Dealing with Employee Complaints

While these complainants may turn out to be mistaken, or perhaps even misguided, on occasion, it hasn’t escaped the attention of regulators, prosecutors and the press that in instances of serious corporate defalcations, the Board or senior management often has advance warning that some sort of misconduct was afoot.

Thus, today, more than ever, public companies that are the recipients of indications of potential wrongdoing need to know how to respond. Knowing how to deal with indications of potential wrongdoing can mean the difference between surviving a problem, or succumbing to it.

Several Approaches

As a starting point, it is axiomatic that, when corporate constituents are troubled by conduct they’ve observed (or think they’ve observed), or learn about through the corporate grapevine, there are only two choices: they can either air their concerns within the company, or without.

Try as we might, we’re unable to think of any situation in which a rational company should want its various constituencies to take their concerns — whether well-founded or ill-founded — outside the corporation.

This suggests several approaches to be considered:

1. Internal Ventilation

Public companies need to employ credible mechanisms that permit their employees, suppliers and customers to ventilate concerns internally, rather than coercing them toward external sources.

Many companies worry that, if they establish such a mechanism, they’ll actually encourage frivolous or misguided complaints.

That view, in today’s environment, is incredibly short-sighted.

Companies will avoid major problems if they encourage their employees to report any concerns to responsible persons who can then pursue the issues raised in an appropriate manner.

2. Anonymity

Employees, customers, shareholders and suppliers need to be assured that their complaints will remain anonymous, and that no reprecussions will befall them if they air a complaint.

The principal reason that concerns are “leaked” to the press, regulators, prosecutors or others is a concern that the company won’t take the complaint seriously, or will “shoot the messenger.”

In order to discourage complaints being pursued away from the company, employees especially must believe that the person designated to look into any allegations of misconduct is an independent person who can be trusted to shield their identities, and yet explore the bona fides of the complaint fairly and thoroughly.

3. Commitment

Companies should treat all complaints seriously, even if they’re convinced that the complaints are without merit. Employees, shareholders, customers and suppliers must know, and believe, that they can raise concerns and that their concerns will be followed through.

The more confidence corporate constituencies have that their company is serious about its commitment to ethics and proper dealing, the more likely it is that the company will be given the first opportunity to deal with any future complaints.

4. Internal Disclosure

Consider publicizing the complaint in an appropriate fashion (this depends on the nature of the concerns expressed, of course).

It’s a mistake to assume that a complaint that finds its way to the CEO or some corporate ombudsman will remain a secret.

The better policy is for companies to treat the concerns raised directly, disclosing the existence of the allegations internally, and perhaps externally, coupled with a statement that — while the company doesn’t believe the concerns raised will prove to have occurred — if such conduct has occurred it would violate corporate policy. As such, the company wants to assure itself as well as its employees, customers and shareholders that its belief that the improper conduct didn’t occur is grounded in fact.

5. External Disclosure

If complaints raise regulatory issues, consider discussing them with appropriate regulators.

Very often, raising inchoate concerns with regulators can prove to be a self-fulfilling prophecy. But the temptation to keep negative and unproved information secret has to give way to the pragmatic reality that there are very few secrets in this era of instantaneous electronic communications.

Before discussing any concerns with regulators, of course, the company must have a well-defined strategy for dealing with the complaint or allegation, and should consider the types of questions regulators are likely to raise when they learn of the concerns.

6. Independence

Review of the treatment of improper conduct allegations should fall under the aegis of one or more independent directors.

By definition, any complaint involving allegations of improper behavior raises issues about the conduct of senior corporate managers. Whether or not the allegations prove to be well-founded, only persons independent of management should be charged with reviewing the way the allegations were handled.

The independent director or directors should have the sole right to decide whether to utilize independent assistance. It is important for management to realize that even a clean bill of health will be unpersuasive if there isn’t someone independent who’s reviewed the way the allegations were explored.

7. Upon Completion

When the review is completed, results should be made known to appropriate corporate constituencies.

If the complainant is known to someone, he or she should learn directly of the conclusions of the review and be given an opportunity to raise any additional information he or she may have. This is strictly in the company’s best interests, since it will give the company an opportunity to learn whether there is any additional information, as well as the likelihood that additional audiences may be sought by the complainant.

No company wants to hear bad news.

But if bad news is going to arise, it’s infinitely better for the company to hear it first, and have the opportunity to deal with the information before it turns into a full-fledged crisis.

This column solely reflects the views of its author, and should not be regarded as legal advice. It is for general information and discussion only, and is not a full analysis of the matters presented.