To Discipline or Not?
April 30 2019
The recent decision of the Solicitors’ Regulatory Authority to strike off Emily Scott, a junior solicitor, for being involved in misconduct while a trainee, only belatedly raising her concerns as a whistleblower after she left, raises, albeit tangentially, the difficult question of when – or if – it is ever right to discipline an employee for misconduct if they are also a whistleblower about that misconduct.
In this case, Ms Scott felt unable to report clients being defrauded by her firm while she was a trainee. She was involved in perpetrating the frauds on the instructions of the partners, the Disciplinary Tribunal finding her conduct to have been “deliberate, calculated and repeated”. It was only after she had left, some two years after the conduct in question, that she reported the fraud to the SRA who then took action against the partners of her firm and, controversially, her. The Tribunal reached its decision on Ms Scott despite accepting that she had been young, a trainee and had been “deceived, pressured, bullied and manipulated” by the partners into both carrying out the fraud and covering it up. The fact that she did not use the confidential route open to her by reporting the matter to the SRA was a factor, as was the fact that part of the conduct involved misleading the regulator when it sought answers.
Ms Scott feels that she has been punished for – eventually – doing the right thing, with the Tribunal refusing to accept her mitigation, even while expressing sympathy for her. It is easy to feel sorry for her: in her first job, anxious to impress, worried about her prospects if she refused or left and feeling bullied. In such circumstances, it is not hard to see how someone can justify to themselves what they are doing and convince themselves that they are still an honest person despite doing dishonest things.
Still, the SRA took the view that a solicitor, even a trainee one, is rightly held to a very high standard and there can be no excuse for dishonesty. Our system of justice depends on its practitioners being utterly trustworthy.
Will such a decision nonetheless lead to unintended consequences? Misconduct is often perpetrated by the most junior employees being made to do something wrong by superiors who seek to keep their hands clean. So it will often be those most involved who have the best knowledge of misconduct which should be reported and stopped. If their own careers will be lost – as Ms Scott’s has been – will this encourage those with the relevant knowledge to speak up? The SRA is, understandably, reviewing its rules in light of this case in order to ensure that it gets that balance right.
Ms Scott was not retaliated against by her employers for being a whistleblower. She was disciplined by a regulatory authority, which has different and wider concerns. Nonetheless, all employers will likely come across whistleblowers who have themselves been involved in bad behaviour and who may seek to protect themselves from the consequences of such bad behaviour by blowing the whistle, sometimes at a late stage when an investigation has already started – or is about to. Ensuring that a whistleblower is not retaliated for speaking up but is not also given a free pass against being disciplined for misconduct requires the most careful of judgments.
But the moral – however harsh it may seem – is that, ultimately, a professional – or someone aspiring to be one – is responsible for their own actions, that they need to do the right thing even if this prejudices their personal position and that acting dishonestly but saying to yourself “I’m not a dishonest person” may be comforting but is still a dangerous self-deception. It is our actions that make us what we are.
Similar considerations arose in the case of Dr Bawa-Garba, a paediatrician convicted of manslaughter over the death of a young child from sepsis, suspended from practice, then struck off and recently reinstated. There are, however, some obvious differences between the two cases:-
- The doctor was open about – and admitted – her mistakes immediately and was convicted in court. The initial medical disciplinary panel felt, however, that it was not just her mistakes which led to the child’s death and that these wider failures were a reason why her additional punishment should be suspension, during which she could do the necessary training to learn from those mistakes and improve her professional competence.
- It was the General Medical Council which sought to strike her off on the basis that her standards as a doctor were so far below those to be expected that she should not be allowed to practise.
- The concern within the medical community at this decision was that this would lead to the wrong consequences, both for doctors and patients. Criminalising individual mistakes would be more likely to lead to cover ups and a failure to learn from problems. It would have a chilling effect on health professionals’ willingness to be candid about errors and thereby learn what to do better next time. There was also significant concern that the wider failings which had been identified – lack of staff, poor supervision, inadequate resources, poor note-keeping by others – were being ignored in favour of placing the blame, unfairly, all on one individual.
- Most obviously, the consequences of the wrongful behaviour were much more serious in the doctor’s case than in Ms Scott’s. Yet it is Ms Scott who has lost her career and the doctor who will continue to practice.
Unfair? Superficially maybe. Is gross incompetence in a doctor less bad than dishonesty in a lawyer? Whatever the doctor’s failings, she was not dishonest; indeed, her very openness about her failings made it easier for her to be convicted and disciplined. A lack of knowledge or competence is something which is capable of being remedied.
Whereas integrity and honesty and the courage to say no when asked to do the wrong thing go to the heart of what it means to be a lawyer. If they are missing or capable of being so easily subverted, what else is there?
And while the work culture in which a person operates matters, often significantly, and frequently needs improving, it should never be an excuse for behaving without integrity.
March 31 2019
In the week in which Lyft, a company which has never made a profit, whose losses rose by 32% to nearly one billion in 2018 and which, according to its management, will not make a profit in the near-term, was listed with an initial valuation of $2.3 billion with its shares rising by 8.7% on the first day (giving it a market capitalisation of $22.4 billion, almost as much as Chrysler), we learnt a bit more about two other former stars of the business world.
