot. 'Whistleblowers are unsung heroes,' Guy Dehn, director of Public Concern at Work, says. 'Most don't want to come into the open.

They are confronted with a conflict of loyalties.'

There are plenty of examples of people who have suffered as a result of blowing the whistle on colleagues they believe are involved in malpractice: Andrew Millar, former head of clinical trials at the drug company British Biotech, was sacked after taking concerns he had about drug trials (which, in fairness, the company disputes) to major shareholders. He is now being sued by the company.

An employee who gave the finance director of Wickes a damming report exposing false accounting within the company had earlier been sacked from his job. An insurance salesman who was made redundant after blowing the whistle on malpractices also ended up facing a repossession order on his house, because the insurer was also his mortgage lender.

It is these types of cases, often reported in the newspapers, that have convinced many people to quietly look for another job when they witness corruption in the office. Like the mafia, corporate fraudsters know that most of the people who discover wrongdoings will be too frightened to do anything about it.

The new legislation (see box) aims to change that. Shoot the messenger has always been the foundation of most managers' approach to their jobs, but when it comes to reporting fraud that policy could end up costing the company millions. In America, the law ensures employees who run the risk of exposing malpractice are rewarded; they can receive 15% to 25% of any sums recovered. In April, a US court awarded $42 million to three men who blew the whistle on financial irregularities at SmithKline Beecham, as their share of a $325 million settlement between their company and the US government.

There can be danger of some people taking whistleblowing too far. One company hotline set up to make it easier for staff to report fraud took a call from one resentful employee who complained that the managers drank coffee all day; a lot of people would be behind bars if that were illegal.

But companies must understand they need to help people to report fraud.

And, they must not always side with the manager against a more junior staffer. 'I think companies need to let people know there is help out there, and that they want to hear about what is happening,' Brown says.

Matthew Lynn's new novel, The Watchmen, is available from Heinemann at £10

HOW THE LAW HAS CHANGED

The new Public Interest Disclosure Act aims to transform the legal protection for employees who want to blow the whistle on corrupt practices in the workplace. But it will also place new responsibilities on companies to make sure they handle people with complaints fairly. It is likely to mean addressing a lot of issues that until now have usually been swept under the carpet.

The Act applies to anyone raising genuine concerns about crime, illegality, miscarriages of justice, dangers to health and safety or the environment, or the cover up of any of those acts. Whether or not the information involved is confidential, or the action complained of is within the UK, employees will still be protected.

As well as employees, the Act will also cover trainees, agency staff, contractors, homeworkers, and everyone involved in the NHS. Excluded are the self-employed, volunteers, the intelligence services (it would be pointless to have people reporting James Bond for endangering health and safety), the army (similar reason) and the police.

The Act has two main provisions. First, employees who feel they have been victimised as a result of whistleblowing will be able to take their employers to an industrial tribunal. There will be no limit on the awards for damages.

The Government is also consulting on a proposal that whistleblowers who are sacked should receive a special award of not less than £17,000. It is also looking at whether whistleblowers should be entitled to make a claim for aggravated damages. Either way, companies that do not take concerns raised by their employees properly are likely to face stiff financial penalties.

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