In August 2011, the controversial Dodd-Frank whistleblower rules took effect, raising concerns that the number of employees reporting corporate wrongdoing to the government, already growing as a result of the incentives under the False Claims Act and other statutes, would mushroom out of control.
While the Sarbanes-Oxley Act (SOX) encouraged whistleblowers to come forward by creating both civil and criminal retaliation enforcement regimes to protect those who report corporate fraud, the Dodd-Frank Wall Street Reform and Consumer Protection Act added a powerful incentive, offering whistleblowers between 10 percent and 30 percent of any recovery of more than $1 million in penalties.
Recent studies indicate that employees have a pretty low opinion of their employers when it comes to the issues involved in whistleblower complaints. According to the National Business Ethics Survey, which the Ethics Resource Center released in January, 13 percent of employees surveyed felt pressure to compromise standards, while 22 percent of those who reported misconduct said they were retaliated against. Thirty-four percent said their managers do not display ethical behavior.
How an employee report of misconduct is handled internally can shape whether the employee takes the next step to complain externally. SOX mandated anonymous reporting systems, so employee complaint hotlines have been in place for years. But studies show employees report the vast majority of complaints directly to frontline managers and supervisors, who may react defensively, turning off the employee or even creating retaliation liability.
Even the most robust plan for receiving and dealing with whistleblower complaints won’t stand up unless supervisors and managers are trained on the fine points of how to recognize protected activity and respond to a complaint. Experts recommend specific whistleblower training, in addition to any retaliation training the company may already have in place—“retaliation training on steroids,” as Pearlman dubs it.
If the government is using the carrot of money to attract whistleblowers, should companies fight fire with fire?
Once the whistleblower files a complaint with the SEC, a company often has to fight a two-front war, defending against the SEC charge as well as a potential retaliation claim from the whistleblower.