The State of Whistleblowers

We all try to ignore issues that are too difficult to address.  It is human nature.  Sometimes it gets so bad that we have to put “our head in the sand.”

Companies have to address the risk created by whistleblowers.  All too often, companies mouth the right words but take no real actions to demonstrate their commitment to responding to whistleblowers.

Chief Compliance Officers have pushed companies to establish whistleblower policies and statements of non-retaliation.  Unfortunately, an attitude of non-retaliation means very little when it just exists on paper.

Last month, the SEC released its annual report on its whistleblower program.  A copy of the report is here.  There was one important – and overriding – fact in the report.  Eighty percent – yes, 80 percent – of all whistleblowers who received awards reported their complaints internally before deciding to report to the SEC.

All the compliance experts are now nodding their heads (assuming they have read this far in my posting).  Of course, they mutter to themselves – whistleblowers always want to report internally and then out of frustration turn to the SEC to roll the dice.

This confirms what we always say – a whistleblower is more interested in fixing a problem, receiving some kind of corporate acknowledgement rather than being ostracized or even worse – retaliated against.

CCOs have to take this fact to heart and redouble their efforts.  Whistleblower reports to the SEC can be reduced if companies make a serious effort to create a speak-up culture, respond to whistleblower concerns and fix the problems that may be raised.  If they do not follow this course, companies will face potential government investigations, legal fees and the risk of an enforcement action.  If the company retaliates against the whistleblower, all bets are off as to the impact that this course of action will have on the company’s future.

Companies have to recognize that whistleblowers can provide a valuable function.  Of course, not all whistleblowers are so friendly; some are out for themselves, have raised issues of dubious concern and may be motivated by money.  Not everyone is pure in this world, and not every company is a bad actor.

The SEC report contained some other interesting facts – only a small percentage (just less than five percent) of whistleblower complaints relate to foreign bribery.  Most deal with financial fraud, accounting problems and potential misleading statements made in marketing, placement and promotional materials.

One other significant theme from the SEC Whistleblower report: whistleblowers are here to stay.  The first three years of the program have seen an increase in whistleblower complaints.  Whistleblower complaints increased by 9 percent from 2013 to 2014.  That is expected to increase even further.  With whistleblower attorneys on the Internet, more whistleblowers will secure the guidance of counsel and increase reporting against company malfeasance.

In this context, companies have to speak with commitment – when companies adopt a non-retaliation policy, they have to communicate and reiterate this policy at every step of the complaint process.  Companies also have to mean what they say – if someone is suspected of retaliation, they have to investigate and punish the activity, keeping in mind that retaliation can occur in subtle ways.

A company that is truly committed to its whistleblower policy can navigate these risks.  A company that mouths the words or hides its head in the sand is just delaying the inevitable controversy.