The recent suspension and investigations into the conduct of Ray Kelvin, founder of Ted Baker, and the resulting devastating impact on Ted Baker’s share price, is a stark reminder of the potentially considerable fallout that brands and businesses can suffer when allegations of misconduct become public.
The complaints raised against Kelvin and the inappropriate “hugging” culture he is alleged to have encouraged at Ted Baker is just one example of an increasing number of complaints being raised in the fashion industry of harassment by senior executives. With an increased focus on good corporate culture by many governing bodies, including most recently the FRC, together with the continuing momentum generated by the #metoo campaign, companies are coming under increasing pressure to take immediate action to find “scalps” when allegations of harassment or discrimination are raised.
Historically, when allegations of harassment were raised against senior executives, many companies either ignored the allegations or brushed them under the carpet; many boards felt paralysed to respond when one of their members was named as a potential perpetrator. As a matter of good governance, however, it is becoming widely understood that companies should be seen to be objectively investigating matters raised (regardless of the seniority of the individuals involved) and responding appropriately. Now, when such allegations are raised, launching an independent investigation (as is the case in response to the complaints raised against Kelvin) is becoming commonplace in the UK.
But what does this actually mean and how should an investigation be run in order to ensure that the company does not respond with a knee jerk reaction which could have unforeseen consequences?
What is an independent investigation?
An independent investigation is distinct from a disciplinary investigation, which is usually commenced in the context of determining specific allegations made against an employee. An independent investigation is broader in scope and designed to determine not only what happened in the past but what action the board needs to take now to address the issues. Those actions may include: suspending employees; liaising with the police and regulatory bodies; making announcements as regards the investigation; updating stakeholders such as investors; managing communications; and addressing potential claims made against the company.
The key to responding effectively to allegations of harassment or discrimination is to ensure that the board is clear from the outset as to what it is trying to achieve by launching an independent investigation, articulates its objectives for the investigation at an early stage, and subsequently keeps those objectives under review. All too often initial steps are taken with great urgency. There is, however, real value in ensuring that these steps are the right ones to take in the circumstances of the case. Mistakes in the early stages can be difficult to rectify and may lead to further costs at a later date. Here are our tips on how to respond when allegations of harassment are raised:
Whilst the full extent of the background to and internal knowledge of the approximately 100 separate allegations of harassment made against Kelvin is not yet clear, it is noteworthy that it took a petition signed by hundreds of individuals before Ted Baker responded to the allegations. It is important that companies have clear policies and procedures to ensure that employees understand the channels available to them to raise issues of concern and that any allegations made are properly considered and escalated beyond HR so as to ensure a “joined up” response. Given the current climate, and the actions of groups such as Organise (the group behind the Ted Baker petition), it is also important to take allegations of misconduct seriously at the outset rather than wait for a deluge of allegations to be made.
2. Identify the investigation team
If it is appropriate to launch a full scale investigation, the board should consider who the investigation team should include. It is prudent to include representatives from senior management (particularly non-executive directors), HR, PR, Finance, IT and in-house legal counsel. External lawyers are increasingly being called in to lead such investigations with the support of the internal team. There are many advantages to adopting this approach. External lawyers, who will be perceived as objective, may be better placed to question employees and determine the facts, as well as deliver difficult messages to the board as to the actions that ought to be taken. Perhaps most importantly, engaging external lawyers may allow materials produced as part of that investigation to be protected by privilege.
3. Preliminary assessment
Conduct a high level assessment to identify the relevant issues, individuals, and affected business streams. This assessment should identify any immediate actions that should be taken such as actions to preserve potentially relevant documentation and supporting any whistleblowers.
Identify and comply with immediate reporting requirements such as market announcements, and consider whether law enforcement agencies should be contacted.
Suspend relevant employees in line with the company policies and procedures. Ensure suspended employees do not have access to the premises, IT systems or the company’s finances.
Determine an internal and external communication strategy. The key is to reassure employees, customers, suppliers and investors whilst avoiding commenting in detail on the misconduct under investigation. It is crucial that communications are not made in the heat of the moment in order to avoid speculation or unintended admissions of guilt.
7. Building the picture: Documentation and Interviews
Identify and ring-fence sources of relevant documentation and media devices, such as, mobiles, tablets and laptops. Your IT department must advise on how to collate electronic data whilst preserving its integrity. Consider the application of the company’s data retention and destruction policies. Identify relevant employees who are able to provide further information and fill in the gaps in the document trail. Consider whether separate legal representation is appropriate and who should meet the costs of that representation.
8. Report findings
Agree how to report findings of the investigation, when and to whom. Avoid generating unnecessary documentation which could later be disclosed to third parties.
9. Cooperation with regulators or law enforcement agencies
The powers of the regulators and law enforcement agencies vary from country to country. Once law enforcement agencies are involved, there will be limitations on the steps that you can take and you will lose control over the investigation. Consider your obligations and appetite to share information found by the investigation team with the law enforcement agencies.
10. Dealing with the aftermath
Determine the most appropriate sanction for the employees in question: dismissal may be expected by external stakeholders. Devise and implement a remedial plan from the lessons learned: could there be improvements to your company policies and procedures? Can you identify training needs?
Be ready with your communications: internally, you will need to make it clear when the investigation is closed, what the key findings were and what the management team is doing to ensure no such issues arise again. Externally, you may need to report to shareholders and/or investors and be clear with the media as to the steps you are taking internally following the closure of the investigation.