Until recently, trends in whistleblower reports and behavior seemed to only break through into the news cycle when an extraordinary story made it into mainstream headlines. Now, reports of whistleblower actions and payouts are more frequently making news, and regulations protecting whistleblowers continue to take effect globally.
First, while legislatively protected whistleblowing for certain types of issues has been in place in the U.S. for some time, the international regulatory landscape is even more prescriptive than the U.S. on process and whistleblower protections. Ongoing global legislation, such as the EU Whistleblower Directive, Japanese Whistleblower Protection Act, and the Australia Corporations Act, is impacting organizations’ processes to receive, investigate and follow up on reports. Keeping up with the new regulations is proving to be challenging, especially for organizations with multinational operations.
Second, tips to, and awards paid by, the Securities and Exchange Commission (SEC) Office of the Whistleblower are setting records and getting attention from both employee reporters and their organizations. Further, a growing industry of plaintiff-side whistleblower attorneys feeding tips to the SEC and other agencies is capturing the attention of those who believe they haven’t been heard internally or fear significant retaliation for raising a concern.
Add all of this to stresses and workplace changes resulting from the pandemic and remote work environments, and compliance programs are experiencing a changing whistleblower landscape that warrants reassessment. The recent SEC Annual Report, and data from over 1.4 million reports annually to NAVEX systems, provide some insights to help organizations understand the changing whistleblower landscape – both internally and externally – and prepare them to adjust their programs to address the changing landscape.
External reporting trends
What the SEC reporting indicates
On November 15, 2022, the SEC Office the Whistleblower issued its annual report for FY 2022. The same day, the SEC announced its enforcement results for FY 2022, which highlighted the Office of the Whistleblower as “an integral part of the Enforcement Program,” and the whistleblower program as a critical tool in the SEC’s enforcement arsenal. Both SEC reports reveal that whistleblower tips are an increasingly important source for SEC investigations and enforcement actions.
The SEC reported receipt of 12,322 whistleblower tips in FY 2022. This was the largest number of tips received in any year in the history of the SEC’s whistleblower program, which was established in 2011 following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
During the two prior fiscal years, there were dramatic increases in the number of tips received. From FY 2020 to FY 2021, there was a 76% increase in whistleblower tips received by the SEC, and FY 2022 yielded a similar number of reports as the previous year. The chart below illustrates this stark increase in reporting to the regulator.
Although the reason for the increasing number of tips was not clear, one possible explanation is the prevalence of remote and hybrid working conditions makes it easier for whistleblowers to gather evidence and report out to the SEC – such as taking screenshots of documents or emails. But even as many companies began to require a return to the office in some capacity, the number of tips reported out to the SEC remained very high and may reflect a “new normal.”
Global whistleblowing to the SEC – regulatory action and trends
As in prior years, the SEC’s whistleblower program continues to have a global reach. According to the FY 2022 Whistleblower Report, tips were received “from all over the world,” with the highest number of foreign tips originating from Canada, the United Kingdom, Germany, China, Mexico, and Brazil. All told, the SEC received tips from over 130 countries worldwide since the beginning of the program. Companies should consider that employees in international operations may be inclined to report out to the U.S. regulator if they do not believe action is being taken internally to address their concerns. Therefore, policies and procedures around handling of internal reports need to encompass international operations as well.
Whistleblowers report internally prior to reporting to SEC
It is important to understand that most whistleblowers who received awards from the SEC first tried to raise their concerns internally or at the same time as reporting to the regulator. In fact, according to the 2021 SEC Annual Report to Congress, “more than 75% raised their concerns internally to their supervisors, compliance personnel, or through internal reporting mechanisms, or understood that their supervisor or relevant compliance personnel knew of the violations,” before reporting their information of wrongdoing to the Commission. This represents a downward trend from 2020. Unfortunately, the SEC did not report this figure for 2022, however, historical information is illustrative of this trend.
Large whistleblower awards equal large corporate impact
The increase in tips may also be due to the very large whistleblower awards paid by the SEC. In FY 2022, the SEC awarded approximately $229 million in 103 awards. Over the life of the program, the SEC paid out over $1.3 billion in whistleblower awards. Of course, large whistleblower awards equate to large corporate impact. Successful enforcement actions brought as a result of whistleblower tips yielded more than $6.3 billion in total monetary sanctions ordered since the beginning of the whistleblower program, including more than $1.3 billion during FY 2022 alone. The incentives for whistleblowers to report out potential misconduct remains high, as does the cost to companies based on external whistleblower tips.
The incentives for whistleblowers to report out potential misconduct remains high, as does the cost to companies based on external whistleblower tips.
The SEC also announced a focus on large penalties to effectively punish and deter misconduct. They noted they will reward meaningful cooperation and remediation. Proper handling of an internal tip from an employee is the first step towards potential remediation and cooperation credit. Conducting a thorough internal investigation and engaging in appropriate remediation can help position a company to respond effectively to an enforcement investigation and minimize potential sanctions.
