Spotting the Bad Apple – Dealing with Rogue Partners and Staff (Part II)
Dealing with the Rogue Partner or Employee
One of the many risks that solicitors’ firms face – and one which has been highlighted recently in the Solicitors Regulation Authority (SRA) Risk Outlook 2014 – 2015 is that of the rogue partner or employee. In the section “Misuse of money or assets” the SRA state that they are “particularly concerned when client money or assets are put at risk …. as a result of ….
- poor systems and controls, particularly in relation to client accounts
- a lack of competence, resulting from insufficient training or understanding.”
This is not only because it places client funds at risk but also because it is “a threat to public confidence in legal services. A loss of public confidence in law firms could have an impact on access to justice and the overall standing of the provision of legal services in England and Wales.”
The Risk Outlook goes on to say that typically, the grounds for around 30 percent of interventions involve suspected dishonesty and that often the issue arises “as a result of systems and controls failing to detect a rogue individual or group of individuals misusing money.”
Firms cannot operate effectively unless they place a degree of trust in the partners and staff within the firm. However, the nature of solicitors’ work is such that often individuals are placed in a position where they do have access to substantial sums of money or where there is a duty upon them to act in a particular way that may not always be the most straightforward or easy. Add to this the pressure under which many solicitors and others within a law firm work, and it can readily be seen that misconduct – whether it be dishonesty or simply failure to abide by rules and regulations – is something which can all too easily occur.
In this the second of two articles dealing with rogue partners and staff we look at what firms must do when a rogue partner or staff member is suspected or identified.
Dealing with the Rogue Partner or Employee
Even with all of these checks and balances in place, it is still possible for partners and staff to become a problem – whether from dishonesty or misconduct, or simply from the impact they have upon the firm, the clients of the firm or even themselves. Knowing how to deal with those partners and staff is as important as attempting to prevent the behaviour in the first place.
Dealing with the problem of a rogue partner or employee falls into five distinct stages:
- Investigating generally unexplained behaviour to ascertain if a problem exists – this step may need to be omitted in the case of someone who has clearly committed a breach or an act of dishonesty. Where the firm has been put on alert by changes in personal habits or concerns about home life this is likely to have to be undertaken with a great deal of discretion;
- Carrying out an investigation where there has been a clear breach or act of dishonesty;
- Handling the outcome of that investigation – in other words dealing with the situation that arises from the investigation – be it disciplinary, criminal or even that there is no problem;
- Reporting matters, as appropriate, to the relevant authorities and regulators;
- Managing the impact upon the firm – for example in terms of reputation an client issues.
So far as the investigating stage is concerned, firms may wish to consider both an internal and an external investigation, depending upon the circumstances.
Where the investigation is into unexplained behaviour then the starting point for the firm will almost invariable be an internal investigation. This will have the advantage that:
- issues are kept confidential within the firm,
- if there is nothing to worry about then fewer people will have been aware that a potential problem existed,
- someone from within the firm is more likely to know the person in question and be able to judge more effectively that their behaviour has changed;
- chosen appropriately, someone from within the firm is more likely to have the confidence of the person being investigated should it be necessary to raise issues with them directly.
On the other hand, the disadvantages of this approach are that:
- the person investigating may be less impartial in judging the behaviour of the investigated person;
- the person investigating may be concerned about their ongoing relationship with the person being investigated;
- the person investigating may be more concerned with keeping things quiet than bringing them out in the open – for example to preserve the reputation of the firm or the investigated person; and
- in extreme cases, the person investigating might actually be involved in the same dishonest behaviour or actions as the person being investigated.
Firms that conduct an internal investigation should be careful who they use for that purpose. Someone independent of the person being investigated, not directly in their line of management (either up or down), not part of human resources and not an officer within the firm – e.g. a COLP or COFA – would be best as this will allow the firm greater flexibility in dealing with any outcomes from the investigation. Firms should also consider whether the person carrying out the investigation has anything to gain personally from the findings – whatever they are.
Firms that prefer to use an external investigator may wish to consider using someone who knows the firm and can thus apply that knowledge to the task. This could include a former/retired partner, a third party who has worked closely with the firm (e.g. a consultant) or an independent person with knowledge of the workings of a firm of the type that this firm is. Consideration needs to be given to issues of confidentiality and it may be necessary for client details to be kept from the investigator wherever possible or for some form of confidentiality agreement to be entered into.
