June 18, 2012

Hear No Evil – The Increased Risk for Companies That Ignore or Retaliate Against Whistleblowers

By Marlene Koury

Corporate misconduct is at an all-time high, according to a recently-issued report titled Inside the Mind of a Whistleblower, from the Ethics Resource Center (ERC).  The ERC reported that up to 45 percent of U.S. employees said that they had observed misconduct at various levels in the workplace during 2011.  This conduct included falsifying financial reporting information, engaging in anti-competitive practices, and violating contract terms with customers and suppliers.  Roughly two-thirds of the employees who witnessed workplace misconduct reported it to internal or external sources – sometimes both.  One-third simply kept their mouths shut.  The ERC stressed that one of the best ways that a company can minimize or eliminate misconduct in the workplace is to encourage internal reporting and foster an ethical culture.

Corporations would presumably prefer to handle reports of misconduct internally so that they can have the opportunity to root out fraud and corruption.  The ERC study showed that the majority of whistleblowers feel the same way, preferring to first report internally in hopes that the company will correct the misconduct.  One in six whistleblowers, however, ends up reporting  to the government.  This is often because they were deterred by the lack of internal reporting structure, faced workplace retaliation or were discouraged by a general unethical environment, including distrust of management.  The ERC stressed that a company that fails to encourage internal reporting risks whistleblowers taking their allegations to the often open-armed sources outside the company, requiring that the company deal with their allegations publically – or legally.

The ERC listed various measures companies can put in place to encourage internal reporting, including ensuring that the cultural and ethical commitment is strong; providing resources for employees (hotlines or advice lines); increasing awareness of internal whistleblower resources; promoting a sense of agency and connectedness in the company; and providing support to those employees who come forward.

A company that encourages internal reporting and promotes an ethical culture is less likely to run the risk that the inevitable few bad apples will spoil the barrel.  On the other hand, a company that fails to encourage internal reporting, or retaliates against those that do, may be faced with a whole barrel full of spoiled apples – as well as lawsuits, investigations, and negative public opinion.

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