Internal reporting trends
Recent years have shown changes in internal reporting trends as well. For example, organizations saw a continuous decline in anonymous reports before and during the pandemic, indicating employees are becoming more confident or emboldened to give their name. Our reporting over the last two years also shows the profound impact of the pandemic and remote work on outcomes such as “The Great Resignation.” As of the end of 2021, internal reporting levels had not yet returned to pre-pandemic levels, yet, as described above, external reporting to the SEC has seen substantial growth. We do expect to see internal reporting levels return to pre-pandemic levels when we publish the report for 2022.
We also observe that issues related to workplace behavior and civility are increasing. In 2021, internal reports of retaliation nearly doubled. Reports about whistleblower retaliation have always been a small portion of the total, but they shot up from 0.9% in 2020 to 1.7% in 2021. Reports about harassment also rose (to 5.6%, an all-time high) as did reports about discrimination (to 4.7%). Taken altogether, these findings suggest employees are more attuned to workplace civility issues. That would fit with external trends such as more talk about systemic racism, income inequality and political divisions, as well as increasing protection for whistleblowers and employees’ awareness of those protections.
Keyword searches of reporting data are showing other social and political issues are becoming topics for internal reporting, too. For example, issues such as the war in Ukraine and economic concerns around inflation, a potential recession, layoffs, stimulus, and student debt forgiveness are on the rise.
There is also a concerning increase in matters of workforce sentiment and mental health found in the keyword searches including anxiety, depression, exhaustion, mental health, pressure, quiet quitting, and bullying cases. Internal reporting systems are serving as an emotional lifeline in some cases. Noting that many compliance programs view human resource matters as “not compliance issues,” it may be time to raise the profile of these types of matters within the compliance program and partner closely with human resource teams who we know are already well-aware of the increase in mental health issues facing their organizations.
Addressing the changing landscape
To prepare for and address this changing landscape, organizations will need to test their mindset about reports and reporters (especially regarding anonymous reporters) as well as review their processes for managing cases.
For example, the ongoing economic conditions may lead to higher levels of anonymous internal reporting as employees fear retaliation for speaking up during periods of uncertainty. In our interactions with clients and customers, we continue to have conversations about the value and credibility of anonymous reports and reporters. We still hear about cases where the primary focus is determining who an anonymous reporter is rather than focusing on the issue raised. NAVEX data shows anonymous reports are substantiated at a rate close to those of named reports, indicating that while these reports may be more challenging to manage, they are valuable to our organizations.
We still hear about cases where the primary focus is determining who an anonymous reporter is rather than focusing on the issue raised. NAVEX data shows anonymous reports are substantiated at a rate close to those of named reports, indicating that while these reports may be more challenging to manage, they are valuable to our organizations.
Case closure time is another opportunity for review. The EU Whistleblower Directive sets out time limits for acknowledgement of case receipt and feedback to the reporter. We also know the Directive places some contingencies on who can view or investigate a report, adding complexity to processes that likely already have limited resources available to address. This is a good time to assess capability to handle more pressure and more complex cases. A focus on ongoing communications with reporters as well as a reduction in case closure times will help to build trust in internal programs which, in turn, may help reduce external and anonymous reporting.
One other program component worthy of attention is managing fear of, and preventing, retaliation. As noted earlier, cases of retaliation are on the rise. Yet, according to NAVEX survey results, retaliation prevention is not a high priority initiative for many organizations. The reasons for this disconnect are not clear as the purpose of much of the legislation we described earlier is to protect whistleblowers from retaliation. Indeed, the SEC recently filed an amended complaint against the CEO of a company for retaliating against an employee who raised concerns within the company, and also for attempting to impede that employee from reporting to the SEC by cutting off their access to the company’s IT system, among other things.
Perhaps most concerning though, we expect to see continued growth in reporting of workplace civility issues including harassment, discrimination and retaliation, as the stresses and pressures of the ongoing political and economic climate continue. Organizations will also need to prepare for the internal reporting system to be used more often for social and personal mental health issues as the stress and exhaustion of the last few years continue. While these may not all be, by definition, “compliance issues,” they certainly impact a culture of compliance.
Whistleblowers (reporters) have shown in recent years they are more willing to take their concerns outside the organization if the issue is not addressed in a timely and appropriate way, as evidenced by the high levels of reporting to the SEC Office of the Whistleblower as well as the growth of social media sites like Glassdoor.
With the potential for a recession in 2023, we expect to see continuing changes in trends for both internal and external reporting. Further, as more countries pass legislation to protect whistleblowers, we expect to see a continuing shift in the number and types of reports that both organizations and external regulatory agencies receive. Particular attention is needed on retaliation prevention programs. Now is the time to step back and take stock of the changing reporting and regulatory landscape. If not, we could see external reporting escalate as the first option for whistleblowers. Further, taking a more holistic view of the individuals who we rely on to maintain, and report on, compliance will serve our organizations well.