Q: In 2011, when the SEC finally adopted Dodd-Frank’s whistleblower reward provisions, there was concern that those incentives would encourage individuals to forego internal reporting mechanisms. Has that happened?
A: At that time, we recommended that public companies revisit their own whistleblower policies and implement directed employee communication initiatives to minimize the likelihood that employees would utilize the SEC’s new whistleblower process. Many public companies did exactly that, and it appears that their efforts paid off. The Ethics Resource Center (ERC), an independent research institute, reported recently that, based on its research, employees “almost always make some effort to report wrongdoing internally before going outside the company with their concerns.” Some interesting ERC observations are that:
- Employees generally turn to the government where the violation is substantial and the company has been slow to respond, rather than as a first resort or in an effort to fabricate a financial windfall.
- Slightly over half of those who reported internally did so by approaching a superior that they knew and trusted, rather than using a more formal process.
- Not surprisingly, letting employees know that their reports are of value to the company (through a note of thanks or in a performance review) led to better internal reporting of wrongdoing, as did the existence of an internal hotline and the absence of fear over retaliation.
The moral is that effective internal policies and employee communication, plus a corporate culture of ethical conduct, really do make a difference.
Related: The SEC’s New Whistleblower Rules: Now What? (Public Company Forum, Summer 2011)
Additional Articles from the Fall 2012 Public Company Forum:
Doug's Note: In this Issue...
The National Labor Relations Board Weighs in on Social Media Policies and Facebook Firings
Is It Proxy Season Already?
Between a Rock and a Hard Place: Conflict Minerals Compliance