To Blow the Whistle -- or Not

Conflicting reports highlight the differing opinions on workers' willingness to blow the whistle on their employers when misconduct is witnessed. Corporate culture is one important reason wrongdoing doesn't get reported, but demographic factors have a part to play as well.

By Michael O'Brien

Good news for the moralists in the marketplace: Seventy-eight percent of 1,007 Americans adults surveyed say they will report wrongdoing in the workplace if it can be done anonymously, without retaliation and result in a monetary award.

Now, the bad news.

More than one-third (34 percent) of the respondents to the first-ever Ethics & Action Survey by New York-based law firm Labaton Sucharow say they know about wrongdoing in the workplace.

At the same time, more than two-thirds of them (68 percent) are unaware the U.S. Securities and Exchange Commission has a new whistleblower program designed to protect and reward individuals who report violations of the federal securities laws.

"It is disheartening to see that wrongdoing in the workplace continues to be so widespread," says Jordan Thomas, partner and head of the Whistleblower Representation Practice at Labaton Sucharow. A former assistant director in the SEC's Division of Enforcement, Thomas played a leadership role in crafting the whistleblower program enacted under Dodd-Frank. 

The program offers strong anti-retaliation protections and financial awards of 10 percent to 30 percent of monetary sanctions collected at the conclusion of a successful enforcement action.

Nonetheless, retaliation seems to be on the increase, according to a new study by the Ethics Resource Center, based in Alexandria, Va.

The ERC study finds that more than one in five employees who reported misconduct they saw experienced some form of retaliation in return. It also finds that nearly half (45 percent) of U.S. employees observed a legal or ethical violation at work -- and 65 percent of them reported such wrongdoing.

According to the ERC's seventh National Business Ethics Survey: Workplace Ethics in Transition, ethics cultures in business are also at their weakest point since 2000.  

Since the SEC established a whistleblower hotline in May, it has received over 900 calls from members of the public, according to a report it issued in November.

And during the seven-week period between the time the final whistleblower rules went into effect and the agency's fiscal year ended Sept. 30, 2011, the SEC received 334 whistleblower reports alleging a wide spectrum of securities violations such as "market manipulation, corporate disclosure and financial statements and ... fraud." 

If this trend continues, the number of whistleblower submissions is likely to exceed the number of cases that the Enforcement Division actively investigates, according to Thomas, who says he was surprised by the overall results of the survey.

"At the SEC, I knew that there were no shortages of securities violations to investigate and prosecute," he says. "However, the findings of this survey and my experience in private practice, suggest that wrongdoing in the workplace is far more widespread than I originally thought.

"This program, in concert with other regulatory reforms," he says, "has the potential to dramatically enhance investor protection and restore public faith in the markets," noting that "no one knew that the percentage of Americans willing to report wrongdoing would be so high due to the new incentives and protections provided for by Dodd-Frank."

At the same time, a Global Economic Crime Survey by New York-based PwC finds that the detection of crimes via whistleblower mechanisms has decreased 24 points in 2011, compared to two years ago.

"It is interesting that the effectiveness of the 'corporate culture' methods has been on the decline since 2007," the report states. "External and internal tip-offs have fallen markedly from a peak in 2007 ... suggesting either that people are less willing to inform on their colleagues and customers, or that the different business units are not talking to each other or acting on the information they get.

"It must be the case," the report states, "that there has been more reliance on suspicious transaction monitoring."

Tracy McCarthy, senior vice president of human resources at SilkRoad technology in Chicago, says she thinks that, while people want to do the right thing and report wrongdoing, many are not willing to risk their jobs by doing so.

"Moreover," she adds, "it is often difficult to get enough specific information via anonymous reporting systems to properly investigate and take action on these claims. This may be a contributing factor for the declining detection of crimes, as cited by the PwC findings."

But for David Lewis, president and CEO of Stamford, Conn.-based OperationsInc., the reason behind the PwC findings is simple: "Rocking the boat during a time when you should be thankful you have a job is a bad move.

"This, in short," he says, "is about job security and lack of trust of those who employ us."

The Ethics and Action Survey also finds some demographic differences: More than four of five (83 percent) of those surveyed between the ages of 45 to 54 say they would anonymously report misconduct if they were protected from retaliation and eligible for a monetary award, but only 74 percent of respondents ages 18-34 would do the same.

Thomas says "responsible organizations should inform their employees about all the available reporting options -- including reporting securities violations to the SEC. This will ensure that significant wrongdoing in the workplace will be identified and stopped earlier."

He adds that the greatest challenge and indicator of whether employees will use internal reporting systems "is whether they perceive their organization to have a culture of integrity."

Jan 11, 2012
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