If you didn’t watch the game this past Sunday, you probably heard about it. The Patriots pulled off the greatest comeback in Super Bowl history. I am not about to rehash a discussion about the Super Bowl, but I do want to talk about the whistleblowers—the referee and other officials who make sure everyone follows the rules of the game. The crew officiating this year’s Super Bowl received an “A” for a job well done.[1]
The term “whistleblower” has made its way into the business lexicon to mean someone who reports wrongdoing to others. It has a more positive connotation than some of its synonyms like informer, snitch, or tattletale. However, just as tattletales are viewed negatively, whistleblowers are usually not considered to be the heroes in their stories. The United States is trying to change this with the Dodd-Frank Whistleblowing Program. This program has been in place for just over five years and has grown every year since its inception in 2011. The following are some key takeaways from the Securities and Exchange Commission’s 2016 Annual Report to the United States Congress: [2]
- The number of tips received has increased by over 40%, and the 4,218 tips received in FY2016 was an increase of 7.5% over the prior year. I find it interesting that the number of tips received is MUCH larger than the number of whistleblower reward recipients.
- The awarded amounts this past year totaled over $57 million and were the highest ever. They were higher than all the previous years combined. There were 13 awards of which six made the top 10 highest awards ever awarded. The number and amount of the rewards will probably continue to increase as more people see the success of this program.
- Most of the award recipients were current or former employees of the organization for which they were reporting. However, there could be outsiders who are performing independent analysis with publicly available information. The following are some additional details related to the award recipients:
- Almost 60% of the recipients provided information for the SEC to open new investigations, while 40% provided information that helped an ongoing investigation. It is nice to see that more than half of the rewards were based on new investigations that the SEC didn’t know about and probably would not have discovered for many years, if ever.
- Almost 65% of the recipients were insiders, which is a growing number from the prior year when insiders made up 50% of the whistleblowers. This trend will probably continue because the insiders are the ones with the best information to help the SEC.
- Of the insiders (former and current employees), approximately 80% raised their issues internally to a supervisor or compliance personnel or believed that their supervisor or compliance personnel knew of the issues. This is sad to me, but it doesn’t shock me at all. This is an area where most, if not all, companies can spend more time training employees about providing tips and maintaining an effective hotline to capture tips.
- More than half of the whistleblowers were represented by counsel, which is not a requirement of the program. Almost 25% of these whistleblowers represented by counsel remained anonymous. These facts show that effective hotlines should have a way for people to report concerns anonymously.
- Finally, the SEC ramped up its efforts to enforce the anti-retaliation protections associated with the whistleblower program during the second half of 2016. These protections will continue to be an important focus area for the SEC. This is significant and companies should be prepared to enhance processes and controls to mitigate this risk in at least two ways: 1) agreements between employees and the organization (e.g., confidentiality agreements, separation agreements) should not restrict an employee’s ability to communicate directly with the SEC,[3] and 2) avoid possible retaliation against a whistleblower related to their employment (e.g., termination, demotion, not promoting) because of their whistleblowing activities.[4] Ignoring these risks could expose your organization to monetary and other penalties imposed by the SEC.
Now, imagine a world without whistleblowers. There would probably be plenty of cheating by the players and coaches at the Super Bowl, and that’s probably why these whistleblowers are viewed, for the most part, as a necessary part of the game. They are not viewed as tattletales, but more as watchdogs. In the corporate world, we need to have this same view of the whistleblowers who are brave enough to report potential illegal acts or wrongdoing.
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[1] http://www.espn.com/nfl/story/_/id/18626326/grading-controversial-calls-super-bowl-li
[2] https://www.sec.gov/whistleblower/reportspubs/annual-reports/owb-annual-report-2016.pdf
[3] See 240 C.F.R.§ 21F-17(a) (Securities Exchange Act of 1934 Section 21F-17(a)) for additional details.
[4] See 240 C.F.R.§ 21F(h)(1) (Securities Exchange Act of 1934 Section 21F(h)(1)) for additional details.