Whistleblowers: Good for Business

December 30, 2019 LRN Corporation

While reporting misconduct through internal and external mechanisms can help to limit future transgressions, many corporate leadership teams view these whistleblowers as disgruntled employees seeking revenge against higher-ups and colleagues they dislike.

As a result, according to an article in Human Resource Executive, managers often ignore complaints and discourage employees from voicing concerns.

The truth is, internal whistleblowing is good for business.

A report by researchers at the University of Utah and George Washington University covering the benefits of whistleblowing found companies encouraging internal reporting spend less time and money on litigation than those that don't. Companies that are more profitable tend to have better internal reporting systems, resulting in 6.9% fewer material lawsuits filed against them, and 20.4% less money paid in settlement costs, the researchers reported.

So how does a company encourage internal reporting? By promoting internal reporting systems and developing an environment where employees can voice concerns without fear of retaliation, companies can create an environment where workers feel comfortable coming forward.

Human resources should establish safe and anonymous methods of reporting, then seriously evaluate each complaint before providing employees with status updates. The focus of investigations should be on finding the cause of unethical behavior, not punishing the employees who report ethical violations.

If companies don't take steps to encourage internal reporting, employees might turn to external options.

The U.S. Securities and Exchange Commission whistleblower program offers whistleblowers 10% to 30% of the money collected by SEC sanctions, and will provide confidentiality with an anonymous reporting option. The program’s 2019 Annual Report to Congress said the SEC received more than 5,200 tips, and paid awards of $60 million to whistleblowers during fiscal 2019.

A lack of prioritization, or a failure to put the right resources in place, could prevent an organization from properly dealing with a large number of tips they receive from internal complaints, and from protecting a whistleblower’s identity, according to an article in The National Law Review.

The SEC's annual report found 85% of whistleblowers who received monetary rewards tried to  report internally, or were aware that supervisors and other employees knew about the misconduct, before they turned to external options.

Companies should set the right tone to encourage employees to report internally. That approach can help improve the ethical culture within the company, while preventing SEC penalties and reducing legal fees.

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