Whistleblowers need to be supported – Michael Woodford

The value for having a clear set of procedures and contacts for dealing with whistleblowers is the subject of the closing keynote speech by Michael Woodford MBE at this year’s AIRMIC conference in Birmingham.

Woodford, a former CEO of Olympus, made the headlines in 2011 when he exposed explosive financial irregularities at the firm.

Just after taking up his appointment as President and CEO, he discovered that hundreds of millions of dollars had been transferred to mysterious accounts, many in the Cayman Islands tax haven.

When he brought it to the attention of his Chairman and board, and informed a contact at the Financial Times, he was instantly sacked. Told that he should fear for his safety, he returned to London and briefed the Serious Fraud Office, setting in train a series of investigations which would involve the SFO, the FBI and the Toyko Police.

The scale of fraud is estimated to be $1.7 billion, over 20 years. Keen to right the wrongs, Woodford also offered to return to Olympus, but was rejected by shareholders. The Olympus tale takes in the Yakuza crime syndicate and Japanese concepts of loyalty and reputation. More importantly for Western business audiences, it gets to the heart of what is and what is not ethical capitalism.

Woodford told Intelligent Insurer that the main message he wants his AIRMIC audience to take from his talk is an understanding of human behaviours and the need this creates for clear procedures for dealing with issues raised by whistleblowers.

“I thought I was a good judge of people’s strengths and personalities and I got it gloriously wrong,” he said. For Woodford the greatest shock was not so much the fraud itself but the way in which innocent members of the company, some of whom had helped him expose the fraud, distanced themselves from him when he was sacked.

“These were people I had known for 30 years – there are photographs in the family album of some of them holding my children as babies in their arms,” he said. “They were very close and deep relations and had helped me to expose the fraud. They knew it wasn’t a board room power play because I was already the president and CEO

“But to everyone’s surprise when I got fired by the board they moved away almost within an hour and wouldn’t return phone calls or make any contact of any kind.”

He said the experience taught him some important lessons about human nature and the way people act: while most people don’t commit crimes, they equally don’t want to get involved when bad things happen, and will do everything they can to avoid it.

“I hope to give the audience an insight that I certainly didn’t have until I’d lived through this,” he said. “You can have as much grand rhetoric about trust and honesty and transparency and open cultures and all of that, but to me most of it is utterly meaningless: you have to have systems in place, be it vigorous forensic audit whistleblowing lines and hard mechanisms rather than just the soft talk that often goes on where people think they can change cultures or prevent these things from happening by simply words - and you can’t.”

He said it is important for risk managers to have a good understanding of human nature, and to ensure the correct systems are in place, including an internal and external audit.

“When I started out in business the external audit was very micro, now it’s all very high level,” he said. “You can if you want enhance that by asking your external auditor to carry out a more forensic approach.”

Woodford will also be emphasising the importance of the provision of whistleblowing facilities in a large corporation.

“If you’re in an organization in the public or private sector and you think that something bad is happening and you don’t trust your boss or your boss’ boss, what do you do? Where do you go? It’s certainly not easy to go to the media.

“I was fortunate in that I was the president of a corporation of 40,000 people, I was a westerner in Japan, it was one of the largest companies in Japan – I could get media attention. I’d been at a senior level for a number of years, I had the financial resources for the attrition that comes if you’re taking a large organisation on.”

He said that the law enforcement and regulation authorities of some sectors are improving - for example the financial conduct authority, has a whistleblowing service. However, other services have not kept pace.

“There are lots of difficulties in any type of reporting to an external organisation and if you can do it internally, all the better - but most organizations do not have a whistleblowing process that is independent of the executive,” he said. He believes that a non-executive director should be responsible for the oversight and administration of the whistleblowing facility within a company.

He added that recent revelations from Chelsea Manning and Edward Snowden highlight the need to approach whistleblowing differently. He has worked with the Whistleblowing Commission to produce a comprehensive review of whistleblowing policies and practices which calls upon the Secretary of State to issue a Code of Practice to be adopted in all UK workplaces

“From my perspective, the recent scandals and tragedies which have unfolded across a range of sectors, and have so appalled the public, revealed a dangerous culture of silence,” he said. “The recommendations in our report seek to eliminate poor cultures and attitudes that discourage whistleblowing.

“The role of myself and my fellow commissioners was to provide the first in-depth review of current legislation and recommend how we can make it more likely that serious malpractice is brought to light and those who speak up are encouraged and protected, not condemned or silenced. In this respect, the report highlights the need for a Code of Practice setting out principles enabling workers to raise concerns about a danger, risk or malpractice without the fear of adverse consequences.

“After experiencing my life spiralling out of control, with the fear of losing everything, my motivation now is simply a desire to share the lessons of the Olympus scandal as widely as I possibly can, and in doing so to make people think and hopefully make it a little easier for the next person who needs to blow the whistle.”