Developing an Effective Whistleblowing Program
Does a strong workplace ethic that promotes whistleblowing enhance the moral actions by corporations? Yes, is the short answer. As we found out during the frauds at companies like Enron and WorldCom, as well as the financial recession, corrupt organizations can only be stopped through whistleblowing. Cynthia Cooper is a case in point in the WorldCom fraud. She blew the whistle first to the audit committee and then to the outside auditors and, eventually, was successful in stopping the fraud.
The public has become fed up with corporate wrongdoing and top executives skirting responsibility for their unethical, sometimes fraudulent actions. The Dodd-Frank Financial Reform Act that was passed by Congress in 2010 in light of these frauds now includes a whistleblowing program to head off corporate fraud.
I have previously blogged about the benefits of a strong whistleblower program and ethical culture. But, we should take notice that whistleblowing to an external entity, such as the media or government agency such as the SEC, has been a hazardous activity, both for the individual and the organization. The ambivalent attitude toward whistleblowers ensures that, even with legal protection, they may face retaliation in subtle ways: being shunned by co-workers, being closely supervised, or just feeling alienated.
So, the question is, “How do organizations encourage internal whistleblowing – that is, to an authority within the organization – to preclude external whistleblowing and the resulting damage to an organization? Lilanthi Ravishanker, writing for the Markkula Center for Applied Ethics, identifies the objectives of internal whistleblowing as follows:
- To encourage employees to bring ethical and legal violations they are aware of to an internal authority so that action can be taken immediately to resolve the problem
- To minimize the organization's exposure to the damage that can occur when employees circumvent internal mechanisms
- To let employees know the organization is serious about adherence to codes of conduct
The barriers to a successful internal whistleblowing program are:
- A lack of trust in the internal system
- Unwillingness of employees to be "snitches"
- Misguided union solidarity
- Belief that management is not held to the same standard
- Fear of retaliation
- Fear of alienation from peers
Do would-be whistleblowers always have altruistic motives? Of course not. A whistleblower may be retaliating against a supervisor with false accusations. Dodd-Frank may encourage a whistleblower to come forward in the hope of qualifying for a monetary award. What if whistleblowers participated in the very actions they are now exposing, perhaps as a means of escaping the consequences of their participation? What if there is reason to suspect a whistleblower is targeting a specific employee because of his or her race, gender, or ethnicity? These are just a few of the issues to be considered in creating a whistleblowing culture.
A key element of a successful whistle-blowing program is a clear connection between an organization's code of ethics and performance measures. For example, in the performance review process, employees can be held accountable not only for meeting their goals and objectives but also for doing so in accordance with the stated values or business standards of the company.
In the end a successful whistleblowing program depends on having the right leaders in place. An organization takes its cues from the quality of leadership and commitment to ethical values. Top management, starting with the CEO, should demonstrate a strong commitment to encouraging whistleblowing. This message must be communicated by line managers at all levels, who are trained continuously in creating an open-door policy regarding employee complaints.
It should be noted that the SEC has begun to award whistleblowers under Dodd-Frank. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of recoveries when amounts collected are more than $1 million. Last year, the SEC received a record a record 4,000 tips.
Last week the SEC said it paid almost $2 million to three whistleblowers. The biggest award to date in 2015 -- about $1.8 million -- went to one of the whistleblowers. The biggest award in 2014 was more than $30 million. A 2013 award topped $14 million.
Sean McKessy, chief of the SEC’s Office of the Whistleblower, said last week: “We’re seeing a significant uptick in whistleblower tips over prior years, and we believe that’s attributable to increased public awareness of our program and the tens of millions of dollars we’ve paid to whistleblowers for information that helped us bring successful enforcement actions."
Critics contend whistleblowers may be motivated to gather negative information about a company and its actions in order to qualify for an award. That may be so but the SEC process serves as a check on such motivation. Moreover, the fact that employees may be so inclined is one more reason why effective internal mechanisms are so important and why establishing an ethical corporate culture is so critical.
Blog posted by Dr. Steven Mintz, aka Ethics Sage, on March 31, 2016. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.