Given that, last year, the SEC awarded $30 million to one whistleblower alone, it looks like a pretty good gig. The previous year, the SEC awarded a whistleblower $14 million. That’s not too bad either.
But according to a recent white paper from The Network, a provider of ethics and compliance software and services, it “turns out that financial incentives are not actually the primary motivator for external reporting. New research from the University of North Carolina reports that the primary reason whistleblowers go outside the company is a fear of retaliation – not a desire to cash in on bounty programs. This supports earlier findings that monetary incentives are the least likely motivator of external reporting.”
Well, if not big bucks, aren’t whistleblowers just disgruntled employees out to get revenge? Not according to the paper: the data show that the “average reporter is likely to be an actively engaged, well-performing employee, most likely a supervisor or higher-level manager.” In addition, one in five whistleblowers is not even an employee, but instead is a consultant or contractor to the company.
The paper indicates that 92% of whistleblowers first report misconduct internally; only 20% ever disclose their concerns outside the company and only 9% report to the government. What would trigger external reporting? A substantial monetary reward would motivate only 43% of whistleblowers. However, 65% would report externally if the company didn’t do anything with the internal report, rising to 70% if problem were ongoing. And, if harm could result from keeping quiet or a significant enough criminal act were involved, the numbers climb even higher.
According to the paper, employer retaliation is a major factor in driving employees to governmental authorities. Reportedly, one in five whistleblowers experienced retaliation after internally reporting misconduct. The paper contends that retaliation also “sends a powerful message to other employees,” and that “just over 1 in 3 employees who declined to report a problem pointed to a fear of payback from senior leadership as the primary reason they stayed out of things. The net result? Far from discouraging whistleblowing, retaliation drives employees into the arms of investigators….” Notably, both the SEC and the Second circuit Court of Appeals take the position that Dodd-Frank’s whistleblower protections apply to employees who report violations only internally; it is not required that report violations to the SEC. (See this PubCo post .)
What does the paper suggest? Embrace your whistleblowers: “encouraging a speak-up culture (and ensuring it permeates your extended enterprise) is the most effective way to manage potential whistleblower liability – and the one factor entirely within your control. A strong reporting culture will not only make sure you learn about potential problems, studies show it will actually lead to a decline in misconduct.” In addition to the proverbial admonition to maintain an ethical tone at the top, the paper contends that it is critical to provide tools and training to middle managers: “[w]hile nearly 70% of employees will report an incident to their direct supervisor, only 58% of managers feel prepared to handle employee reports of misconduct.” The paper makes three specific suggestions regarding training of middle managers:
- Provide training on the code of conduct and other critical risk areas so that they can identify the importance of the issue being reported.
- Educate middle managers on how to report an issue brought to them by an employee, including the use of hotline and web-based reporting mechanisms.
- Train middle managers how to have “ethics- and compliance-related conversations.” They need to “know how or what to document, who to give it to and what kind of incident reports meet your escalation criteria.”
All managers, the paper advises, should also be trained about retaliation – what it is, why it has negative consequences and how to avoid it.
In addition to emphasizing and communicating the value the company places on acting ethically in the workplace, companies are advised to create and publicize high-quality hotline reporting programs that provide employees and others with a “safe and reliable” way to report their concerns internally. Companies should publicize the hotline and familiarize employees with the process that follows when a report is filed. Companies also need to act on the actionable reports: almost “60% of those who did not report cited a belief that the employer would not act on their concerns as reason for not reporting, while more than 80% of employees who called the hotline reported a belief that the employer would act as their reason for calling.”