Board oversight of whistleblower program effectiveness should be informed by several recent developments.
One such development was the November 14 Harvard Business Review article, “Research: Whistleblowers Are A Sign of Healthy Companies.” This article, summarizing research conducted by the authors, argues that material whistleblower activity is “crucial to keeping firms healthy, and that functioning internal hotlines are of paramount importance to business goals including profitability.” It refutes the suggestion, posited by some, that higher whistleblower activity is an indication of internal control weakness. The survey indicated that healthy whistleblower programs result in reduced exposure to litigation and costly settlements.
Another development—from the “Ghosn controversy” is media reports indicating that it was not the operation of any internal controls, but rather an internal complaint alleging a series of financial improprieties, that prompted the Nissan board’s investigation of Mr. Ghosn. Indeed, Nissan reportedly had revised its whistleblower program shortly before this controversy arose.
Whistleblower mechanisms, as a component of effective legal compliance programs, are grounded in provisions of the Sarbanes-Oxley Act, the Federal Sentencing Guidelines, and in DOJ principles of prosecution of business corporations. It is essential that senior corporate leadership demonstrate the appropriate “Tone at the Top” with respect to evidencing support for effective whistleblower programs. As the HBR article suggests, executive goals associated with reducing the number of whistleblower reports—while perhaps well intentioned—may ultimately be counterproductive.