Do Businesses Have an Ethical Obligation To Be Eco-Friendly?

WHY GEN Z IS LEAST LIKELY TO REPORT WORKPLACE MISCONDUCT

THE IMPORTANCE OF WHISTLEBLOWING POLICIES

In a recent study by Ethisphere it was stated that younger workers are more willing to report workplace misbehavior than workers from other generations, yet they are less likely to report it. The reason given is that they lack the confidence in their employer’s anti-retaliation policies. In other words, they fear that by whistleblowing they may fall prey to the "kill the messenger syndrome," whereby the reporting employee may be blamed for reporting something that the organization would rather not know about, and that which can upset the apple cart. 

ETHISPHERE INSTITUTE

The nonprofit Ethisphere Institute released its annual Ethical Culture Report, which covers ethical trends in workplace environments. One of the most significant insights is the reasons Gen Z workers (25 years old and younger) are reluctant to report wrongdoing, and why employers’ whistleblowing practices do not seem to work.

According to the survey, 38.9% of Gen Z respondents said they did not report misconduct when they observed it, despite their professed willingness to report it. This finding compares with 31.8% of millennials who did not report observed misconduct and 27.6% of both Gen Xers and baby boomers.

Participants were responding to the question: “When you saw misconduct, did you report it?” Notably, the survey found that a good percentage of respondents from each age group declined to answer the question at all, so it’s hard to get a completely full picture according to the report. However, Gen Z was also the age group that was least likely to answer “yes” to the question of whether they reported workplace misconduct: 43.6%, compared with 45.5% of millennials, 53.5% of Gen Xers, and 50.3% of boomers.

Of the misconduct that respondents reported post-pandemic, harassment or discrimination was the most widely reported, followed by bullying, which was the type of misconduct that increased most pre-to-post-pandemic. Retaliation, fair employment practices, and conflicts of interest round out the top five most-reported types of misconduct.

Specifically for Gen Z:

  • 55.5% of respondents who witnessed workplace misconduct said they did not report it because they didn’t believe corrective action would be taken.
  • 47.1% said they worried about retaliation for reporting misconduct.
  • 41.2% said they feared they wouldn’t remain anonymous after reporting.
  • 40.1% said they didn’t feel comfortable reporting on employees who were senior to them.
  • 21.0% said they were afraid that reporting misconduct would hurt their team members.

According to the report’s authors, organizations must do more to show younger employees that they can trust their company. 

WHISTLEBLOWING RESULTS

These results are of great concern because the Occupational Fraud 2022: Report to the Nations issued by the Association of Certified Fraud Examiners (ACFE) clearly shows the importance of reporting wrongdoing by employees. Here are a few of those results:

  • Occupational fraud initially detected by tip (42%), which is almost three times the next most common way to report it by internal audit (16%).
  • Reporting the fraud by employees (55%), which is three-times the next most common group to report it by customer (18%).
  • The length of duration of the fraud before it was reported by tip (12 months).
  • The median loss in those cases where a tip was used to report ($117,000).
  • The internal controls used to prevent and detect fraud include:
    • External audit of financial statements (82%)                                            
    • Code of conduct (82%)                                                                                   
    • Internal audit department (77%)                                                                 
    • Management certification of financial statements (74%)                        
    • External audit of internal controls over financial reporting (71%)        
    • Hotline (70%)
    • ----------------------------------------------------------------------
    •  Rewards for whistleblowers (15%)                                                                             

The fact that rewards for whistleblowers is the least common anti-fraud control at 15% raises serious questions whether organizations value whistleblowers and have in place policies to protect those who report wrongdoing. It has been said that if you want a certain outcome, reward it. Organizations need to take this to heart. Whistleblowing

Organizations need to revisit their whistleblower policies; incentivize it; have a clear line to report it; provide for anonymous reporting; and have in place anti-retaliation practices. It is in the best interests of the organization to report fraud and stop it in its tracks.    

One way to enhance whistleblower policies is to provide an outlet for anonymous reporting. According to the ACFE survey, organizations with hotlines had a median loss of $100,000 and it took 12 months to report the wrongdoing. In organizations without a hotline, it took 18 months to report with a median loss of $200,000. These results speak from themselves with respect to the importance of having a hotline.

DODD-FRANK FINANCIAL REFORM ACT

In 2010, Congress passed a whistleblower’s protection and reward legislation in the aftermath of the 2008 financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) has many provisions to deal with financial fraud and whistleblowing. For starters, the information must be provided to the SEC on a voluntary basis and not otherwise available to the Commission. It should be noted that the SEC protects whistleblowers, who meet certain criteria, from retaliation under the Sarbanes-Oxley Act.

Under Section 922 of the Dodd-Frank Act, the award for whistleblowers (who meet certain criteria) is “not less than 10 percent and not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the section. Critics claim the award incentivizes whistleblowing and provides a bounty hunter’s payment for disclosing the relevant information to the SEC. This raises the question: Is it ethical to provide financial incentives to motivate employees to come forward and report financial wrongdoing? One way to look at it is whether a different approach would achieve the same results.

One major concern with Dodd-Frank is that it may cause would-be whistleblowers to go external with the information rather than internally using the organization’s prescribed reporting mechanisms. The disclosure of confidential information about clients raises questions about a possible violation of professional codes of conduct and state privilege laws. The external disclosure of confidential information can, under certain circumstances, be treated as an exception to those laws if disclosure is linked to compliance with other laws and government regulations, which include Dodd-Frank.

In summary, I believe that once the internal reporting process has played out and nothing has been done to correct for the wrongdoing, whistleblowing is the proper (ethical) course of action, especially if it is the only way for the public to know. An employee should not fall victim to the "bystander effect" and assume others will report it. Along with knowledge comes the responsibility to correct wrongdoings, which is in the best long-term interests of the organization.

Blog posted by Dr. Steven Mintz, The Ethics Sage, on January 17, 2023. You can sign up for Steve’s newsletter and learn more about his activities on his website  (https://www.stevenmintzethics.com/) and by following him on Facebook at: https://www.facebook.com/StevenMintzEthics and on Twitter at: https://twitter.com/ethicssage.

Comments