Pros and cons of the whistleblower process

By Kyle Brasseur, 15 July 2024

Whistleblowing remains a controversial topic – in more ways than one. Even the term ‘whistleblower’ alone is enough to draw a spirited debate.[1]

Renewed attention to the matter in recent months followed the US Department of Justice’s (DOJ) announcement it would begin a sprint to form its own whistleblower reward programme.[2] This prompted Compliance Week to convene a pair of experts for a discussion regarding a handful of whistleblower-related talking points. Compliance Week Advisory Board members Eric Young of Guidepost Solutions and Ellen Hunt of Spark Compliance Consulting participated in the exercise.

For the purpose of trying to address different sides of each issue, Young was tasked to respond in the affirmative regarding each talking point, while Hunt was asked to play contrarian. Given that framework, their views expressed below might not be entirely representative of their personal feelings on these subjects.

Responses have been paraphrased for reading convenience.

Topic 1: Whistleblowers are a positive for compliance culture

Young: Whistleblowers are the first line of defence on the ground to root out misconduct and fraud, particularly fraudulent claims against the government and abuse toward markets and investors. People want to do the right thing but are afraid to do so because of the fear of retaliation. Once that is overcome in some form or another, then it will be more likely that people will raise their hand – even without being anonymous. They’re heroes, at the end of the day, especially to the US Securities and Exchange Commission (SEC), investors, and taxpayers.

Hunt: The problem is corporations aren’t holding up their end of the bargain for whistleblowers to be a positive for compliance culture. There’s a tonne of fear and not a lot of safeguards to protect the whistleblowers. If we want them to be seen as heroes providing value to the organisation, protecting reputation, and reducing litigation exposure and expense, then we must do a lot more to make sure they’re not ostracised, retaliated against, fired, or put through the stress these situations entail.

We are 30-plus years in since the federal sentencing guidelines for organisations were published. What are we doing besides saying we have zero tolerance of retaliation? It’s not enough.

Topic 2: Whistleblowers should be incentivised with monetary awards

Young: The sad reality is people are raising their hands at significant personal and professional risks. It could ruin their careers and take them years to recover within the organisation, or beyond the organisation, because they end up being blacklisted.

The monetary incentives, in the meantime, enable folks to survive beyond the legal costs alone and keep their families, who are also suffering, going. Whistleblowing is financial and emotional pain and suffering, at the end of the day.

It’s not the best solution, but with where things are, it’s the reality.

Hunt: This is treating the symptoms instead of the cause. If we want whistleblowers to be treated as heroes, they need a lot more safeguards in place throughout the process than just some money at the end. This is our legal system compensating with money; it isn’t an ideal system and takes a tonne of time.

One of the things we’re seeing, because people are going outside the organisation instead of dealing with the internal process, is maybe corporations aren’t doing it well. We’ve got to up the game. Ideally, you should have a compliance programme where people have enough trust and faith that they can come to the compliance department or the chief compliance officer; raise their concerns; have information about the process and timeline; and get a resolution in a fair, thorough, objective, and timely way. That’s not happening in some organisations, so people look at social media or the monetary award as a safety net.

Topic 3: The DOJ’s whistleblower reward programme will be a success

Young: If there’s anything companies fear, it’s the DOJ. They’re less fearful of civil violations because they can afford to write the cheque to pay for penalties they can easily afford. But when there are criminal allegations and the publicity behind that: that is an incentive for companies to take notice, particularly when there’s an outlet for whistleblowers to go straight to the DOJ. And whistleblowers will be more open going to the law as opposed to a regulator.

There are a lot of questions and caveats about how this programme will work and whether it will be successful, but the chilling effect that the DOJ will become directly engaged is a big step forward and a demonstration the agency is taking misconduct and fraud seriously.

My hope, particularly since the DOJ is emphasising greater individual accountability, is that the whistleblower pilot is part of a larger programme where they are going to go after individuals and executives more rigorously. The whistleblower process is broken – why repeat a broken model? This needs to be part of a bigger puzzle. It’s doable.

Hunt: We’ve got so many different programmes – how does a poor whistleblower know where to go and what to do?

We have to think about how it is going to work and how long it is going to take. That’s the real key. If you believe the theory whistleblowers do a risk-benefit analysis on who they should talk to and where they should go, if this is going to take five to seven years and you have no real guarantee of a payout at the end, then maybe this is not your thing. We’ll see how many resources the DOJ puts into it – if it isn’t a lot, then I don’t think it will be a success.

Whether you’re thinking about going through the corporation or going to the government, as a whistleblower you have to know what the process is. You have to know what your chances are. The DOJ is going to be reluctant to tell you because it won’t know the results of the litigation. There’s a reason people go to the voluntary self-disclosure programme – they don’t want to roll the dice on the litigation. I think it’s an iffy proposition.

Topic 4: The pros and cons of voluntary self-disclosure

Young: Transparency is always a good thing, and in the long term it’s good for the organisation. Voluntary self-disclosures reflect the right culture to cooperate and remediate effectively. This could result in an absence of any DOJ prosecution or avoidance of an independent monitor and all the CEO and CCO certifications that go with it. It’s a reinforcement of good corporate culture and an effective compliance programme, including the protection of whistleblowers, since the compliance function is supposed to enable employees to raise integrity issues while protecting them from retaliation.

Hunt: The stick has more weight than the carrot. These pilot programmes create a race to the DOJ’s doorstep in a way that might not be practical.

The DOJ’s incentive here is to get a settlement. Your company’s reputation is on the line and there are big expenses associated with litigation – the easier way is to settle, whether you’ve actually done the misdeed you’ve been accused of or not. It seems to me while it’s great we’ve got all these roadmaps on how to self-disclose, how about some real roadmaps on how to get a declination?

Look at the press releases and the settlement agreements that are 20-40 pages. Then look at the declination letter that is two paragraphs. I think it’s out of balance.

Topic 5: Retaliation

Young: Retaliation is the biggest fear factor to raise integrity issues – not fear of consequences from the government but from our own colleagues. Not that anything goes, but what’s worse is all the right things about the illegalities of retaliation are being said but no action is taken in terms of disciplining, let alone monitoring, for retaliatory behaviour. That’s what’s suppressing whistleblowers.

Whistleblower programmes have matured to the point they can track how many complaints and investigations there are and how many reports go to the board, but they don’t address at all the root cause of retaliation nor how to protect the whistleblower, which is the cornerstone of an effective compliance programme.

Hunt: In the past 30 years, we haven’t evolved. We still talk about zero tolerance of retaliation, which is pretty much a useless phrase. We’ve got to do a lot more to understand what whistleblowers go through and how to prevent and detect.

We need to talk about the hypocrisy of tone at the top when the board is never held accountable. We say tone at the top, but we still see chief compliance officers not presenting to the board or having executive sessions. All of that is a suppression of what is not going well at the company. When you really think about it, your whistleblower to the board is the chief compliance officer. We all know a handful of colleagues who have been fired for doing that part of the job.

Young: The compliance officer, by definition, is paid to flag and raise integrity issues and exceptions. Put another way, they can be viewed as whistleblowers who are empowered to escalate misconduct and violations of law to management and the board. Unfortunately, compliance officers are too often prevented by management from speaking to the board directly which, from a whistleblowing perspective, is a form of retaliation and suppression.

This, in many ways, is a root cause why whistleblowers, including compliance officers, today are not effectively protected and companies are not voluntarily self-disclosing enough. Whistleblower programmes will not work until the CCO can dialogue regularly and independently with the board of directors to hold management accountable for misconduct and violations of law, including whistleblower retaliation.