The last several months’ impeachment trials and the media furor it generated has focused a spotlight on whistleblowing and raised much-needed awareness on this issue.
The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 have provisions that were intended to prevent businesses from firing or demoting employees who reported fraudulent behavior to authorities. However, in 2018 the U.S. Supreme Court limited the scope of protection under existing law to employees who report wrongdoing directly to the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC).
According to the SEC’s Office of the Whistleblower 2019 Annual Report, published on November 15th, this has led to dramatically increased numbers of whistleblower tips.
Still, this measure has not proved enough to hold corporations accountable and actually limit fraud and other abuses. However, a proposed bill, the Whistleblower Programs Improvement Act (WPIA) would broaden the scope of the law by extending whistleblower protections to individuals who report wrongdoing internally before or instead of reporting it directly to government agencies. Senate Finance Committee Chairman, Chairman Chuck Grassley (R-Iowa), Sen. Tammy Baldwin (D-Wis.), Joni Ernst (R-Iowa) and Dick Durbin (D-Ill), introduced the WPIA to extend whistleblower protections to more individuals.
No reason to face retaliation
In a September 24 press release Chairman Grassley said, “There’s no reason why those who want to report wrongdoing internally should face potential retaliation from the exact people they are reporting to… Internal disclosures can be the fastest and most effective way for a company to remedy problems, prevent fraud and protect investors.”
Dennis McCuistion, a clinical professor of corporate governance at the University of Texas at Dallas and executive director of the Institute for Excellence in Corporate Governance says, “The fact that whistleblowers are retaliated against rather than applauded is appalling.”
“Large public corporations have established procedures for employees to report perceived wrongdoing… Most public corporate boards that I’m on or know of have done a good job,” Mr. McCuistion said. “They’ve established hotlines for whistleblower complaints.”
In his experience, “ninety-nine percent of the complaints on hotlines are related to personnel issues that could or should be handled by human resources departments.”
Sen. Tammy Baldwin believes, “If we strengthen and empower whistleblowers, we can do a better job of holding corporate America accountable.”
What message does retaliation send?
From my and others’ experience, retaliation against whistleblowers is a serious problem. There is no doubt that whistleblowers are widely discriminated against. Being a whistleblower means you’re probably going to blow up your career. If you report on your own company for violations, there’s an unwritten expectation that you’ll leave voluntarily. If you don’t, you’ll most likely be forced out.
But does this action enforce ethical behavior? What message does retaliation actually send?
When companies punish whistleblowing, industries lose valuable people. Some companies merely pay lip service to a “Code of Ethics.” I believe there are some aspects of the WPIA that are positive for corporations in instilling more accountability and sending a loud and strong message of “we are an ethical company.”
The advantage of this bill for corporations is that employees will go to them first. Without fear of retaliation, more employees may be willing to approach the problem internally, instead of reporting violations directly to the SEC.
As I said to the Heartland Institute, in their recent article on WPIA, this new legislation is definitely needed because whistleblowers have been deceived into believing, since Sarbanes-Oxley and now Dodd-Frank, that they have more protections than they do.
By the way, protection for whistleblowers should apply to whistleblowing at every level, business or government.
It’s no surprise that Senate Minority Leader Chuck Schumer is asking that every agency inspector general investigate retaliation against whistleblowers who report government misconduct. He stated, “It is incumbent on you that whistleblowers … are protected for doing what we hope and expect those who serve our country will do when called, tell the truth.”
Senator Dick Durbin states, “There has long been a bipartisan consensus that if whistleblowers are being retaliated against for reporting wrongdoing, Congress has a responsibility to step in. Whistleblowers deserve to be protected. Period.”
Retaliation against whistleblowers shuts down trust, truth and transparency. Period.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
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