Whether an internal or external investigator is used, the firm should set clear parameters for the investigation. Thus, if the firm is looking into a person’s behaviour because staff have observed changes then the starting point for the investigation may be to ascertain if there are explanations for that change in behaviour. Someone who is tired at work and late to arrive may be caring for an sick or elderly relative rather than having a problem with alcohol addiction. Only if evidence of something untoward is forthcoming should the investigation become more intrusive and attempts should be made to prevent the person being investigated from being vilified by others within the firm. Care must be taken as to what is said to others in the firm and even as to what is asked of them. No good would come from an innocent staff member being undermined and placed in the position of not being able to function within the firm in the future.
Where the investigation shows that the person being investigated has committed an act of dishonesty, breach of the rules or breach of some other provision in relation to their employment, then the firm will need to act quickly but fairly.
It would in many cases be appropriate for the person investigated to be suspended. There may be client confidentiality, client security, protection of the firm and indemnity insurance reasons for this and the firm should not shrink from taking this step if it is one that is appropriate.
If the actions of the person investigated amount to a criminal offence then the firm must of course report the matter to the police and must not in any way impede the police in making whatever enquiries they deem to be necessary. It is up to the firm whether they continue to investigate the matter themselves or simply leave the matter to the police. The firm will also be under a duty to report the matter to the SRA. We shall come to this aspect shortly.
The firm may also need to deal with client ramifications. Whether or not the actions of the investigated person amount to dishonesty or not, there may still have been an impact on the affairs of the client and in such circumstances the firm will need to work out what it should tell the client, how it can deal with any prejudicial effect that the actions have upon the client – for example replacing stolen property or taking steps in relation to a matter that have not been taken – and how it is going to deal with the fallout that is likely to arise.
For example, a client may feel sufficiently aggrieved that they go to the press about the matter or they may decide that they hold the firm responsible and commence action in negligence. Having a press relations strategy, whilst outside of the scope of this article, is something that firms may wish to consider in any event. Simply believing that bad publicity will not happen is not a strategy and unless you plan for what should happen the chances of you having time to devise and implement a strategy when it is needed are remote. Just being prepared for adverse publicity can help you prevent a bad story becoming a terrible one.
If a criminal offence has not been committed but the person investigated has still fallen short of that which could reasonably be expected of them then the firm will have to make sure that they have and abide their own disciplinary policy when dealing with that person. It will be a question of fact and extent of the breach as to whether the matter is reportable to the SRA.
Do bear in mind that, despite the fact that you are a law firm, if you are not experts in employment or partnership law that you may need to seek legal advice as to the precise means by which these matters are dealt with.
Remember also that depending upon the nature of the investigated persons actions, they may have a right to expect you as a firm to keep confidential any findings of the investigation.
So far as reporting the matter to the SRA is concerned, care must be taken in deciding what needs to be reported and the manner in which that report takes place. Bear in mind that the duty to report non-material breaches. In the case of a non-ABS firm compliance officers for legal practice (COLPs) and finance and administration (COFAs) will need to record non-material breaches but report material ones. ABSs, however, must still report all breaches, material or otherwise.
Before the firm reports a matter to the SRA, it should careful thought as to what remedial action, if any, is required and what steps the firm should put in place to try and ensure that such a situation does not arise again in the future. The report itself should confine itself to the facts and not give views or opinions as to what the firm believes the SRA should do as a result of the report. It should include what steps the firm has taken following on from the finding reported.
However, the firm should be careful not to delay in making the report to the SRA – even where it is attempting to put in place remedial steps to prevent a recurrence in the future. The requirement in Rule 8.5 of the SRA Authorisation Rules is that the breach be reported to the SRA “as soon as reasonably practicable”. It depends really upon the nature of the breach. Serious breaches should be reported almost as soon as they come to light. Less serious breaches, where they need to be reported at all, could perhaps wait until the firm has decided upon the steps to take to prevent repetition.
Firms need as part of their management of risk process to be vigilant about rogue partners and staff members and must ensure that they put in place procedures designed to prevent problems from arising in the first place, be aware of problems if and when they arise and finally deal in appropriate manner with those problems that do occur. They must also review any events and make sure that steps are taken to help to prevent such problems from arising again in the future.