In a time when businesses are increasingly cash conscious, and tough decisions are being made with respect to redundancies, discretionary payments and performance issues, it is more vital than ever that senior executives conduct themselves appropriately and do not jeopardise their position. In this alert, we consider the importance of senior executives leading by example and the potential repercussions of failing to do so.
Many people will be aware of Greg Clarke resigning from his role as Chairman of the Football Association (FA) with immediate effect. Mr Clarke’s departure followed his appearance before the Department for Digital, Culture, Media and Sport select committee, during which he later conceded he had used unacceptable language.
Whilst Mr Clarke’s resignation was welcomed from almost all quarters, some commentators have observed that this was not the first time Mr Clarke’s actions in the role had been called into question; in fact, Mr Clarke had apologised for his use of language before the same parliamentary committee just three years earlier. On that occasion, Mr Clarke had referred to the “fluff” of institutional racism.
Mr Clarke’s swift departure has shone a spotlight on the FA at a time when the organisation is already under significant pressure as a result of the Covid-19 crisis, which has caused the FA to forecast losses of around £300M. Senior politicians have now called upon the FA to review all of their diversity programmes and ensure that they go far enough.
As the body which represents “the beautiful game” in the UK the FA has a public as well as a private role, but all employers are under scrutiny from investors, employees, and in some cases regulators. The adverse actions of a senior executive can cause significant pressure for an organisation, not least in terms of reputational damage. It can reveal a culture that turns employees, investors and clients/customers away from that organisation and in the worst cases lead to its demise, as has been suggested as one cause of the failure of Debenhams.
By contrast, the senior executive who leads by example by using transparent, honest communication, both internally with their (virtual) teams and externally with investors and others, with judicious use of PR, where news needs to be managed and set in context, will add huge value to their business and minimise the risk of claims arising from managers and employees below them in the organisation. If the role requires a reduction in headcount, or redundancies, if employees believe they have been given full information and treated fairly, and even that senior executives have taken a fair share of “pain” they are less likely to look for legal reasons to challenge decisions and bring claims. Similarly, investors do not look kindly on senior management teams that seek to take money out of the Company by means of discretionary pay awards where no dividends are being paid and staff have been furloughed and/or made redundant. Neither can the D&I and ESG agendas be overlooked or marginalised and senior executives can further lead by example by maintaining energy and commitment to these initiatives whilst also driving down cost and maximising revenue, to ensure that their workplaces are free from bullying and harassment.
For senior executives in a regulated industry, this is particularly important as behavioural issues as well as the traditional financial conduct issues are firmly on the agenda of all the key regulators. Within the financial services sector, the most senior managers who perform key risk taking roles in their business are designated as ‘Senior Mangers’ under the Senior Managers and Certification Regime (SM&CR). Other managers who hold positions which can impact significantly on customers or the firm, are also designated as ‘Certification Functions.’
Earlier this year, in response to the coronavirus pandemic, the Treasury announced that it would extend the SM&CR certification deadline for solo-regulated firms from December 2020 to the end of March 2021. Whilst this announcement was undoubtedly a welcome reprieve for affected firms and senior executives, in the same announcement the Treasury reminded Senior Managers of their obligation to ensure that Conduct Rules training in their organisation is effective, in order that staff are aware of the Conduct Rules and how to apply them.
It is evident that the standards to which businesses and individuals are being held – whether by regulators, boards, or the public – are firmly in place and the peculiar challenges imposed by the virus and remote work will not provide an excuse for managers who fail in their responsibilities to uphold and promote them.
Many employers are taking this opportunity to ensure that their senior executives are subject to clear policies and provisions in their contracts and that they can be in no doubt about their obligations. Further, organisations are realising the importance of ensuring that their senior management are trained to the highest standard not only in financial and client risk management issues but also in discrimination and D&I issues, in order that the business can have confidence in their ability to lead their teams. It is imperative that senior executives are mindful at all times of the responsibilities of their role, whether contractual, statutory or ethical, and take all necessary steps to lead by example and seek the necessary training and support to do so, when conducting the business of their organisation.
Our firm has extensive experience in advising senior executives who may be subject to additional scrutiny and require advice concerning a workplace investigation or a disciplinary process. If you would like to discuss any of these issues further, or for guidance on your specific rights, responsibilities and potential liabilities, please contact Merrill April (Partner) and Louise O’Connor (Associate), both of whom specialise in partnership and employment law issues for multi-national employers, senior executives, firms and partners.
Our firm also conducts tailored diversity and inclusion, anti-harassment, victimisation and bullying training for senior executives and partners on an executive group and 1-1 basis. For more information, please contact Clare Murray.