January 18, 2013

Whistleblower Retaliation on the Rise – Bad News for Whistleblowers and Their Employers Alike

By Gordon Schnell

It is not surprising that the number of individuals blowing the whistle on fraud or misconduct in the workplace is on the rise.  The incentives and protections are getting stronger, the awards getting richer, and a new mindset emerging that when you see something, you are supposed to say something.  But what is surprising is that as much as this whistleblowing activity has grown, the level of retaliation against whistleblowers has grown even more.  This comes out of a recently released report from the Ethics Resource Center (ERC) entitled Retaliation: When Whistleblowers Become Victims.  It found that not only is retaliation on the rise nationally, it is rapidly becoming an issue even at companies with a demonstrated commitment to ethics and integrity.

According to the ERC, about 45 percent of employees observe fraud or misconduct each year, the majority of them (65 percent) report it, and more than one in five of them, or 22 percent, are retaliated against for doing so.  This is a significant jump from the 15 percent retaliation rate the ERC found from a study it conducted in 2009, and the 12 percent rate it found only two years before that.  This represents an 85 percent increase in the retaliation rate over the past five years.  What is perhaps even more disturbing about these findings is that the form this retaliation is taking may be trending in a more severe direction.  It is not just a cold shoulder from colleagues or superiors or simply being excluded from work decisions or assignments.  It even goes beyond demotions, pay cuts and firings.  The retaliation is apparently going so far as to include harassment and even physical violence.  And based on ERC’s findings, we are talking about a fairly sizeable and growing percentage of the retaliation.

Obviously, this presents a very troubling development for would-be whistleblowers.  Forget about all the new protections and incentives in the ever-expanding array of anti-fraud and whistleblower laws.  And forget about the potential for riches for uncovering the next nine- or ten-figure mega-fraud.  None of it is going to matter if these potential upsides are cancelled out by a growing threat of serious retaliation.  No one really wants to be a whistleblower in the first place.  It is a long, lonely and tiresome ride that can have devastating effects on both career and family.  Throw in a serious threat of physical or mental abuse, and all but the most driven, daring or reckless, are going to keep their head in the sand, no matter the wrongdoing they may witness.  Hopefully, we will never get there and these latest findings by the ERC are an aberration, not a permanent trend.

Employers should hope so too.  Because as foreboding as the ERC’s findings are for future whistleblowers, they are even more disquieting for the companies that employ them.  That is because the absolute worst thing a company can do in this new Age of the Whistleblower is operate in a climate that discourages and punishes internal reporting.  In a different study it released last summer, called Inside the Mind of a Whistleblower, the ERC reported that the vast majority of whistleblowers have no interest in reporting to the government.  Instead, they strongly prefer to work within the company to expose and attempt to remedy the fraud.  It is only when they have been frustrated in this endeavor do they feel compelled to bring their grievances to the government.  See Shattering the Myth of the Whistleblower as a Rogue and Disloyal Employee.

Nothing is going to send a whistleblower to the government (and potentially the press) faster than being rebuffed or retaliated against for trying to help the company root out fraud.  See Hear No Evil — the Increased Risk For Companies That Ignore or Retaliate Against Whistleblowers.  And once the government (or press) gets involved, the risk of serious sanctions (and embarrassment) for the company goes up sharply.  What is more, as the latest ERC study detailed, retaliation not only pushes the victim to report to the government.  It drives others there too, knowing full well that their gripes are not welcome on the inside.  It also, unsurprisingly, significantly weakens employee morale and their commitment to the company.

The bottom line takeaway from all of this is that retaliating against whistleblowers is a bad idea and companies should do everything they can to protect and encourage internal reporting.  First and foremost, this means creating a culture of honesty, openness and strong business ethics.  It also means creating robust compliance and internal reporting programs — educating managers and staff on the importance of internal reporting; providing easy channels for employees to do so; offering real protections for those that do; addressing their complaints quickly and decisively; and employing a clear and visible zero-tolerance policy for retaliation.  Otherwise, if the frequency and severity of retaliation continues on its present course, it is not just the whistleblowers who will be feeling the pain.

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