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non-disclosure agreements lost their value | accountingweb

Have non-disclosure agreements lost their power?


Most accountants are familiar with non-disclosure agreements and many rely on them. But following scurrilous revelations we may find that some agreements are no longer worth the paper they’re written on.

9th Mar 2023
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I would be willing to bet that most accountants reading this column will have signed a non-disclosure agreement (NDA) or two in their time.

Speaking personally, I have been required to do so on a number of occasions as a representative of a firm, once or twice as a writer, and also as an employee.

I might be out of touch with the times but every time I did so, it was with a degree of trepidation, since I knew that, in doing so, I was making a commitment to abide by the terms of what was often a complex document with detailed conditions.

My concerns had nothing to do with any ethical guidelines. Instead, as a law-abiding accountant, I abide by a moral code and feel a degree of honour in operating as an upstanding professional. As a result, it would never have occurred to me to breach an NDA.

The same applies to just about everyone with whom I have ever worked in the profession. To quote the motto of the London Stock Exchange, for every accountant, “My word is my bond.”

Different approach

However, that is clearly an old-world way of thinking. To some extent, a new approach might not be wholly unreasonable, particularly in situations where individuals are bullied into signing NDAs as a means of shutting them up.

The most obvious recent cases might be where employees have been subject to sexual impropriety, for example the victims of Harvey Weinstein. For them, there might be a reasonable moral argument to suggest that the only way in which perpetrators might be caught is to share knowledge of their criminality.

One sincerely hopes that this kind of thing is a great rarity in the world of accountancy, although in reality accountants are human beings and therefore some will behave outrageously and unacceptably.

With that exception, it seemed until last week that most of us had a good understanding of the application and scope of non-disclosure agreements. Not any more.

I was genuinely shocked to wake up on Wednesday morning and discover that The Daily Telegraph has had privileged access to 100,000 supposedly private documents and, worse, planned to release a series of scurrilous stories as a result.

Breach of trust

For anyone who has been hibernating, the problem arose because a journalist has perpetrated one of the most egregious breaches of trust imaginable. She was recruited by former Health Secretary Matt Hancock to assist him in writing his diaries of the pandemic.

To be unfair to Mr Hancock, who does seem to be something of a masochist, this did look very much like a scam waiting to happen. If someone offers to carry out months of tedious work for no pay, then surely anyone with an ounce of nous would wonder where the payoff was coming from.

I leave it to you to decide whether Hancock was naïve, incredibly stupid or, since the two are not mutually exclusive, perhaps both. Who else would have chosen to get into bed (metaphorically, of course) with someone who had allegedly already sent a previous collaborator to prison by leaking a story?

Even so, after being made to look a fool over an affair during lockdown and skipping off to become a celebrity on a TV show Hancock might have thought twice before being scammed in this way. Perhaps he is actually auditioning for a new series of You’ve Been Framed?

It is worth reminding ourselves that in the good old days nothing relating to political policy was released until 30 years after the events in question and, even then, governments had the ability to redact or restrict releases.

Grave implications

The big question that we must all consider now is whether an NDA is worth the paper that it is written on. This could have grave implications for our own businesses and those of our clients.

Let’s take a few examples. If you want to get rid of the troublesome employee then it would be standard to include a clause preventing them from taking various actions or sharing information. Following the Hancock principle, the employee might just ignore the NDA and cause trouble.

Practically, they might risk losing some or all of their termination payment. These days, the legal costs of attempting to enforce the NDA might make that an ambition rather than reality.

There might also be difficulties if you were asked to advise a client on a takeover. In such a situation, it would be standard to sign documents confirming that nobody involved leaked any of the information provided confidentially. In the current climate, some prospective investors and their advisers may be ruled out before they even start, on the basis that they might be spying and would happily sign an NDA with the intention of breaching it.

The issue here might go further than agreements of this type. Once someone feels no compulsion to be constrained after signing one type of legally binding document, you have to wonder whether they might extend the principle more widely.

Breaches of contract might become the norm, especially where large corporations and rich individuals can afford lengthy court cases but those of whom they are taking advantage cannot.

The world might have changed overnight last week and certainly not for the better.

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paddle steamer
12th Mar 2023 21:23

Given the costs of litigation vast swathes of legal documents are not worth the paper upon which they are written, when executing them (leases/lease guarantees being two I do frequently) I know that the chances of us applying legal process to enforce is near nil.

At best they are maybe a deterrent of doubt that stops someone breaking the contract but that is it.

These days we tend to do short licences in house and take deposits, far more satisfactory, licences have less teeth than leases but it does not matter and we save a fortune on legal costs (The bigger longer lets do still get full leases but they tend to be with bigger entities with deeper pockets to sue if push comes to shove).

A business friend was the other day bemoaning losing some house sales as his contractor was vastly late with delivery of the finished houses and the purchasers had lost their offers of mortgage due to the delay, I asked tentatively if he would be legally enforcing the damages clauses in the standard building contract executed, he just laughed.

My father, a solicitor, told me many times, never litigate, I suspect that maxim holds even more true today than it did before his retirement back in 1985.

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