This week, Siemens won a rare courtroom victory when a federal judge ruled that a former employee could not sue the company for wrongful termination under Dodd-Frank’s whistleblower provisions. The case was dismissed when the judge concluded that Dodd-Frank’s strictures do not extend to foreign employees. But it was another argument Siemens presented that may prove more instructive as companies continue grapple with the unprecedented whistleblower protections – and incentives – that came along with financial reform.
In addition to raising questions about Dodd-Frank’s extraterritorial reach, Siemens attorneys argued that the former employee was not entitled to Dodd-Frank protection because he reported his concerns about noncompliance with anti-corruption controls internally before turning to the U.S. Securities and Exchange Commission (SEC) with his complaint. While the judge did not rule on that matter, the argument seems in line with Dodd-Frank’s provisions. But more important, it provides a prescient reminder about the importance of doing everything possible to help whistleblowers keep their concerns within the company.
Under what is still perhaps the most controversial element of Dodd-Frank, the SEC is required to pay whistleblowers a cash reward of between 10 and 30 percent of any monetary penalties it recovers as a result of civil or criminal cases brought with the assistance of original whistleblower information. When the law was written, some companies argued that the provision unfairly incentivized employees to take complaints straight to the government, before the company has the chance to remediate the problem itself – or is even made aware of it. As we’ve seen in the massive whistleblower awards since, those voices of opposition certainly had a point.
In the context of the unprecedented incentives now available to corporate whistleblowers, Siemens’ point about internal reporting is not just a window into winning legal strategy. It’s a reminder that all companies need to have robust internal reporting mechanisms in place – and that every employee needs to understand the benefits of using them.
Employees need to know that the company is committed to ethical behavior and has myriad interests – financial, legal, and reputational – in seeing that malfeasance is uncovered and effectively dealt with. They need to know where they can turn with information about compliance lapses, that their concerns will be taken seriously and that no recriminations or retaliations will be made against those who make use of internal reporting.
It’s possible that some of these points were lost on Siemens; but the fact that one of its employees turned to internal compliance officers before the SEC is something that every company should strive to emulate. With the advent of Dodd-Frank’s new whistleblower incentives, that outcome is all the less likely to materialize absent aggressive internal communications.