What do I have in common with Harvey Pitt, former chairman of the SEC? We both object to Dodd Frank’s corporate whistleblower provisions - a program that incentivizes employees to report unlawful conduct directly to the SEC, bypassing internal compliance programs.
According to Pitt’s testimony before the Senate Banking Committee on Tuesday, “This provision threatens to undermine corporate governance, internal compliance and the confidence of public investors in our heavily regulated capital markets.” I couldn’t agree more.
Under Dodd Frank’s corporate whistleblower program, in cases exceeding $1M in recovery, the SEC is authorized to pay 10-30% of the recovery to individuals who provided the Commission with original substantive information. The rules do not require that the person report the issue internally first, effectively turning your employees into bounty hunters.
This isn’t my first post on the subject, and it probably won’t be my last given the magnitude of legal and financial risks employers are facing. But I have good news for employers – there are steps you can take now to encourage your employees to report internally:
- Maintain a culture of inclusion, respect and high-accountability. The message must come from the top and filter down to every manager and employee.
- Empower your employees to speak up and ensure that issues are properly handled. Effective reporting and complaint mechanisms are crucial. Employees who feel mistreated, ignored or disrespected are much more likely to report directly to the SEC.
- Enforce a zero tolerance policy for retaliation.
- Make sure all of your employees go through periodic ethics training on your Code of Conduct, reporting policies and how to make internal complaints. Ensure that all supervisors receive additional training on the rules surrounding whistleblowing and retaliation.
It’s hard to compete with the kind of money that the SEC is offering whistleblowers, but a high-accountability, ethics-based culture can be a powerful shield.