Employees more likely to report wrongdoing, suffer retaliation, compliance survey finds
27 March 2018. By Robert Thomason.
Employees have become more likely to report corporate misconduct when they see it, according to a survey conducted by the Ethics & Compliance Initiative. The downside: Their employers are also likely to retaliate.
In 2017, 69 percent of employees reported observing misconduct, an increase from 64 percent in 2013, ECI said. This jump is consistent with a long-term trend. In 2000, only 56 percent of respondents who witnessed malfeasance blew the whistle.
Bribes and kickbacks are disclosed by employees when they come to light, the survey said. Seventy-six percent of the Virginia-based research group's respondents reported when they saw bribes and kickbacks being given and accepted. However, bribes and kickbacks are witnessed at some of the lowest rates of all types of misconduct, ECI told MLex.
In 2017, 47 percent of employees said they saw misconduct in the last 12 months, down from 51 percent in 2013, while kickbacks from vendors were more often observed and reported than bribes to public officials or customers.
Retaliation is swift
This ethical vigilance comes with a cost. ECI's figures show a doubling in the retaliation rate against employees who observed misconduct. In 2017, 44 percent of those who disclosed misconduct said their employers retaliated; in 2013 only 22 percent said they suffered retaliation.
ECI said the increase in retaliation is a matter of employees understanding the issue better and reporting retaliation more frequently. "Over the course of the past few years, retaliation has become better defined, and in some cases more broadly defined," ECI said. "So, it would seem natural that this increased or expanded view of retaliation, and the general increase in reporting would suggest that it is more that retaliation may have been under-reported in the past."
The research group noted that the reporting of bribery or kickbacks carried an 83 percent retaliation rate.
ECI released its "Global Business Ethics Survey" this month, saying "pressure and retaliation are the two metrics most closely associated with trouble ahead."
How the trouble ahead plays out could depend on a February US Supreme Court ruling on whistleblower protection provisions. In Digital Realty Trust v. Somers, the high court decided that whistleblowers must report wrongdoing to the US Securities and Exchange Commission before they qualify for anti-retaliation protections under the Dodd-Frank Act.
The ruling is relevant to publicly traded companies and has already affected one heavily contested whistleblower case.
Earlier this month, healthcare company Bio-Rad Laboratories asked the Ninth Circuit to take judicial notice of Digital Realty in its appeal against an $11 million award to Sanford Wadler, its former general counsel. Wadler had successfully sued Bio-Rad claiming that, under Dodd-Frank and other legal authority, he had been wrongfully fired after disclosing foreign bribery at his Bio-Rad business.
Bio-Rad appealed the jury's verdict. After the Supreme Court's Digital Realty decision, Bio-Rad filed a letter with the appellate court seeking to have the $2.96 million in damages attributable to Wadler's Dodd-Frank claim reversed.
"As Bio-Rad has argued [...], Wadler’s Dodd-Frank retaliation fails as a matter of law because it is undisputed that, like the plaintiff in Digital Realty Trust, Wadler did not provide information to the SEC," Bio-Rad said.
This could be bad news for companies that haven't developed robust policies and strong cultures against corruption, ECI said. "The suggestion could be made that organizations that inherently face US government fraud risk and that have a weak culture are at higher risk given the Court’s determination," ECI said.
Kara Brockmeyer, who reviewed whistleblower reports as former chief of the SEC’s Foreign Corrupt Practices Act unit, told MLex at the time of the decision, that attorneys will now likely advise their whistleblower clients to go directly to the agency rather than report internally. Brockmeyer is now in private practice.
“It’s a bad thing for companies because it means employees are going to have to report to the SEC in order to protect themselves,” Brockmeyer said.
ECI advises firms to "implement an ethics & compliance program with the elements defined in Chapter 8 of the US Federal Sentencing Guidelines.
"These programs are essential first-steps to establishing a strong ethical culture," ECI said.
The section of the sentencing guidelines titled "Effective Compliance and Ethics Program" states that such a program would "exercise due diligence to prevent and detect criminal conduct" and would "promote an organizational culture" that encourages compliance with the law. The guidelines also specifically warn against giving authority to individuals with bad track records.
A compliance program was part of a Foreign Corrupt Practices Act resolution with Transport Logistics International, a Maryland trucking company involved in a Russian nuclear fuel bribery scheme. In addition to paying a $2 million fine, TLI agreed to a compliance program under a deferred prosecution agreement with the US Department of Justice.
The TLI compliance program not only requires the company to establish internal controls designed to prevent and detect bribery but adds that TLI, "where warranted, conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable."
For three years, TLI must annually report its progress to DOJ.