When a manager at finance consulting firm blew the whistle on underhanded trading, the company immediately demoted him. The former head trader was stripped of his supervisory responsibilities and pushed to the sidelines.
It was a risky move that ultimately cost the firm and its owner $2.2 million in settlement charges—and made it one of the first companies to draw fire from the Securities and Exchange Commission (SEC) for workplace retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which legally protects whistleblowers from retaliation.
Experts predict it’s just the beginning of a new era of anti-retaliation enforcement actions on the part of the SEC and other regulatory bodies.
Retaliation can range from firing or demoting an employee to stripping them of responsibilities or marginalizing them within the company. Retaliation can also take the form of harassment from co-workers; nearly a third of whistleblowers experienced physical attacks on their property in 2011, compared to just 4 percent in 2009.
Retaliation also deters employees from reporting misconduct in the workplace. Nearly half of all U.S. workers observe wrongdoing on the job, yet only about two-thirds of them choose to report it—and 22 percent of those who do experience retaliation for it. Of those who don’t report it, 46 percent say they remain quiet out of fear of retaliation.
Workplace retaliation is a violation of equal opportunity laws as well as anti-fraud and anti-corruption laws, subjecting companies to stiff penalties at the hands of enforcement agencies.
And when employees hesitate to report misconduct, enforcement agencies become frustrated in their attempts to shut down fraud and other wrongdoing—which only costs employers more in the long run.
Most companies lose about 5 percent of their revenue to fraud. In fact, nearly a quarter of fraud cases cost upwards of $1 million. With tougher-than-ever enforcement and skyrocketing legal penalties for ethical misconduct, it’s in every business leader’s best interest to nip fraud in the bud as quickly as possible.
Research has shown that internal whistleblowing is the number one tool for fraud detection within companies. A study by the Association of Certified Fraud Examiners found that more than 40 percent of fraud cases are detected through whistleblower tips—more than twice the rate of any other detection method. Nearly half of those tips come from employees.
Companies that vocally encourage whistleblowing can achieve a sharp decline in retaliation incidents. In organizations with clearly established ethics and compliance programs, only 2 percent of whistleblowers experience retaliation. Below are some of the critical elements to include in your ethics and compliance program.
Create a well-designed code of conduct outlining your company’s ethical standards, and include explicit language prohibiting retaliatory behavior. Your code of ethics should serve as a cornerstone for developing a wider culture of ethics within your organization.
It’s not enough to simply have a policy; employees need to be trained on how to apply it. The better-versed employees are in a company’s ethical standards, the more likely they are to make sound decisions.
To avoid any action against a whistleblower that could be construed as retaliation, implement a policy for handling adverse employment actions such as warnings, suspensions and terminations. Bring human resources into the loop and require supporting documentation.
When facing ethical dilemmas on the job, employees stand a better chance of making strong ethical decisions when they have someone to turn to for guidance. An effective compliance program includes resources employees can draw upon when they need advice on ethical issues—an ombudsman, for example.
Companies with in-house whistleblowing hotlines are more likely to catch fraud by a tip. These organizations detect frauds 50 percent more quickly, and the frauds they do experience are 41 percent less costly. Keep all complaints anonymous or confidential.
By creating a culture that encourages whistleblowing, business leaders can stop retaliation in its tracks while curtailing the long-term costs of ethical misconduct.
To learn more about how training can help, schedule a demo with one of our compliance specialists.