With U.S. regulatory agencies increasingly telegraphing to U.S. companies their intention to step up enforcement actions against retaliation toward whistleblowers, it’s alarming that employers are taking 18 percent longer—a median period of 46 days in 2015 versus 39 days in 2014 and 32 days in 2011—to complete investigations into whistleblower claims. This trend is particularly significant for organizations overseen by the SEC, as they have limited time to complete internal investigations under that agency's whistleblower provisions.
The extended case closure time is one of the findings in NAVEX Global’s 2016 Ethics & Compliance Hotline Benchmarking Report, released March 15. If companies aren’t keeping up an ongoing dialogue with them, whistleblowers are more likely to assume their employer doesn’t care or looked into the claim but didn’t find anything, says Carrie Penman, chief compliance officer and senior vice president of advisory services for NAVEX. Even human relations diversity-related complaints, which don’t require the time-consuming document checking that accounting fraud cases do, are taking 20 percent longer to be resolved, which can hurt morale and make relationships within a department more uncomfortable, she says.
In a poll conducted during a webinar that NAVEX hosted to discuss the report, nearly half (46 percent) of the 685 respondents said the biggest factor in longer case closure times is resource constraints, while 32 percent cited the complexity of cases and 12 percent said the processes and tools used to assign and execute investigations aren’t as streamlined as they should be.
Considering how complex the process is for companies to diligently respond to an allegation, Didier Lavion, a principal in PwC’s forensics services practice, doesn’t find it surprising that it’s taking longer. “[Companies] have to deal with outside counsel and have to deal with the facts and circumstances and corroborate allegations before they go back to the whistleblower and say they’re going down this path or not going down this path.”
Companies should at least post updates in the system whistleblowers used to report, Penman says. “Every employee who filed a report would be given a number and ID and be encouraged to check back at some point in time. [The company] should post immediate acknowledgement that they received it within 24 or 48 hours and then provide updates probably a minimum of every week.”
“What we see most in the compliance world is that people are afraid to speak up because of retaliation. We have to flip it on its head to say ‘Reporting is a good thing.’ The only way to do that is to teach managers and employees about the importance and value of speaking up.”
Katherine Cooper Franklin, Partner, Littler Mendelson
Conducting prompt investigations into whistleblowers’ claims is a best practice in compliance, and if companies aren’t able to close a case quickly, “they have to be consistently communicating with a reporter so that reporter knows it’s taking longer than expected or that they are still working on the investigation,” says Katherine Cooper Franklin, a partner at Littler Mendelson, who trains executives, compliance officers, and HR professionals on how to minimize employment-related lawsuits. “I’ve had [investigations] that last for a longer time. That could be cause for concern if there are no communications with the reporter, but on the other hand, we really want companies to do a thorough investigation.”
Cooper Franklin sees lots of opportunity for organizations to improve their investigative procedure and processes so that investigations can be done properly and thoroughly. But managers also need to be trained on how to respond when someone reports wrongdoing. Managers are typically busy tending to day-to-day matters, so they need to understand that when somebody speaks up, it cannot be ignored or put off until later. But instead of immediately running to the compliance and ethics office, managers need to make people feel comfortable speaking up. And they need to be clear about the internal escalation process to follow, she says.
“[They] have to realize it’s a trigger potentially for an investigation, and where to go and who to go to—because some of the issues are ethics and compliance, some are HR issues, some of them are safety, some of them are security—and that it’s urgent,” Cooper Franklin explains. “And [they have to realize] that it’s their responsibility to raise it up because a lot of the time managers just want to shove the dirt under the rug [to avoid having to deal with compliance]. So we teach process to the people who do the investigation and the escalation guidelines for the managers.”
