Professional duties to report and investigate misconduct

Not a day seems to go by now, without the news of another company, firm or institution reporting an investigation into board-level wrongdoing or misbehaviour – politicians, CEO’s, police officers, sports managers, no-one seems to be immune. But what is driving this sudden growth? 

Changing social attitudes, the ‘me too’ movement, an increasing willingness from younger generations to ‘call-out’ bad behaviours, social media and a growing application of value to corporate reputation are all contributing factors. In addition, most professional bodies, the Institute of Chartered Accountants in England and Wales (ICAEW) included, have introduced obligations, both on firms and on members, to report workplace and other wrongdoing.

This article investigates what the ICAEW guidance includes and what to do if wrongdoing is reported.

The ICAEW’s ‘Guidance on the Duty to Report Misconduct’, was updated in June 2023, and should be reviewed not only by practice managers and HR teams, but by all partners. The duty to report extends to individuals (to self-report), to firms to report their own wrongdoing and that of their members and for individuals and firms to also report the improper actions of other firms and individuals. The matters to report include misconduct, serious incompetence, the committing of criminal offences and the undertaking of unregulated activity.

The duty on a firm to report its own members is suspended where an internal investigation, or disciplinary process has been commenced, but only until such time as the process is concluded and where the conclusion is that wrongdoing has occurred. 

Where multiple members of a firm become aware of an issue with an ICAEW member, the duty to report lies with the most senior principal, who is burdened with the decision whether to report or not. The guidance indicates that where a decision not to report is made, and clear evidence exists that such amounts to an improper attempt to conceal, then the burden falls onto the member observing the concealment to make an alternate report. The guidance stresses strongly that members must not act to restrain or discourage reporting, or to penalise or disadvantage those who do.

What does the ICAEW guidance cover?

The guidance contains examples of the type of conduct which should be reported and includes activities both within the workplace and outside it. The ‘in work’ examples include:

• Actions or statements demonstrating a lack of integrity.
• Providing false or misleading information.
• The wrongful backdating of documents.
• Knowingly or recklessly acting with a conflict of interest or lack of independence.
• Breaching a duty of confidentiality.
• Knowingly preparing incorrect documents to be filed or relied upon eg valuations, tax returns, mortgage references etc.
• Knowing breach of AML requirements and harassment (sexual or otherwise) of another employee.

In terms of the outside-work list, in addition to obvious matters such as the commission of criminal offences, the list includes:

• Inappropriate use of social media or electronic communications, for example making, publishing or sharing racist, homophobic or other offensive comments or the sharing of offensive material.
• Verbally or physically abusive behaviour towards work colleagues or other persons outside of the workplace.
• Sexual misconduct or harassment of work colleagues or other persons outside of the workplace. 
• Aggressive or abusive behaviour in correspondence that may be entirely unrelated to professional activities. 

What to do if wrongdoing is reported

Many of the high profile cases have involved board members, partners and senior employees holding positions of power and this has implications in relation to the ability to properly assess reports. Increasingly, firms opt to commission an independent investigation, to demonstrate a responsible approach and to ensure that the outcome is one which will stand up to scrutiny.  

Firms need to be mindful not only of how issues will be perceived externally. It’s also important to be mindful whether a failure to properly investigate, or to allow an investigation to be influenced, could open the firm itself up to criticism, not only leaving it at risk of sanction, but also the potential for reputational damage.

Firms should therefore:

• Take particular care where allegations are made against senior individuals – giving particular consideration to the use of lawyers or other external investigators.
• Ensure that proper and thorough investigations are undertaken and documented – this will usually involve interviewing witnesses and challenging accounts.
• Ensure that the senior individuals who are subject to complaints, or their senior colleagues, are unable to influence investigations whether directly or indirectly. The Solicitors Regulatory Authority has recently been critical in relation to the investigation of allegations against a senior partner, in such circumstances.
• Be careful not to pre-determine outcomes and to allow the evidence to lead the outcome -  rather than searching for evidence to support a view.
• Where necessary, sanctions should be based on the severity of the misconduct and not how influential, or profitable, the partner or member concerned is to the firm.
• Ensure senior team members are familiar with the self-reporting rules and, where appropriate, do self-report. This usually follows consultation with the internal compliance team or external lawyers – firms will naturally not want to identify wrongdoing, but where it is discovered, or should have been, the firm can find itself in the firing line if it fails to properly deal with concerns.
• Take advice early – seeking external advice and laying the proper paper trail to demonstrate that concerns were taken seriously and addressed quickly, will go a long way to satisfying professional bodies of good conduct.

For more information, please contact Andrew Perkins, head of our commercial disputes team.