Companies are understandably anxious about the impact that Dodd-Frank’s whistleblower provisions could have on their organizations. Why wouldn’t they be? The provision effectively incents employees to report securities violations directly to the SEC rather than following their company’s guidelines for reporting violations internally. The reward to an employee for reporting an “original” violation to the SEC could result in a six-figure bounty. The reward to an employee for reporting a violation through their company’s whistleblower hotline, in most cases is – at best – an increased karma credit limit.
Paints a rather gloomy picture, doesn’t it? Well, all is not lost. Companies have a distinct advantage over the SEC: they have existing relationships with their employees and are therefore in a better position to influence their employees’ behavior. In any good relationship, open communication and trust are the keys to success, and the company/employee relationship is no exception. When companies effectively communicate the existence of their whistleblower hotline, the types of violations that should be reported via the hotline, and the process of investigating and managing these allegations, they can have the upper hand over an outside entity. Of course, demonstrating to employees that the compliance reporting process is credible and effective is also critical.
Companies who put an emphasis on educating their employees about what to report, how to report, and to whom to report, are taking advantage – in a positive way – of the access they have to their employees. For now, the SEC is not mandating posters in the break room of every publicly traded company advertising a bounty for previously unreported securities violations, and they aren’t offering online tutorials on companies’ intranets, instructing employees about how to report unscrupulous financial activities directly to their agency in exchange for a piece of the action. The SEC does not have the benefit of the employee/company relationship to deliver their message. Companies do, and it makes sense for them to leverage it to help develop their employees’ awareness and understanding of their corporate policies.