Getting so-called “tone in the middle” right isn’t made any easier when a greater portion of corporate misconduct is coming from senior managers. PwC’s Global Economic Crime Survey 2016, which Lavion helped produce, finds the percentage of internal crimes committed by members of senior management in the United States more than quadrupled between 2014 and 2015, from 4 percent to 18 percent, in contrast to a decline globally. The PwC survey also finds that middle managers are now responsible for 53 percent of internal crimes.
In the absence of communication, employees may misinterpret something as retaliation, says Jordan Thomas, a partner at Labaton Sucharow and chair of its whistleblower representation practice, as well as a former assistant director of the Securities and Exchange Commission. “It may be there was a plan to relocate some positions and they were one of the positions,” he explains. “That’s an appropriate business choice, but if no one follows up with this whistleblower, the whistleblower could be operating under the misperception that this employment action was based upon their reporting.”
INVESTIGATION CLOSURE
Below is a comparison from NAVEX Global on how long companies are taking to close an investigation in days for years 2011 through 2015.
Source: NAVEX Global
Substantiation of retaliation claims, which more than doubled to 27 percent between 2014 and 2015, remains at an elevated level, down slightly to 26 percent in the latest survey. Despite the sustained substantiation rate, retaliation reports remain comparatively low—less than one percent of all reports that organizations are capturing. But when it comes to external whistleblowing, the Equal Employment Opportunity Commission (EEOC) says that retaliation remains its most frequent discrimination charge at 45 percent of all private-sector charges filed.
Some observers see the higher substantiation of retaliation as a positive sign that more firms are taking these claims seriously. “It’s an opportunity for organizations to educate employees about raising issues of retaliation internally,” says Penman. That’s all the more critical when retaliation is coming under closer regulatory scrutiny. In addition to attention from the EEOC and the Occupational Safety and Health Administration (OSHA), within the Department of Labor, the SEC brought its first enforcement action in a retaliation case in 2014, and Chair Mary Jo White has promised to prosecute companies for retaliation against whistleblowers. The SEC has also been cracking down on firms that use confidentiality agreements—some of which threaten discipline such as termination—“and other mechanisms to improperly stifle whistleblowers from coming forward.”
The fact that anonymous reporting has been falling from a peak rate of 65 percent in 2008 and this year dipped to 59 percent for the first time, according to the NAVEX report, may also indicate that employees are feeling slightly safer regarding retaliation, says Lavion. That may mean “companies are becoming much clearer as to what their anti-retaliation policy is. The reason for that is that it creates additional incentives hopefully for whistleblowers to report internally before going to SEC.”
Cooper Franklin believes companies need to put more effort into helping employees, managers, and even compliance professionals understand what retaliation really is and that it goes beyond the old school definition of just being fired. “I teach organizations what a speak-up culture is—that we want to hear about unethical behavior because we want to fix it. What we see most in the compliance world is that people are afraid to speak up because of retaliation. We have to flip it on its head to say ‘Reporting is a good thing.’ The only way to do that is to teach managers and employees about the importance and value of speaking up.”
With whistleblowers eligible for 10 to 30 percent of the money the SEC collects in enforcement actions, there is debate about whether or not whistleblowers need to be incentivized to speak up internally. In a related issue, there is also more discussion about whether acting on whistleblower reports should be part of the criteria by which managers’ performance is evaluated in annual reviews. Lavion says he speaks to many compliance officers and general counsel at western companies who don’t believe in giving monetary or other rewards for employees who speak up because they see it as part of employee’s responsibility.
“I don’t think we should pay people to report. It’s part of their jobs. But I think certainly we want to review [managers] on it,” says Lavion. “It should be based on performance and definitely bonus structure, on how they relate to having managed code of conflict issues.” And there is much that managers can do to encourage ethical behavior, such as emphasizing the company’s code of conduct at departmental meetings and encouraging people to speak up about wrongdoing they have witnessed.
Lavion and Cooper Franklin are among a growing group that sees the term “whistleblower” as part of the problem, given its negative connotations. Lavion prefers calling it “speaking up. It’s a good thing.”
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