On November 15th, the Securities and Exchange Commission (SEC) Office of the Whistleblower (OWB) released its 2021 Annual Report to Congress that reports staggering statistics for FY 2021 and should sound warning bells for organizations and their internal reporting systems.
This past year, the Commission issued more whistleblower awards than in all prior years combined, totaling $564 million given to 108 individuals. Also in 2021, the OWB processed 12,200 claims – more claims than any prior year, a 76% increase from 2020, and a more than 300% increase since the first full year of the program in 2012. It is important to note that the prior year, FY 2020, was also a record shattering year for whistleblower reporting and awards.
One thing is clear: There are more reasons for employees to report externally than ever before.
Additionally, according to the report, 75% of award recipients in FY 2021 first raised their concerns internally to supervisors, compliance personnel, or through internal reporting channels – begging the question of what failed in the internal reporting processes. Perhaps more concerning is that historically, 80% or more of award recipients reported internally first. This decrease could indicate (among other things) a decrease in trust of their employer’s ability to appropriately address concerns.
These disturbing statistics raises two questions: Why did these employers fail to address or come to a resolution for these cases? And why has the number of cases reported internally first decreased from years prior? It is not likely that this is all attributable to the pandemic and remote work, as these awards were likely the result of tips provided several years before. And, given the tremendous increase in the volume of tips provided to the SEC in FY 2021, compliance programs have some re-thinking to do.
Perhaps the key phrase to focus on from the SEC is “internally to supervisors.” If a report doesn’t go beyond a supervisor, the organization doesn’t have a chance to address it. Now more than ever, it is important to ensure that all managers and supervisors are trained on what to do when an employee raises an issue to them. Most organizations encourage employees to talk to their supervisors first. But we don’t always give those supervisors the tools to know how to recognize a report and what to do with it.
One thing is clear: There are more reasons for employees to report externally than ever before. From the stripping of Dodd-Frank whistleblower protections from internal reporters by the Supreme Court in Digital Realty Trust v Somers, to the SEC’s recent rule changes to its Whistleblower program, reporters have an increasing number of legal and regulatory incentives to bypass their internal reporting systems. And we can no longer underestimate the lure of the big payouts and the increase in the number of law firms that specialize in SEC whistleblower reporting.
In the end though, these reporters were ours to lose – at least the 75% of the award recipients who tried to raise issues internally first. Of all the potential causes for people to turn to the SEC to report wrongdoing, the most important ones come down to culture. An environment where reports are seemingly not heard or acted upon will cause employees to find alternate methods of reporting misconduct. Some may take to social media or go directly to the press. Some may just quit, costing their organizations key talent. Others go to the regulators.
The bottom line: Absent a culture that encourages speaking up and protections for internal reporters, employees are more likely to report issues elsewhere, including directly to the SEC.
Further, too many organizations operate under the false sense of security that, because they receive few reports of retaliation internally, they don’t have a problem. Our NAVEX Global benchmarking data shows that employees don’t report retaliation internally. They go to “Plan B” in whatever form that takes. Though not all cases of retaliation were reported to, or acted on, by the SEC, the Commission did note ongoing proceedings on a case of retaliation against a whistleblower, in addition to overt attempts to impede their communication directly with the Commission related to the complaint.
Because the OWB has seen many cases of retaliatory efforts to suppress communication about employer wrongdoing, they have had to work to advance anti-retaliation protections. Exchange Act Rule 21F-17(a) provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”
The bottom line: Absent a culture that encourages speaking up and protections for internal reporters, employees are more likely to report issues elsewhere, including directly to the SEC. If organizations don’t recognize and appreciate the value of their employee hotline reporting data, respond without retaliation, and take meaningful action to mitigate the issue at hand, we will continue to see an increase in the numbers of reports that bypass internal hotline reporting mechanisms for an alternate, safer, and perhaps more lucrative approach.
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View original article at Risk & Compliance Matters