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NEDs & Trustees

NEDs and Trustees


The issue:

NEDs (Non-Executive Directors) are subject to duties and liabilities under various laws, such as the Companies Act 2006. Trustees (for example those who sit on Charity Boards) are also subject to duties and liabilities under laws such as the Trustee Act 2000 yet NEDs and Trustees have no employment rights, and are not currently covered by PIDA.

This is an issue because both NEDs and Trustees are in relatively senior positions within an organisation so may become aware of public interest wrongdoing and will want to raise concerns to fellow Board members. Yet, despite being in this unique position, NEDs and Trustees do not have whistleblowing protection. This may deter them from raising concerns, or mean that they have no remedy if they suffer victimisation for speaking up.

This is particularly concerning within the charity sector which has been hard hit by many whistleblowing scandals, including in the International Aid sector.

Trustees are responsible for the proper governance of charities, and may fulfil many of the duties and requirements of a worker.  The line between NED and worker becomes blurred when we consider the control, relationship and dependency to which a NED works but if they can’t speak up with legal protections, public interest wrongdoing will continue to take place, undiscovered.

Case study: Griffiths vs
Institution of Mechanical Engineers

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In Griffiths v Institution of Mechanical Engineers, Ms Griffith, a  Trustee of a charity (a professional body for engineers) brought a claim that she suffered detriment for whistleblowing.

Ms Griffiths argued Trustees should be covered by PIDA.

Ms Griffiths argued there was a breach of her human rights by being excluded from whistleblowing protection and she quoted the case of a judge, Claire Gilham, in the case Gilham v Ministry of JusticeJudges do not have a contract of employment as they are ‘appointed’ and ‘office holders’ rather than workers.

Using the same arguments as in Gilham Ms Griffiths said a lack of whistleblower protection breached her human rights (including Article 10 Freedom of Expression and Article 14 Protection from Discrimination of the European Court of Human Rights (ECHR))

The employment tribunal disagreed and found that she was not in a comparable position to someone in a workplace, for example a Judge presiding over a court. Ms Griffiths is now appealing this decision.

This case demonstrates that despite the Supreme Court’s decision in the Gilham case, employment tribunals are reluctant to apply the Gilham judgment to other office-holders such as NEDS and Trustees. This leaves both sets of workers without whistleblowing protection and means organisations can victimise them, without any fear of comeback.

Research: 

Volunteers and Trustees accounted for 37% of whistleblowing disclosures to the Charity Commission (CCEW) in September 2020. This is an increase on 2018-19, when the figure stood at 10%. The CCEW has said that it treats disclosures from volunteers and Trustees as whistleblowing because these groups do not have PIDA rights but still face similar risks when raising concerns. In addition, disclosures from volunteers and Trustees helps the CCEW to identify serious concerns within charities (see here).

The CCEW’s engagement with volunteers and Trustees in this way sets a positive tone across the sector that whistleblowing at all levels of a charity should be embraced and taken seriously.

Perhaps the most significant irony for charity Trustees is that the CCEW imposes upon them a positive obligation to speak up about serious incidents of wrongdoing in the charity. If they fail to do so, they risk regulatory action being taken by the CCEW yet, if they do speak up, they have no whistleblowing protection. This is, perhaps, the definition of a catch-22 situation. The remedy for this is easy: give Trustees whistleblowing protection.

NEDs and the Osipov case

In the case of Timis v Osipov the Court of Appeal decided that two NEDs could be held personally liable for their involvement in dismissing a whistleblower. Their role in treating Mr Osipov detrimentally meant they were liable to compensate him with £2 million.

This case demonstrates that NEDs can be held responsible for victimising a whistleblower, but they do not have whistleblowing protection themselves if they were to speak up about wrongdoing.

Research:

The financial services sector must appoint a non-executive director to act as a whistleblowing champion with responsibility for overseeing the implementation of systems and processes aimed at compliance with FCA rules. NEDs are expected to take an active role within whistleblowing arrangements in the FS industry, yet do not have whistleblowing protection themselves.

The Association of Certified Fraud Examiners’ Report to the Nations (2020) into occupational fraud found the most common form of detecting fraud was tip-offs from employees. This supports the idea that whistleblowers have key, insider information which is why they are valuable assets to an organisation. NEDs, by virtue of their position on a Board of directors, will also have insider information which they should feel confident in disclosing if it reveals some form of public interest wrongdoing.

Whistleblowing affects us all. Protect’s campaign Let’s Fix UK Whistleblowing Law needs your support. Click the banner below to write to your local MP.

Protect says

Trustees and NEDs occupy senior roles within an organisation so are well placed to speak up about wrongdoing- yet have no legal protection. Similar arguments apply to volunteers in the charity sector.

This can have a particularly poor effect on the charity sector where there has been an unfortunate history of scandals involving sexual exploitation and abuse. It can also have a negative impact in the corporate world where NEDs could witness concerns of fraud and corruption.

The law has found itself in a muddled position, which Protect’s draft whistleblowing bill proposals would correct by extending protection to Trustees and NEDs.

Trustees and NEDs need whistleblowing protection so that they feel more confident to speak up, and so employers recognise that they cannot victimise the whistleblower but should, instead, focus on resolving the concerns.