Next week, in special five-part podcast series, I interviewed Dr. Kyle Welch, Assistant Professor at George Washington University (GWU), on his recently released paper, co-authored with Stephen Stubben, Associate Professor from The University of Utah, entitled “Evidence on the Use and Efficacy of Internal Whistleblowing Systems”. In this paper, they reviewed some 15 years of anonymized data from NAVEX Global, Inc., the sponsor of the podcast series. This data was from the company’s hotline reporting systems. Some of the key findings included that companies with a robust whistleblower and reporting system had greater profitability and workforce productivity as measured by Return on Assets (ROA) and there were fewer material lawsuits brought against the company overall and lower settlement costs if a lawsuit did occur. Finally, there were fewer external whistleblower reports to regulatory agencies and other authorities. This podcast series will take a deep dive into the Report.
Dr. Welch said that many of the largest corporate scandals, such as Enron and WorldCom in the first decade of this century on to Wells Fargo and others in this decade, had instances of whistleblowers who came forward. Yet there were still significant monetary and reputational damage. Dr. Welch came to EthicsPoint, a part of NAVEX, that has been in the whistleblower reporting system business since the early part of the century. He approached NAVEX to research an anonymized portion of data from the years of whistleblower reporting, what and how companies handled that data. Dr. Welch made clear that he approached Navex Global and this research was a part of his work at GWU; he was not compensated by Navex Global for this research or the resulting academic report.
As to why he wanted to look at whistleblower data, he said, “When you think about accounting performance metrics, there is a lot of data available and a good understanding of what the performance metrics mean. However, whistleblowers systems have much more limited data points. There was no academic work capturing all of those limited data points related to whistleblowing systems and then determining from an analytic perspective, what the data might mean going forward.” He also said that the research examined two primary questions. First, which companies were more likely to actively use internal whistleblower reporting systems and second, what was the association, if any, between full whistleblower reporting systems and subsequent litigation and administration enforcement actions, including civil and criminal enforcement actions.
This type of approach is certainly welcomed by the compliance profession. It has long been believed that a company’s own employees are the best source of information about what is going on inside an organization. Taken in another setting, the Securities and Exchange Commission’s (SECs) Whistleblower bounty program demonstrates a monetary validation of this well-known maxim.
I found the academic focus provided an interesting dichotomy to someone who spends time in the ‘nuts and bolts’ of designing, creating and implementing best practices compliance programs and compliance professionals who work to operate effective compliance programs. He noted that while individual whistleblower reports can help on one issue, when they are aggregated a compliance professional can garner insight into both larger and broader issues. He stated, “what the whistleblower system does is give you a sense of your visibility to those problems. It enables managers to get a window into the problems.” Put another way, “Is this indicative of a firm that actually or just discovering more about things that they don’t know?”
Some of the data points Dr. Welch considered were how many reports were in the system and how quickly they were resolved. It is well recognized that zero whistleblower reports are not necessarily a good thing or even indicative that there are no problems. Conversely, because there are multiple or even a plethora of reports, it does not mean the company is in legal, ethical or reputational trouble. Most interestingly, Dr. Welch tied a robust whistleblower reporting system to leadership. He stated, “There’s a huge amount of management research and gurus spending time on how to lead, how to be the right leader of an organization. There is a continual search for the silver bullet of finding the right team and finding the right manager that makes you inoculated from problems.” Yet he believes there is also another way of thinking about it, which is that your own employees can get information into the hands of an appropriate level of decision makers and this is the power of robust whistleblower reporting system.
It is incumbent to understand this is not simply about having a whistleblower phone line. It is about an entire whistleblower reporting system. This means someone must intake the call and route it to an appropriate person or function to triage. From there, it should be given an appropriate ranking for investigation. The investigation should be concluded in timely manner and then remediated or reported if appropriate. Finally, the whistleblower should have been contacted to acknowledge the initial report, for any additional information and follow up and then if there is a resolution.
All of this leads to what Dr. Welch called “visibility to problems”. These data points can be powerful for a company in a variety of ways that we will explore during this podcast series. Join us in the next episode, where we take a look at some of the background which went into the research and report.
In know you will find the podcast series useful in your compliance practice. I will release an episode per day, Monday through Friday on the FCPA Compliance Report and JDSupra. For those who want to binge out, I will release them all on Monday on the Panoply Podcast Network and on iTunes. This five-part series is a special presentation of the Compliance Podcast Network. Enjoy.
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© Thomas R. Fox, 2018