Incremental Steps to Better Whistleblowing

Incremental Steps to Better Whistleblowing

News about whistleblowing often settles on big-time cases, like Edward Snowden’s, or the few public employee cases that attract attention, and the myriad of small-time whistleblowers are mostly ignored.  In the legislative arena, significant federal strokes to encourage whistleblowing, such as Sarbanes-Oxley, the False Claims Act and actions by the IRS, are praised, but it’s the many, varied state laws that create the working environment of most whistleblowers.

Stephen Dubner recently offered a Freakonomics podcast In Praise of Incrementalism which described the slow and steady American progress toward strengthening LGBT civil rights – from failed lawsuits in the 1950s, the formation of gay rights groups in the 1960s, changes in psychological classification of homosexuality in the 1970s, then changes in state laws and eventually in popular thought and the Supreme Court.  The world of whistleblowing has likewise evolved with many small steps although we are still just part way to a balanced treatment of those who disclose suspected wrongs and the accused organizations.

Interest in whistleblowing and protection of the whistleblower took off in the 1970s following Daniel Ellsberg’s 1971 disclosures of the Pentagon Papers.  The Government Accountability Project formed in 1977, and in the following year the Civil Service Reform Act addressed whistleblower rights and protections.  The federal Whistleblower Protection Act of 1989 strengthened those rights, still, however, focused on federal employees.  In 2002, the Sarbanes-Oxley Corporate Reform Act, responding to the scandals at Enron and WorldCom, extended protections to employees of publicly traded corporations.

All states now provide explicit whistleblower protection in at least some instances, and disclosures that are not specifically protected may find common law protection when the public interest benefits.  State protections vary widely in their usefulness – many are limited to public employees, some protect disclosures only of certain legal violations, they have varying deadlines and reporting requirements, and some require the whistleblower to give management a chance to fix things before a report is made.  California introduced its Whistleblower Protection Act in 2005 covering public employees and extended it to all employees with amendments in 2013, making the state among the most attractive for whistleblowers.

Legislation and general public interest have encouraged the development of corporate policies to encourage and protect whistleblowing.  The U.S. Sentencing Commission provided in 1991 that an effective compliance program be considered as a mitigating factor in determining sentences for convicted corporate wrongdoers.  The Commission increased the rigor of its standards in 2004 following scandals at Enron, which had an ethics policy, and WorldCom, whose CEO shunned such policies.  The 2008 revision of the IRS Form 990, which is used by nonprofits to report their income, requires organizations to state whether they have a whistleblower policy in place. 

But protective laws and policies have failed to eliminate unethical actions and retaliation against whistleblowers.  Despite its admirable ethics policy that forbade retaliation against whistleblowers, Wells Fargo employees still complained of punishment for their disclosures, and HomeFirst felt free to retaliate against me.  Hoping to encourage whistleblowing in the face of likely retaliation, the federal government created several major award programs, administered by the Department of Justice, the IRS, and the Securities and Exchange Commission, which together paid $739 million to whistleblowers in 2015 with respect only to violations of federal laws.

The international compliance monitoring and consulting company Navex Global in 2015 collected 867,551 compliance incidents from 2,311 client companies that had a total of 34 million employees.  The median number of incidents per company was 1.3 per 100 employees, compared to 0.9 per 100 in 2008.  Based on Navex reports, whistleblowers number more than 1 million each year in the U.S., many times more than the couple of thousand rewarded through federal programs.

Problems persist despite laws, policies, schemes to improve reporting, and awards for whistleblowers.  What can be done next?  One strategy: a recent academic study found that companies may discourage whistleblowing by giving employees financial incentives, such as stock options, to keep quiet about financial reporting violations, apparently outweighing the available federal awards.

I suggest four areas of incremental change instead.

1.       Expand protections by broadening state laws along the lines of the amended California Whistleblower Protection Act. 

A few steps: (a) cover all (not just public) employees with (b) reasonable suspicions of wrongdoing (rather than actual and serious violations of laws), (c) eliminate the need to first report wrongs internally but (d) protect against retaliation for internal reporting (rather than only when reported to responsible authorities), and (e) extend reporting deadlines.

2.       Increase government staffing to investigate the reported wrongs and claims of retaliation on a timely basis.

Effective enforcement can be a cost-effective alternative to throwing more money at a few whistleblowers who may want to see justice more than hefty rewards.

3.       Increase significantly the transparency of the reporting process at all levels.

A few steps here: (a) make frequent and easily available public reporting of the (i) status and (ii) investigatory results of (iii) all open and recently closed complaints including the names of (iv) the accused, (v) the alleged wrongdoing, and (vi) (unless anonymity is requested) the accused, (b) require reporting of whistleblowing activities in annual SEC filings and Form 990s, and (c) severely restrict nondisclosure clauses in agreements relating to employment, job terminations, and wrongful termination settlements.

4.       End leniency for corporate wrongdoers that is based on the dubious, but politically convenient, contention that the company does good work that must be protected.

Increase penalties on companies and their management – even including jailing managers and dissolving the companies – when they refuse to cooperate with investigations of reported wrongdoing or their actions are found to be egregious.

Individuals become whistleblowers when their patience fails.  If we were all big-time whistleblowers, then perhaps we could demand quick changes, but nearly all of the million or more who make disclosures each year are small-time players.  As a result, incremental changes to correct the problems faced by whistleblowers will take decades to effect.  Other groups who are even more deserving have waited decades – and many are still waiting – for the rights they have been promised.  We will need to wait for justice, but we must continue to fight when we find an opportunity.