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Directors & Boards Reader Profile: Major Findings from this Year’s Benchmarking Report

October 12 2011

Each month, Directors & Boards asks a reader to comment on critical issues facing directors today. This past month Directors & Boards asked for ideas on improving the effectiveness of the annual meeting of shareholders. Here is a selection of responses.

What were the major findings from this year’s Corporate Governance and Compliance Hotline Benchmarking Report from The Network and BDO Consulting?

The highlights from this year’s benchmarking report centered on four key findings:

First, we saw that fraud reporting remained steady: In fact, fraud-related incident reporting for 2010 was 19.6 percent, a slight decrease from 20.4 percent in 2009. We attribute this slight variance to two factors: (1) the slow growth in the U.S. GDP along with persistently high unemployment, and (2) response to legislation, such as the Dodd-Frank Act, UK Bribery Act and U.S. Foreign Corrupt Practices Act.

The second major finding was around the case outcome rate: In 2010, 68 percent of all incidents reported warranted an investigation, and three out of five of those cases resulted in corrective action.

Last year also saw that about half or 50 percent of those reporting fraud incidents chose to remain anonymous - this has trended upwards in recent years.

And finally, the benchmarking report found that the poster continues to be the most popular means of hotline awareness, followed by word-of-mouth from fellow employees.

What economic factors had an impact on this year’s benchmarking report findings?

We have seen economic parallels between the spike in fraud incident reporting and the economic downturn, particularly in correlation with the U.S. GDP and unemployment levels. However, correlation does not necessarily mean causation.

Why have the number of web reports increased over the past two years?

Organizations have started to focus on additional options in how they capture misconduct, with a focus on the web form. While the web form has been a part of many organization’s incident capturing tools, it has picked up traction over the past two years.

The younger workforce has a high comfort level with transferring information through web-based forms. As Generation Y continues to expand in today’s workforce, the use of web forms, texting and social media will continue to increase. The convenience of reporting online—and the workforce’s growing comfort level with that method—is causing the increase in web reporting. There is also a built-in anonymity perception when users report via the web versus a phone-based mechanism.

Why do you think the rate of anonymous reporting has remained the same—despite trends showing an increase in anonymity?

Beginning in 2009 and continuing in 2010, there was a shift in many categories with more people choosing to remain anonymous. This shift may be attributed to the increase in web reports as compared to hotline/phone reports. While there are advantages associated with both types of reports, a person-to-person call typically results in the gathering of more detailed material that aids in determining the next steps associated with the incident report and provides a more familiar setting for the participant submitting the report, therefore creating a more comfortable environment for them to reveal their identity. The shift to anonymity was most evident in the Finance, Insurance & Real Estate; Manufacturing; Mining; Public Administration; and Service industries. The Retail Trade and Transportation, Communications & Utilities industries both showed a shift to less people choosing to remain anonymous during the same time period.

Which industries had the highest overall incident rates? Why?

The industries with the highest overall incident rates continue to be Transportation, Communication & Utilities; Retail Trade; and the Service industries. However, all three of those industries experienced a decrease in their incident rate in 2010 while the rate for Wholesale Trade increased. Historically, these industries have had the highest overall incident rates because of its decentralized workforces and less HR support in the field. Single retail stories, for example, do not have an internal HR department; HR only at the corporate level. With less local HR support, more malfeasance is likely to occur. Also, these industries have huge workforces with a high amount of turnover.

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