09/14/2010
When President Obama signed the Dodd-Frank Act on July 21, 2010, there was little discussion about the Act's impact on whistleblowing. But the Act contains some very robust protections and incentives for whistleblowers, which could have a negative impact on an employee's motivation to report a potential issue via his or her own employer's hotline.
The Act includes bounty provisions for persons who provide information to the SEC, which, in turn, results in a recovery of more than $1 million. This bounty can range from 10% to 30%, and considering the size of many recent settlements, which have been in the tens, or even hundreds, of millions of dollars, employees may find it more lucrative to report the misconduct to the SEC than to the company's hotline.
There are ways, however, for a company to reduce these risks by being proactive and focusing on the effectiveness of its legal and regulatory compliance programs. This is a first step, as these programs are designed to make it less likely that employees will violate the law in the first place. Additionally, while most companies have a hotline or similar system in place, they must do more to encourage its use. Many companies merely provide the hotline and the minimum required notice of its existence. Just because the phone seldom rings does not necessarily mean that there is no misconduct; it may just mean it's not being reported. The whistleblower bounties in the Act should give companies a tremendous incentive to promote the use of its hotline. This is a marketing battle that requires resources to win. For employees to use a hotline, it must be viewed as a credible process for handling complaints, and the perception of anonymity or confidentiality is crucial. Also, follow-up and follow-through are the next important steps for an effective hotline. If employees perceive the process to be fair and effective, they may be more likely to use it and seek resolution within the company, rather than to reach out and call the SEC.