In-house counsel should prepare for corporate misconduct amid pandemic crisis: Torys report

Corporate misconduct is a growing concern for in-house counsel as businesses are facing unique pressure due to economic and workplace upheaval resulting from the COVID-19 pandemic.

A report published by Torys LLP outlines some of the issues that business leaders should watch out for and offers advice for mitigating against misconduct in a vastly different workplace.

“When you look at economic and societal crises, each one has been accompanied by various sorts of misconduct,” says Lisa Talbot, partner at Torys LLP and co-author of the report. Intense pressure on employees in the form of anxiety about the COVID-19 virus, financial strain and the pressure of working from home and juggling childcare and elder care all combine to increase the risk of misconduct and fraud, according to Talbot.

Misconduct can range from entering a false expense report or inflating financial reporting to artificially meet targets, to false claims of fund-raising for COVID-related research. Talbot also expects to see a spike in claims related to harassment and bullying, arising from fear during the crisis. Taking positive action is key for business leaders.

“It is more important than ever for leaders to set a strong compliance culture and to set an exemplary tone from the top to make sure that ethics and the value of the business are really enforced in all the decision-making, and not to make exceptions,” says Talbot. 

Internal whistleblowing channels should also be maintained during times of crisis, according to John Fabello, partner at Torys and co-author of the report.

“I would encourage in-house counsel to avoid cutting costs on internal controls because if misconduct goes unchecked, the damage that can occur far outstrips savings,” says Fabello.

He also advises against delaying investigations during the pandemic, even if this means conducting a virtual investigation or modifying protocols to allow for social distancing.

“If you don’t follow through with normal protocols and procedures, there is a chance in this environment of significant misconduct going unchecked,” warns Fabello.

The report states that every investigation should consider all potential sources of liability, including regulatory breach and sanction, civil claims by shareholders, class action risk and employee claims.

“This is particularly important during the pandemic, as businesses are managing a broad array of risks in rapidly shifting regulatory and litigation environments,” states the report.

Talbot adds that maintaining employee mental health should be first and foremost because healthy employees make better decisions and are less likely to attempt misconduct.

Fabello and Talbot recently launched a multidisciplinary white collar defence and investigations team which aims to bring together expertise from Torys’ financial services, competition, tax, employment, privacy and environmental practices.