Ethics Hotlines Heating Up at Corporations

By Dan Nephin

In the wake of corporate scandals such as those at Enron and WorldCom, businesses that offer outside ethics hotlines say reports of potential wrongdoing are on the rise, and more companies are exploring the use of such hotlines to show they take employee concerns seriously.

While employees in the past may have overlooked such behavior, recent accounting scandals are prompting them to take another look, said Dave Slovin, a spokesman for The Network, a company that created an ethics hotline for Pittsburgh-based PNC Financial Services Group.

"They have seen what happens when the employees of other companies practice that behavior," Slovin said. Those in the ethics hotline industry say there's a trend toward fraud-related reporting among their clients' employees. Companies such as The Network, based in Norcross, GA, and National Hotline Services in Fredricksburg, VA say they have been fielding more calls from interested companies.

"This is their future, and they want to be sure the company is an ethical workplace because they save their jobs that way," Slovin said.

PNC planned to install its hotline before the bank adopted a new corporate ethics policy under an agreement with federal regulators. PNC pledged to give the Securities and Exchange Commission and the Federal Reserve Bank greater access to company records after the SEC said the bank tried to conceal $726 million in potential liabilities. The company admitted no wrongdoing.

"PNC chose to go this route because we wanted to provide employees a variety of options should they want to discuss suspected ethics violations," company spokesman Brian Goerke said of the hotline. "If they don't feel comfortable going to a supervisor and want to remain confidential, then they can do this."

The Network's clients include 1,000 companies, ranging from several hundred employees to more than 100,000, Slovin said. The company tracks anything from allegations of sexual harassment and kickbacks to safety violations.

Larry J. Tomayko, chief operating officer of National Hotline Services said third-party hotlines are an outgrowth of whistleblower laws. The 10-year-old company has about 500 clients and Tomayko said business is picking up. Neither National Hotline Services or The Network had figures readily available on how many companies wanted to set up hotlines.

"It's hard to say the exact increase, but it's quite substantial," said Ralph Childs, founder and chairman of The Network.

Critics, however question the value of such hotlines. Mike Kohn, an attorney with the National Whistleblower Center, which provides legal services in whistleblower cases, said leaving it to the company to deal with a report would likely result in a whitewash.

"The problem is, who is paying for the investigation?" Kohn said. "There's no accountability." Kohn said employees with concerns should "document, document, document" until they have enough evidence to seek outside help, knowing that their identities will likely be revealed. Tomayko and Slovin both dismiss such criticisms.

"Most of our clients wouldn't be interested in a hotline unless they were willing to react to the information," Slovin said.

Linda Lipps, manager of corporate ethics at Waste Management in Houston, Texas, said a hotline has been beneficial to the company since its board of directors ousted management and brought in new senior managers in 1999. The company, with 55,000 employees, hired The Network to set up the hotline, which has resulted in more than 3,000 calls to date, Lipps said. And 80 percent of the calls have resulted in some type of "progressive action," Lipps said.

Sometimes the problem is a matter of communication - an employee may feel a supervisor plays favorites - but Lipps said the tips have led to nearly 50 firings for problems ranging from theft to inappropriate behavior. Meanwhile, others say hotlines are only a part of fostering a culture of ethics.

"Ultimately you've got to have leadership at the top who have A) Integrity, and B) Teach it," said Noel Tichy, professor of organizational management at the University of Michigan's business school.