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INTRO: The financial and reputational risks of whistle-blower claims are enormous, and they are increasing. How can a business entity pare its risks? Steven J. Pearlman, partner and co-head of Proskauer Rose L.L.P.'s Whistleblowing and Retaliation Group, offers 10 steps for employers to consider that will help reduce their whistle-blower risks and exposures.
Employee whistle-blower claims have proliferated, and the financial and reputational risks are enormous.
Prior laws prohibited retaliation against employees who blow the whistle on corporate misconduct, and the government recently changed the game by deputizing employees as government agents potentially eligible for bounties.
A few months ago, the Securities and Exchange Commission issued its first round of bounties. Plus, the Internal Revenue Service recently issued an extraordinarily large bounty to a whistle-blower, and whistle-blowers are continuing to get huge bounties under the False Claims Act.
At the same time, whistle-blowers recently have enjoyed a heightened degree of success under the Sarbanes-Oxley Act of 2002 in cases before the U.S. Department of Labor.
Whistle-blower matters pose tremendous risks to publicly traded and privately held companies alike. Successful plaintiffs can recover substantial monetary damages, along with attorney's fees and litigation costs. But those risks often are eclipsed by exposure of the compliance failures that can lie at the heart of these cases. Indeed, whistle-blower cases commonly are filed by high-level managers with access to sensitive information regarding shortcomings in controls, operational failures or challenges, business strategies and other confidential information.
Complicating matters, we have seen more cases filed by in-house corporate attorneys seeking to rely on privileged information, as well as compliance professionals and internal auditors. And creating a perfect storm, the Dodd–Frank Wall Street Reform and Consumer Protection Act's bounty program now gives employees the opportunity to bypass internal compliance machinery and head straight to the government before the company even has a chance to investigate their concerns.
Employers need to respond — and get ahead of the curve — by creating an environment and using tools that will increase the likelihood that employees will promptly lodge whistle-blower reports within the company.
Here are 10 steps employers should consider:
1. Conduct focus groups and surveys to understand your workforce's attitude, perceptions and concerns about whistle-blowing
Every workforce is different, as the individuals who make up each workforce have different experiences, expectations and personalities. Before embarking on measures designed to minimize whistle-blower-related risks, it is important to develop an understanding of your workforce's beliefs about whistle-blowing and retaliation. Focus groups and surveys can help management achieve this understanding. Employers should design questions that will expose whether employees are apt to bypass internal compliance channels (or not complain at all) and why. In addition, focus groups should be diverse in terms of age, length of service, race, responsibility and education. Likewise, employers should ensure that surveys should test representative, statistically significant samples. Employers should closely study the results to understand the employee population and identify issues that present hurdles to compliance efforts.
2. Create whistle-blower protection policies
Employers need to ensure that they have appropriate policies on which their employees can rely and that management is required to understand. Codes of conduct should: strictly prohibit all forms of retaliation for reporting any misconduct or unethical behavior; provide multiple channels for lodging complaints (e.g., through Compliance, Human Resources and managers); enable employees to report anonymously either through a help line or through a similar Internet-based function; and are distributed to all employees. But employers should not stop there, as they would benefit from also creating short and simple whistle-blower protection policies for inclusion in employee handbooks. Such policies should make it clear that the company views good-faith whistle-blowers as assets, and contain all of the foregoing statements applicable to the code of conduct.
3. Train managers
Contrary to popular belief, a substantial volume of whistle-blower complaints are made directly to managers, and managers commonly respond improperly to whistle-blower complaints. Some, for example, treat whistle-blowers as traitors. Others are quick to placate whistle-blowers and readily — and mistakenly — throw the subjects of their complaints under the bus. Both approaches are troubling. Managers need whistle-blower-specific training on a regular basis to ensure that they respond appropriately to complaints.
In particular, managers should be trained to have a working knowledge of the code of conduct and whistle-blower protection policy, and an appreciation for the legal and practical business implications of retaliation against whistle-blowers. Likewise, such training should teach managers to respond with an approach that: thanks the whistle-blower for raising his or her concerns; assures the whistle-blower that he or she will not suffer retaliation; advises the whistle-blower that the complaint will be investigated promptly; lets the whistle-blower know that the company will provide him or her with the results of the investigation only to the extent practicable in its sole judgment, and that it may not be able to disclose certain confidential information to the whistle-blower; cautions the whistle-blower that it may be impossible to keep the information he or she provides confidential.
