In my post following the SEC’s release of the Final Rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, I warned employers of the huge risks faced by the Commission’s position on internal reporting. In short, employees are not required to make an internal complaint to their organization before they can go to the SEC with their concerns about unlawful conduct or retaliation related to federal securities laws.
Under Dodd-Frank, in cases exceeding $1M in recovery, the SEC is authorized to pay 10-30% of the recovery to individuals who provided the Commission with original substantive information. That means in a $1M case, the individual who originally reported the problem could receive $300,000 from the SEC. It’s hard to compete with that kind of money.
What can you do to encourage employees to report internally? Shore up your compliance programs –at the heart of an effective compliance program is the ability for employees to make a report or complaint, and have it properly handled, without retaliation. If your complaint process isn’t working properly, you dramatically increase the risk that employees will take their beef to an agency like the SEC.
Littler has just come out with a great report on the Dodd-Frank regulations and how employers can protect themselves from the new whistleblowing and bounty hunter provisions. One of the report’s key elements to creating an effective ethics and compliance program is training. According to the report:
Companies must train managers on three fundamental issues: (1) how to recognize whistleblower complaints; (2) how to respond to such complaints; and (3) how to avoid any retaliation against the individual who complained. Managers need to have enhanced awareness that when an employee reports possible ethical or other violations to them, they have a duty to involve both compliance and human resources immediately. This allows the company to address the substance of the report and to work with front-line managers to ensure that no retaliatory action is taken against the whistleblower.
To access the Littler report, click here.
I wish that that a high-accountability, ethics-based culture was easy to create, but the reality is that it takes work. The message must be constantly reinforced, come from the top and filter down to every manager and employee.
This boils down to habitual, high-quality ethics training. The workforce should also receive specific training about how to make complaints and your organization’s zero-tolerance rule for retaliation.
In this new bounty hunter environment, ethics and code of conduct training is nothing less than a business imperative.