With whistleblower hotlines, most companies are looking for a Goldilocks effect: not so popular that employees use it to raise every little concern no matter how trivial, and no so shunned that big issues and concerns go unreported. They are looking for a volume of calls that is just right.
With the Securities and Exchange Commission paying out millions to encourage employees to bring tips to its attention, building more effective programs to encourage employees to report concerns internally first is as important as ever. They want employees to come forward, report misconduct and ethical lapses, and have confidence that management will do the right thing.
Building a good internal hotline program, however, isn’t as easy as adding a voice mail line and hanging some posters in the cafeteria. A top-notch program, one that will help bring concerns to internal eyes before leaking into the hands of regulators, requires plenty of work. And measuring success just might be the hardest part.
Too Many, Too Few
Quantity is just as important as quality when it comes to assessing the effectiveness of your whistleblower hotline, say compliance advisers. “If you are not getting many calls that is a problem; if you are getting too many calls there is an issue,” says Shannon Walker, ?president, WhistleBlower Security, a compliance and ethics consultancy.
A lack of calls may indicate that a hotline is not properly promoted to employees, and more creative outreach is needed. “Make sure the hotline is promoted in the employee handbook,” Walker says. “If there is collateral material you can hand out to employees, even better. When they are home at midnight and decide to report they will know the number to call.”
NAVEX Global’s 2014 Ethics and Compliance Hotline Benchmark Report found that the number of reports made by employees using all hotline reporting channels—including helplines, Web forms, fax, e-mail, direct mail, and open-door conversations—jumped 33 percent over the past three years. The study evaluated more than 717,000 reports collected at 2,163 companies.
What’s driving the spike in internal whistleblower activity? Among the likely catalysts: the increasing sophistication of communications and training by compliance and ethics programs; growing employee confidence in the reporting process; less confidence in line management’s ability to respond appropriately; greater involvement and accountability by the board; and encouragement by regulators to emphasize hotlines.
“Make sure the hotline is promoted in the employee handbook. If there is collateral material you can hand out to employees, even better. When they are home at midnight and decide to report they will know the number to call.”
Shannon Walker, ?President, WhistleBlower Security
“Programs have become more mature and companies are providing better and more information about how they work, who answers the line, and what happens when you call,” says Carrie Penman NAVEX Global’s chief compliance officer and senior vice president of its advisory services division. She previously developed and directed the first corporate-wide global ethics program at Westinghouse Electric.
“If people understand what’s going to happen when they make that phone call or use Web reporting, and they know who will be investigating it and that the company will take it seriously, they are more likely to use it,” she adds.
Anonymity and independence should be core characteristics of the service, and many companies find that those can only be achieved with a third-party provider. “If your hotline is run externally, it is going to have more credibility and be taken more seriously,” says Erika Kelton, a lawyer with law firm Phillips & Cohen who represented whistleblowers in the record-setting settlement by GlaxoSmithKline for $3 billion in 2012 and a whistleblower case against Pfizer where it agreed to pay $1.8 billion in 2009.
A valuable metric comes from a look at repeat reporters versus those using a hotline for the first time. The percentage of reports by self-identified repeat reporters more than doubled in the past five years, Penman says. Many are reporting on accounting and auditing issues, or misuse and misappropriation of corporate assets, and they are doing so at a higher rate than the first-time reporters.
She warns that organizations should not be too quick to discredit repeat reporters or lump those calls together as a “whine line.” In 2013, reports from repeat reporters were substantiated at a rate five percent higher than those of first-time reporters.
Substantiation and Closure rates
A hotline’s substantiation rate, the percentage of allegations determined to have at least some merit, is another metric companies can use to benchmark hotline effectiveness. NAVEX found that the overall substantiation rate for all reports increased by 11 percent in the last five years, a trend it termed as “remarkable.” “It is a startling finding in terms of the fact that employees are giving us better information that is high quality and is more likely to be substantiated than ever before,” Penman says.
A not so positive statistic emerging from the NAVEX study is that the average number of days it takes to complete an investigation and close a case. The average closure time is steadily increasing, from 30 days in 2008 to 36 days in 2013. Penman called it a “disturbing red flag” given that nearly three quarters of reports are HR-related and not as complex as a financial or fraud case.
The danger of taking too long to address concerns raised on whistleblower hotlines is that employees may become frustrated and either take the issue external or decide to part ways. “The longer it takes to complete these cases, the greater the chance there will be some fallout,” she says.
FREQUENCY OF INCIDENT CATEGORIES
The following, from The Network’s 2014 Corporate Governance and Compliance Hotline Benchmarking Report, looks at the frequency of employee reports to whistleblower hotlines, per 1,000 employees, by industry.
*Note: Percentages may not total up to match industry totals due to rounding.
Source: The Network.
Good data analysis and benchmarking can help organizations uncover where their hotline program has room for improvement. Is more training needed? How can investigations be improved? What does hotline usage say about company culture? Walker suggests that a company ensure their hotline is as independent as possible, administered by a third party if possible. “Externally managed is better than an internal system,” she says.
The contact responsible for intake and fielding calls also needs to manage that process with efficiency and professionalism. “You want agents that are trained to be able to ask investigative questions,” Walker says. “Because people are often very nervous and scared when they make that call, you really want to get them to a place where they feel comfortable and safe. You also want a trained agent who can extract pertinent information, so in the course of a conversation, they are able to gather more information that may be helpful to an investigation.”
Strength in Numbers
Senior leadership and board members should use the information gleaned from the hotline to assess tone and culture, Jimmy Lin, vice president of product management and corporate development at The Network, says. “The greatest influence on the culture of integrity in employees’ eyes is organizational justice,” he says of the importance of showing that incidents are properly investigated and conclude with appropriate consequences handed down. “If a company comes back and says it had an incident of bribery, investigated it, the employee got fired, and they are putting in more controls, the employees know that when they report something the organization is going to take it seriously.”
Penman also suggests that companies improve how they respond to anonymous complaints. It is important to let employees know that they are able to learn the outcome of their report by checking back in, and provide an access code or PIN number to do so. One other piece of advice: If it is taking longer than 30 days to close a complaint, it is time to review case handling and investigation procedures.
Walker suggests thinking “big picture” as calls arrive. “You want to have some stronger metrics behind the calls,” she says. “What types of calls are coming in? What locations are they coming from? What types of incidents are being reported? You want to have the ability to see trends.”
Another emerging trend we may soon hear more of: incentives to report internally. “Some companies are offering rewards to their employees to motivate them into reporting internally so they can deal with it before it goes to external regulators or the media,” Walker says.
Kelton expects that—empowered by recent SEC bounties paid to overseas company tipsters—whistleblower hotlines will evolve into more of a cross-border compliance tool for companies. “The approach to, and evolution of, whistleblower programs in the United States is reaching internationally,” she said.
No matter where a company is based, encouraging employees to speak up without fear of retribution will only continue to grow in importance. “For the most part, whistleblowers are made,” Kelton says. “They are created by failures in internal compliance reporting. When the situation at work is non-existent compliance, sham compliance, or completely ineffective compliance, that is when you see employees come forward.”