Workplace culture and the tightening of legal regulation

In February 2022, the SRA published its Workplace Culture Thematic Review which sets out the SRA’s expectations in terms of workplace culture within law firms. The focus is on supporting employees’ wellbeing in the workplace by setting standards that apply to law firms and those responsible for a law firm’s culture and the systems in place within them. The SRA considers that this is essential for the delivery of competent and ethical legal services.

The review was closely followed by the SRA launching a new consultation on rule changes concerning health and wellbeing at work. The proposals aimed to ensure that regulated workplaces treat colleagues with dignity and respect and if that didn’t happen, the SRA proposed to put in place additional regulatory powers to deal with firms and individuals in order to protect clients and the public.

Both the review and consultation raise issues regarding the role that the SRA can play in improving firm culture and whether some of the proposed changes simply serve to create additional regulatory burdens on firms and individuals.

Background

The SRA began its review after receiving complaints that some firms have unsupportive, bullying or toxic working environments. The concern for the SRA is that this type of environment can significantly impact the wellbeing and mental health of a firm’s staff which can lead to mistakes and poor outcomes for clients or serious ethical concerns, for example when staff feel under pressure to cover up problems.

Indeed, in recent years, there have been high-profile SDT cases where solicitors have committed acts of dishonesty usually in an attempt to cover up errors. Those solicitors have complained about unsupportive and toxic workplace cultures which left them feeling unable to confess to the mistakes. In the majority of these cases, the solicitors were struck off while the firms themselves were not sanctioned. The SRA has been criticised for this.

The SRA’s thematic review on workplace culture

In its review the SRA considered how firms can create a positive culture in the workplace “where employees feel supported, risks are managed, and clients are protected” and provided examples of policies and working practices which can achieve this. The recommended strategies and actions include creating a wellbeing strategy, focussing on recognition and reward, engaging with colleagues, defining a firm’s culture and creating a safe environment to raise issues and concerns.

The guidance accompanying the review makes clear that a firm should do everything it reasonably can to look after its staff’s wellbeing in the workplace; to protect staff from bullying, harassment, discrimination and victimisation, while supporting its staff so they can work safely and effectively. This includes:

• having effective systems and controls to supervise staff, and monitor concerns which may affect their wellbeing and competence;
• providing a safe environment for employees to raise concerns and addressing them promptly and in a constructive manner;
• treating staff with dignity and respect to create an ethical workplace and engaged employees that create a better client experience; and
• having in place and implementing policies on bullying, harassment, discrimination and victimisation as well as disciplinary procedures for breach of those policies.

A failure to do so may of course involve breaches of equalities legislation or employment law, or health and safety legislation. However, such a failure may also lead to breaches by the firm of the SRA’s regulatory requirements (for example, as set out in the Code of Conduct for Firms).

The SRA’s consultation

The SRA’s consultation closed at the end of May 2022. Its aim was to clarify the regulatory requirements for solicitors and firms in the areas of health and fitness to practise and the appropriate treatment of work colleagues. The consultation resulted in the publication of an SRA board paper which reports on the outcome of the consultation and recommends changes which intend to strengthen the SRA’s regulatory position and ability to take action on these issues. The SRA board has now confirmed that it will press ahead with a new rule placing regulatory obligations on firms and managers to challenge colleagues who treat others unfairly or without respect. A new standard in section 1 of the Code of Conduct for Solicitors has been approved: “[y]ou treat colleagues fairly and with respect. You do not bully or harass them or discriminate unfairly against them. If you are a manager you challenge behaviour that does not meet this standard.” There is a similar provision for the Code of Conduct for Firms.

In addition, the following will be added to the introductions of the codes: “[c]onduct does not need to take place in a workplace in order to relate to your practice – these requirements capture conduct which touches realistically upon your practice of the profession, in a way that is demonstrably relevant”. The new rules will therefore apply to behaviour away from the workplace.

What the above means for firms

Failure to address toxicity is not without its consequences for firms. Evidence suggests that a negative company culture not only has implications for individual wellbeing but can also translate into poor ethical behaviour and a lack of competence. This can, in turn, negatively impact the standard of service received by clients.

But firms themselves also stand to benefit from the adoption of a more positive workplace culture. As the review outlines, happier employees have been shown to generate lower staff turnover, thereby reducing recruitment costs, and helping to attract new talent, fuelling business growth.

At the same time, an environment that empowers employees to come forward and admit mistakes means that any errors can be dealt with, protecting firms from claims. It can also significantly streamline the process of professional indemnity renewals, which are increasingly asking questions about culture.

Happier and more productive employees can also deliver a better client experience. This can lead to the creation of a ‘virtuous circle’, in which firms are able to reap the rewards in the form of new business.

Clients themselves are also placing a greater emphasis on culture, with underperformance in this regard increasingly viewed as a reputational risk. A positive culture can therefore prove a useful differentiator within a competitive market.

Obstacles to change

The shift to a more positive workplace culture presents several opportunities for firms but achieving this comes with challenges. For instance, although firms may refer to a single company culture, the likely reality is more complex, with tens or hundreds of micro-cultures existing across various departments and teams. Such cultures may have a detrimental effect, creating patterns of toxicity that go unnoticed by those at the senior level. But they also hinder the ability of those firms to instigate wholescale change.

At the same time, many firms will still feel bound by the realities of legal life, including the pressure of commercial performance. Without buy-in from across the legal sector, ingrained habits may be difficult to break.

The emergence of remote working also poses a new challenge for firms, who must juggle their employees’ growing appetite for workplace freedom and flexibility, with the pressures of isolation that often typify remote work. A careful balancing act is thus required to cement company culture while also respecting employees’ preferences.

There are also questions about the review itself. It is not yet clear how far the SRA will go to enforce a positive workplace culture. By drawing a closer association between people and compliance risks, the review also asks fresh questions of firms’ working procedures. In future, this may require human resources teams to work more closely with their compliance and risk counterparts to prevent and resolve issues.

All this points to one of the biggest challenges facing firms: how to demonstrate a positive working culture? Here, one option for firms is to codify elements of their culture into a strict ethical code. This may reassure employees, seeking to raise grievances, that their concerns will be heard.

But even a tangible set of principles cannot guarantee engagement and uptake among employees. Mandatory training, with proper monitoring and escalation procedures, or completion linked to the receipt of workplace benefits, may offer another way forward.

SRA’s thematic review on in-house solicitors

On 14 March 2023 the SRA published its latest thematic review on in-house solicitors. In summary, the review concludes that, whilst facing challenges, the in-house sector is bearing up well and poses a relatively low ethical risk. Leaders in the in-house community have published a response which welcomes the SRA’s focus on the sector but sets out extreme concerns with the findings and conclusions reached. They consider that the review “understates the severity of the risks present in the in-house environment and misinterprets or is inadequate in its conclusions as to their cause”. The response calls for the SRA to: (i) acknowledge and prioritise the seriousness of the risks and challenges in the in-house environment; and (ii) provide practical and regulatory support to address the risks.

Comment

The reviews and the consultation represent a significant shift in thinking with regards to workplace culture in the legal sector. However, these aren’t the only signs of movement across the regulatory landscape. The SRA has also recently increased its fining powers against firms that do not meet professional standards by more than 12 times the previous limit, in what is another reflection of increased scrutiny of legal firms. Meanwhile, the Legal Services Board is also conducting its own review into ongoing competence and standards, examining whether the current approaches taken by regulators are effective in protecting consumers and the public interest.

Law firms will need to ensure they have policies and procedures in place to address and demonstrate compliance in this area. Mandatory training, with proper monitoring and escalation procedures, should also be considered.