Ever since the financial crisis, statements of values, mission statements and Codes of Conduct have proliferated like the most determined weed among pretty much every financial organisation. Changing the culture was the focus of regulators and senior management. What better way to start than to have a wonderful statement saying how well you would behave in future and how well you would treat anyone you dealt with, from your staff to a contractor working remotely thousands of miles away, customers, suppliers and so on. Everyone would be embraced and treated well. If it all had a “kumbaya let’s teach the world to sing” flavour to it, even the most cynical, churlish observer would surely think this better than the sort of misconduct which had shredded the reputations and balance sheets of so many.
All of these documents contained much the same. Three items are always present: the need for “integrity” – often clarified as “doing the right thing”, “fairness” – which usually encompasses tolerance and no discrimination and a conflicts of interest policy – to help avoid the sorts of situations which might result in people doing the wrong thing.
Let’s take one such example from NatWest. Its Code of Conduct says: “We act with integrity and take risk intelligently.” It talks about an environment “free from bullying, harassment and discrimination” (though it introduces a protected characteristic which does not exist in the Equality Act) and a “fair and inclusive environment where we all feel we belong”. It talks about “relentless curiosity” and “broad perspectives” and testing thinking on “people with different views”. It mentions its Conflict of Interest Policy and reminds people of the FCA requirement to “act with due skill, care and diligence”. On and on it goes with 13 pages of worthy sentiments and ambitions.
It’s not just the financial sector which has these. Pretty much every sector now has some sort of values statement and Code of Conduct. But for those in a highly regulated sector – such as finance, law, accountancy, the police – these statements are not just “nice to haves” but essential to showing that the entities, the professionals working in them, senior managers and the Boards of Directors fully understand and are taking steps to comply with their regulatory obligations, the law and their fiduciary and corporate responsibilities.
Now let’s look at the responses to the Supreme Court’s judgment in the For Woman Scotland (“FWS”) case. Some organisations have responded by expressing concern for trans employees; some have stated that they will continue with internal policies which are now not in compliance with the judgment i.e. the law. And others have signalled their determination to defy the law.
Is this wise? If your stated values are to act with integrity and comply with the law, stating that you will not do this because you do not like what a judgment says undermines and breaches whatever Codes of Conduct and values statements you have. It sends out a dreadful signal to your staff and others – that compliance with laws and rules is optional. There are plenty of bankers, traders, policemen and others – some of them in our prisons – who have taken this approach. Is this the message you want your staff (let alone others) to hear? Be in no doubt: some will hear this and some will act on it and you have just given them the green light to do so.
What about expressions of concern? What’s wrong with them? Well, context is everything and there are a number of things wrong or inadvisable. The judgment was about the rights of women and gay people, specifically lesbians. It expressly stated that trans people had not lost any rights. If your first reaction is to reassure people who have not lost any rights rather than say something to a much larger community whose rights were at risk and whose rights you may have prejudiced by your policies, you are signalling a curious set of priorities. Some might notice that you did not say anything when FWS lost twice in the courts below. Why not? Were the concerns of those affected not important? Did they not need support? How does this exemplify fairness or inclusivity? What message is it sending out to the women who work for you or are your customer, suppliers, contractors and so on? It suggests you believe in a hierarchy with one group’s rights considered more important than others when in fact the Equality Act creates no such thing
Two further points: risk assessment and conflicts of interest.
Legal risk is one of the risks that all organisations must take account of. The Supreme Court judgment did not come out of the blue. There were two decisions in the lower courts. There was an earlier FWS victory in 2022 which established that people without a GRC could not be considered members of the opposite sex. It was a Scottish decision but there was always an appreciable risk that it would be persuasive in an English court should the matter be litigated. There have been a large number of employment tribunal decisions raising issues around direct and indirect sex discrimination, harassment and protected beliefs since at least 2021. The risks of having policies in place which did not fully take into account a correct understanding of the law and the lessons to be learnt from those cases were ones which directors and managers had a legal and regulatory obligation to consider carefully. It is not at all apparent that they did so. Rather they seem to have delegated this to HR and/or outsourced this to external bodies. Again, was this wise? What steps were taken to ensure that HR was taking all the right factors into account? What steps were taken to ensure that legal advice was being taken from those expert in this area?
This takes us to one issue which has been overlooked: conflicts of interest. A Conflicts of Interest policy is essential in many sectors, particularly highly regulated ones. But it is applicable to every sector. A glaring and unaddressed conflict of interest, often more than one, is present in pretty much every scandal: whether in finance, the building sector, the NHS, the Post Office and many others. There are public inquiries and their reports which spell this out – time after time.
But in the case of sex/gender, too often banks and others have sought advice from lobby groups with no legal expertise on how they should treat a particular minority. They have not done this for all minorities: religious groups, for instance. They have not asked hard questions about precisely what they were getting and why. Nor whether what they were being told was lawful. Nor whether it might affect others and whether such others should be consulted. Nor did they consider whether there might be a clash of interests and, if so, how this might be resolved. Nor did they notice that if they were paying a group such as Stonewall to approve their policies and place them high up in their index of approved employers, they were creating an obvious conflict of interest – one which they seemed not to notice or take any steps to mitigate. They did not ask themselves whether going “beyond the law” might possibly result in them breaking the law. It seems not to have occurred to anyone that doing what one single issue lobby group wants simply to get high up in its ratings is as bad – and as much of a conflict of interest – as stretching the rules to do what a high paying customer demands you do. They failed to apply their own policy to their own behaviour. There was, bluntly, a lack of “curiosity” and “due diligence” of a most elementary kind.
This is a corporate failure. It is a legal failure. It is a lack of due care, skill and diligence. And it is a failure of all of these – when a judgment comes out – not to take time and careful thought about what it says and means and how to implement it fully and fairly, having taken proper advice from those who really understand it – not those who seek to undermine or ignore it. This is basic stuff for any properly advised senior management team. It is one which has, unfortunately, too often been missing. Babies and toddlers have tantrums. Company Boards should not. It is high time company Boards and management at all levels took their responsibilities seriously, the most important of which is to comply with the law. Codes of Conduct are, after all, meant to be more than a bit of pretty PR.