4. Break down silos between human resources, in-house labor and employment counsel and compliance
Whistle-blower claims often implicate employment retaliation issues, performance management, discipline, investigations and compliance issues. Yet, HR, labor and employment (legal) and compliance functions often do not effectively collaborate or are out of synch with respect to addressing whistle-blower issues. These functions should work hand-in-glove to ensure that a fully informed, comprehensive approach is taken to all aspects of the whistle-blower response process. Employers can start by ensuring that representatives of each of these functions participate in a compliance team that is tasked with responding to the whistle-blower complaint.
5. Promptly appoint a liaison to the whistle-blower
Many whistle-blowers head straight to the government or a plaintiffs' attorney, where they feel isolated and are ostracized for complaining. Employers can combat this risk by swiftly appointing a corporate representative to serve as a liaison to the whistle-blower. Often, a human resources professional is best suited to fill this role. The liaison should be trained to treat the whistle-blower with compassion while gathering facts related to the complaint and addressing any concerns related to retaliation. Companies should strive to appoint a liaison to the whistle-blower within 48 hours of a complaint, and the liaison should meet with the whistle-blower at regular intervals.
6. Promptly conduct a robust investigation and report back to the whistle-blower to the extent practicable
Many whistle-blowers also go to the government or a plaintiff's attorney where they believe the company is not reacting to their complaint quickly enough or otherwise not appreciating the urgency of their complaint. To address this risk, and in recognition of the reality that promptitude is critical to a successful investigation (memories fade and evidence can grow wings), employers should develop rapid response systems that require investigations to be conducted shortly after a complaint is lodged.
7. Oversee the whistle-blower's evaluations, with an emphasis on objective metrics
To ensure whistle-blowers are not subject to retribution, a human resources professional and/or a supervisor who is unaware of the complaint should review whistle-blowers' performance evaluations. Objective metrics should be used to the greatest extent possible to facilitate determinations as to whether whistle-blowers are being evaluated fairly and that their evaluations are in line with similarly situated employees who did not complain and who demonstrate the same levels of performance.
8. Reward good-faith whistle-blowers
What about counter-bounties? Sure, it would be awfully difficult to measure the degree of savings a whistle-blower conferred upon a company, and it would be difficult to compete with the money Dodd-Frank offers. But what about tying some aspects of an employee's performance evaluation and corresponding bonus to the benefit his complaint conferred upon the company? And what about nonmonetary incentives? A letter of commendation from an executive to the whistle-blower's personnel file may serve as a meaningful reward to employees who are invested in the company's success.
9. Report responses to whistle-blower complaints to the employee population
There are a number of ways a company can demonstrate that it has been taking employee complaints seriously. Consider providing generalized (anonymous) examples through an internal blog or newsletter. Such examples should describe the general nature of the complaint, the type of investigation, the speed with which the matter was resolved, the benefit the complaint conferred upon the company and, if applicable, the praise the whistle-blower received for stepping up.
10. Hold an annual Ethics & Compliance Day
Employers should consider dedicating a day each year to focusing on the critical need for transparency, accountability, and ethical and lawful conduct. Consider inviting outside speakers with expertise in corporate ethics, delivering training on the code of conduct and anti-retaliation policies, and holding sessions with employees focused on the company's core values.
These 10 steps are based on lessons learned from defending a wide range of whistle-blower retaliation. They are geared toward both heightening the likelihood that whistle-blower claims will be kept within the company, and building defenses where litigation is unavoidable. A common thread that runs through each step is that the company should view and treat good-faith whistle-blowers as assets who may possess valuable information that could prevent damaging corporate scandals from maturing. In sum, the question is no longer “whether” an employer will be confronted with whistle-blower risks — they are now a fact of corporate life and employers need to act now.
Steven J. Pearlman is a partner and co-head of Proskauer Rose L.L.P.'s Whistleblowing and Retaliation Group in the law firm's Chicago office. He can be reached at firstname.lastname@example.org and 312-962-3545.