First, London Capital & Finance (LCF). Perhaps not a star but starry enough – at least superficially – to persuade about 12,000 unsophisticated ordinary savers to put £230 million of their savings into fixed-rate bonds (which they thought eligible for ISAs) providing returns well above those available elsewhere. In reality, the bonds were high risk and not eligible for ISAs, were not regulated investments and the money went into a number of ventures run by persons connected to those behind LCF. The administrators are now, inevitably, probing what happened and where the money went. But this week investors were told that the administrators were having difficulty locating the assets allegedly acquired with the money, the chances of there being any recovery were low and, to add insult to injury, while investors lost money “through no fault of their own”, there was no basis for any compensation from either the FCA or the FSCS. The investors fell into the gaps between firms regulated to provide financial advice, which LCF was, and firms regulated to sell bonds, which LCF was not.
The moral of this sad story is an old one: if something looks too good to be true, stay away.
Still, those savers might well wonder what one of the FCA’s statutory objectives – protecting consumers – actually means when LCF was able to operate in the way it did in full view of the regulators without anyone taking any effective action to protect those consumers. The plethora of inquiries now taking place – by administrators, the SFO, the National Audit Office and possibly also the Financial Reporting Council – are not likely to provide those savers with much comfort.
Now to Theranos– a company which no longer exists but which is having a lucrative after-life in a book, documentary, podcast and rumoured Hollywood film. Its story is now well-known: a student leaves Stanford with a brilliant idea which will revolutionize health care (no more nasty needles taking blood – just a teeny pinprick), raises oodles and oodles of money, has a Board consisting of the great and the good (Dr Kissinger, George Schultz), appears on stage with Bill Clinton, is co-opted onto an advisory panel by President Obama, and is fêted as one of the first and youngest and prettiest female Silicon Valley billionaires. What could possibly go wrong?
Well, pretty much the most important thing: the product Theranos was selling did not work. Having an idea is great. Selling an idea knowing that the reality does not match it: not so great. Criminal charges have been laid. We will see whether this was self-delusion and a failed business or something very much worse. Still, one of the striking facts which has come out is that a lot of very experienced, very rich business people – people as far removed from ordinary savers as it is possible to be – failed to do the most elementary due diligence or ask basic questions, not even for an audited financial statement.
Maybe they were happy to take a risk without more. Or maybe, like those hopeful savers putting their money and hopes into LCF, they believed in what they hoped would be true, they believed the story, ignored the facts and/or didn’t ask obvious questions. Any similarities to investors in Lyft are, one hopes, purely coincidental.
Here We Go Again
February 28 2019
One of the financial sector’s characteristics is a short memory. After about 5-7 years memories, particularly of tough times, begin to fade. New joiners bring their enthusiasm and keenness to do new deals, develop new structures, explore new possibilities. Blockchains, ever more complex algorithms, AI, new paradigms: all are being created and expanded. The future’s exciting. So the surfeit of scandals which came to light following the financial crisis a decade ago are beginning to sound like stories from a forgotten age, interesting but no longer really relevant to now, let alone the bright new future.
And then, from the other side of the world, comes this – a searing report (a Royal Commission, no less) into misbehaviour in Australian banks, to remind us, once again, that – in the words of an official with the US’s Financial Crimes Enforcement Network back in 2013 – “large amounts of money sometimes bring out the worst in people.”
(As an Australian might put it: “You don’t say!”)
The report followed a year-long public inquiry into the culture and practices within Australian banking and revealed shocking, widespread and systemic examples of the sort of misbehaviour with which we have become so familiar.
- Rewards for misconduct: the focus of all the institutions, whether banks, mortgage brokers, insurance firms, intermediaries was on selling, as much as possible for as high a fee as possible, regardless whether this was in the customer’s best interests. In some cases, non-existent services were provided to dead people for years.
- It will come as no surprise that this arose from badly skewed incentives. Or greed, of both the individuals and the institutions, as the Report says, bluntly and refreshingly.
- Firms abused their superior knowledge to mislead and defraud customers. Conflicts of interest were ignored. Individuals did what they could not what they should.
- When customers complained, staff were trained to lie to them, even when compensation was paid; deliberate actions were conveniently and misleadingly described as an “administrative error”.
- Firms lied to and misled regulators, often for years on end. Nor were these the actions of junior staff but of senior management who felt no compunction about noting down in internal correspondence how to keep information from regulators and prevent any proper scrutiny of their actions.
- Regulators were weak and did not hold those who misbehaved to account, even when they became aware of them.
500 pages set out in blistering detail a sorry tale of greed, fraud, lies, poor leadership, contempt for customers and a systematically rotten culture. The usual action is, of course, now being taken: resignations, new leadership, building a good culture, training, new legislation, enforcement, litigation and so forth.
Two points in particular are worth noting:
- These scandals did not happen in investment banking but in retail institutions, those dealing every day with ordinary consumers, the very people who need trustworthy and reliable financial services, who had a right to trust their providers and who were so badly let down.
- The banking sector in Australia is one of the most profitable in the world: 2.9% of Australia’s GDP. Compare this to the US share of 1.2% and 0.9% in the UK. The pre-tax profits of Australia’s banks are 6thin the world even though it is only the world’s 13th largest economy and its population only 25 million. Little wonder that they thought they could do no wrong.
When sectors / institutions start thinking of themselves as indispensable (“look at our profits, our tax revenues”), when finance forgets that it is a service industry, there to serve others not itself, when banking is seen as a product to be sold rather than as a long-term relationship to be nurtured, then hubris and the sorts of behaviours seen in Australia, as well as elsewhere, will happen.
The Australian report is a salutary reminder that the old stories still have much to teach us.