My brother used to work for a firm in employment law.A customer had become suspicious of a couple of his employees so decided to covertly record their conversations.
He contacted my brother in a bit of a state; the two guys were planning on killing him in order to take over the company themselves.
He wasn't sure whether he could sack them because of his covert recording.
My brothers company told him to sack their fucking arses immediately.
A recording would be beneficial to protect himself should anyone else attempt to shaft him. He doesn't have to use it aggressively, only as a means of defence.
A rock and a hard place here for manc, as if senior chaps find out some serious stuff been going on and that manc knew about it and did nothing they may be unimpressed.
Manc- you said the other manager is OK but wants to let sleeping dogs lie, but you don't sound convinced.
Not sure if you completely trust the fella, but as others have said do what you think you need to, to protect your own ass.