We presented a webcast today discussing the final Dodd-Frank whistleblower rules that the SEC adopted a couple of weeks ago. It was a good discussion covering the range of challenges that companies are facing and expecting to face. Based on questions raised by listeners both during and after the podcast it’s apparent that many are struggling with how to continue to motivate employees to submit information internally through existing compliance systems, such as hotlines, rather than starting with the government. Lots of variations on the theme:
- Can I provide by policy that employees are required to provide the company with information concerning suspected noncompliance? (yes)
- Can I enforce this policy by disciplining employees who take their complaints to the government first? (no)
- Can my policy state that employees should raise issues internally before going to the government? (generally not advisable, and in any case most companies have decided it’s better not even to allude to the whistleblower bounty program)
- Can I have my own reward system for employees who submit information internally? (generally not advisable)
Bottom line is that the incentives for reporting internally in compliance with a corporate policy are inherently soft; we may celebrate you as a good citizen, may treat this favorably as part of your performance review, but we can’t discourage you from going to the government first, and we can’t realistically compete with the money that the bounty program could pay. It’s frustrating, but these limitations are to a great extent hardwired into Dodd-Frank and will be difficult to address through rulemaking.