The term “game changer” might get thrown around too casually – but it applies to new research by Kyle Welch of George Washington University (GWU). Welch’s findings, based on NAVEX Global data from 2004-2017, are the first to show a quantifiable connection between business performance and compliance.
This is a big moment – and corporate counsel are doing their client a disservice if they don’t dig into this compelling new information.
This is a big moment – and corporate counsel are doing their client a disservice if they don’t dig into this compelling new information. If that sounds bold or harsh, it’s because of how stunned I was when I reviewed Welch’s research and saw how clear cut the evidence is. Put simply, I was skeptical that he could definitively prove what many in compliance circles had taken as an article of faith for years: That compliance – in this case, strong hotline usage – pays.
From Skepticism to Belief
When Welch approached NAVEX Global and asked to examine our hotline data – the world’s largest hotline database – I had some concerns. First and foremost, I wanted to ensure our clients’ privacy (we did!). Second, I wondered how active hotlines could possibly show proof of business success. Third, I was honestly afraid of what the data would show. And mind you, this skepticism was coming from the general counsel of the world’s largest provider of whistleblower hotlines.
To say I was pleasantly stunned by Welch’s findings would be an understatement.
My friends in compliance are particularly excited about a 2.8 percent higher return on assets companies with high hotline usage are experiencing versus companies with low reporting activity. That’s significant – but as a corporate counsel, my attention went toward the legal side of things, where the data was equally impressive:
- Companies with higher levels of reporting were subject to fewer pending material lawsuits
- When lawsuits were brought against companies, those with higher hotline usage faced 20.4 percent less in total settlement costs
- Companies with more internal reporting had fewer external reports to the Occupational Health & Safety Administration
As a corporate counsel for almost 30 years, I’m well versed in the difficulty of explaining lawsuits avoided to corporate leaders. If I tell a CEO about how many court battles I’ve kept the organization out of, he might as well tell me how many UFOs he hasn’t seen.
But that’s all changed. Welch’s analysis of our hotline data means we no longer must try to prove negatives. And as significant as the findings are, they don’t even get into the litany of incalculable costs that compliance and hotline usage avoid.
Legal Is a Cost Center. Our Job Is to Make It Less So
Let’s take a step back and look at the cost of litigation. For the uninitiated, the legal department gets the “privilege” (with tongue firmly in cheek) of taking center stage for events like employment lawsuits, material lawsuits, or regulatory actions. When charged, these result in hard after-tax dollars the organization has to spend. Even when an organization successfully defends a lawsuit, the costs easily amount to tens of thousands of dollars.
Lawsuits cause organizations to lose focus and productivity, create cultural issues of trust and reputation, and internal resources from HR to the executive suite are disrupted. Lawsuits, successful or not, always cost something to an organization.
So if I have a tool that can cut down on the cost of litigation and completely eliminate a number of lawsuits all together, I need to use it – and legal departments (smart ones, anyway) need to recognize this and should become an organization’s greatest advocate for hotline systems.
A colleague of mine put it this way: I’d rather have the short-lived heartburn that comes with each hotline report, rather than the long-term heartache that comes when the incidents behind those reports grow into lawsuits. The supposed bad news a hotline complaint represents is actually an opportunity to fix a manageable problem before you get a call from the SEC.
Protecting Your Client with All the Tools You Have Available
We now know that if we cultivate a high-performing whistleblower hotline system, we will reduce the frequency and cost of material lawsuits, as well as reduce the number of external reports jeopardizing brand reputation.
As corporate counsel, our responsibility is to protect the organization. Welch’s research gives us a very clear avenue to fulfill our obligation in a cost-effective manner. We now know that if we cultivate a high-performing whistleblower hotline system, we will reduce the frequency and cost of material lawsuits, as well as reduce the number of external reports jeopardizing brand reputation.
It’s important to note that having a strong hotline system isn’t enough – in and of itself. Organizations must make sure it’s not a paper system, that employees know how to use it and that they know their reports will be treated seriously. Any organization that didn’t think that was important before now have quantifiable proof it is.