Companies should use metrics to defend themselves from Dodd-Frank whistleblower claims, report says
NEW YORK, March 5 (Thomson Reuters Accelus) – Companies in the United States should focus on implementing performance metrics to defend themselves from whistleblower claims and to prevent misconduct within the company, according to a report from consultancy PricewaterhouseCoopers.
Using metrics such as the turnover of compliance staff and the percentage of anonymous reports can help a company monitor the performance of its compliance program. It can also help to reduce the chances of an employee reporting misconduct directly to the Securities and Exchange Commission, PwC said in the report, which is an analysis of whistleblower rules included in the Dodd-Frank regulatory overhaul and adopted last May by the SEC.“In addition to regular performance and compliance-process monitoring and oversight, there should be a periodic and independent assessment of the overall program design and operation. An annual review by internal audit or a third party, supported by benchmarking, can provide useful insights into a program’s effectiveness, as well as show proactive corporate commitment to ethics and compliance,” the report said.
The SEC’s whistleblower program is the first program to reward employees for reporting suspected securities fraud internally before going to a regulator. Prior to Dodd-Frank, the SEC could only reward whistleblowers for tips they provide on insider-trading cases.
The program guarantees an employee’s “place in line” for a reward as of the date an incident is reported internally, if they report the violation to the SEC within 120 days of informing their employer. Whistleblowers who use the program stand to receive between 10 and 30 percent of fines over $1 million for useful information that they provide the SEC.
Some industry participants have criticized the initiative by saying the financial incentives in the whistleblower program will discourage employees from using their firm’s compliance program.
Bobby Kipp, a partner in PwC’s risk assurance practice, said that giving employees basic facts on reported cases and the disciplinary actions that the firm has taken will encourage more employees to report internally.
Communicating the firm’s actions will help to build a culture where employees are comfortable in reporting wrongdoing without fearing retaliation, Kipp said.
“A lot of creating a culture around reporting comes from not just publishing policies and procedures about these things but also reinforced communications about the processes that you follow,” she said. “All those kinds of things greatly help people to understand that the company takes these matters seriously and the company doesn’t tolerate retaliation.”
Companies should look at internal processes and their results to measure the performance of the internal reporting program. For example, a company may have set up a hotline for whistleblower complaints and find that the hotline is receiving a low volume of calls. A low call volume is not necessarily a sign of the program’s effectiveness, but an indication that employees are uncomfortable with reporting internally, Kipp said.
“A lot of times you’ll hear companies say we’ve had a hotline for 10 years and we haven’t had a single call. You shouldn’t be happy about that,” she said. “What have you done to make people aware of the hotline? What have you done to make sure people are comfortable with it? No calls is not necessarily a good thing.”
The same applies to companies that promote an open-door policy for the reporting of misconduct. She said employees may be discouraged from reporting violations to an alternative channel, such as the internal reporting program, if misconduct involves their line manager.
Companies should dig further and use tools such as employee engagement surveys to get a better picture of their employees’ attitudes, Kipp said. Asking managers and supervisors about how they deal with problems can also help the company to train its managerial staff to be more receptive to employees who come forward with complaints.
“How people feel and what their attitudes and beliefs are is going to drive their behavior. If you are afraid to bring bad news to your boss and don’t believe there is any good result coming from that, guess what? You’re not going to bring bad news to the company,” she said.
(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)