November 23, 2014

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2012 in Retrospect: Agents of Altruism & the Future For Incentivised Whistleblowing

Will people pass up the opportunity to report if there isn’t a reward involved?

Kirsty_matthewson_expolink

Editor's Note: Like last year, we've assembled an impressive lineup of thought leaders and experts who will examine the year that was, guide us on what might be ahead and offer their advice on how our business, social and environmental consciousness continues to converge, in our end of the year CSR & Sustainability 2012 series. They will spotlight achievements, highlight trends and activate the change makers among us. Consider this series a call to action.

Today's editorial is by Kirsty Matthewson, an expert on whistleblowing and marketing manager at Expolink. Here we go:

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What motivates people to blow the whistle? Wanting to do the right thing, a desire to see accountability and justice, a sense of personal responsibility, protecting colleagues or protecting revenue – and therefore one’s own job?

Unfortunately, too often whistleblowing is hindered by fears of retaliation, a lack of confidence in the procedures or doubts that positive action will follow. Sadly, this reflects a concomitant apathy in those spearheading these initiatives and until a scandal erupts and the incident moves to the public sphere, little gets done.

Regulatory reform increasingly promotes whistleblowing as a valuable mechanism for good governance, though whether it should be incentivised remains contentious. Research by the University of Illinois suggests that reward-based frameworks are effective, that they encourage organisations to develop and regulate whistleblowing policies, and therefore, avoid subsequent adverse publicity, fines and investigation. In addition it shows the company's commitment to resolving issues. 

Incentivising the Whistle: What The Law Says

The Dodd–Frank Wall Street Reform and Consumer Protection Act, which was passed into U.S. law in 2010, features an incentivised whistleblowing procedure. The U.S. also has a number of whistleblower programs in operation including the Department of Justice's program under the False Claims Act, and others run by the IRS, the SEC, and the Commodity Futures Trading Commission. Following Dodd Frank’s inception, though, several high profile cases such as that of Citibank employee Sherry Hunt whistleblowing[NYSE: C] who was rewarded $31 million for exposing mortgage fraud, caused a rush of blood and scramble of keys for businesses keen to protect profits and reputation.

Bradley Birkenfeld also made headlines in September 2012 by receiving $104 million for blowing the whistle on the financial misdemeanours of his former bosses at UBS [NYSE: UBS]. As a banker, this weighty sum reflects his loss of earnings and also the potential harm to his future career. Moreover, it also sends a clear message that large institutions cannot simply fudge their books and rely on PR spin – that if they are committing wrongdoing their employees have more than altruistic motivations for speaking up.

A Cultural Dilemma: Incentivise or Do the Right Thing?

Despite recent cases, critics fear that whistleblowing in the U.S. will be increasingly perceived as an extension of the ambulance-chasing culture that has blighted the insurance industry. The SEC’s whistleblowing site that was launched in 2011 with handy navigation for “submitting a tip” and “claiming an award,” seemingly diminishes the altruistic possibilities of reporting genuine misconduct for the protection of others. Will people pass up the opportunity to report because there isn’t a reward involved?

So what of the future of incentivised whistleblowing outside the U.S.?

In a recent conversation, U.K. whistleblowing expert Professor David Lewis voiced his support for rewarding whistleblowers for exposing wrongdoing, stating that this could help dissipate the feelings of isolation and trepidation felt by those contemplating blowing the whistle.  The U.K.’s Serious Fraud Office (SFO) does not currently offer financial rewards to whistleblowers. Although the Office of Fair Trading offers rewards of up to £100,000 for companies or individuals who report illegal activity that leads to prosecution or fines.

An added bonus is the possibility of immunity from prosecution; something not offered by the SFO’s own whistleblowing procedure. The U.K. Ministry of Justice is in the process of developing deferred confusion prosecution agreements, which some commentators feel could see a rise in companies self-reporting to negotiate a more favourable settlement, and therefore, could be an opportune time to review incentivised reporting.

Governance & Accountability: Does it Pay to be Public?

Our clients tell us, however, that outside the U.S., reticence to incentivise whistleblowing is due to companies’ fears that this will reduce their ability to manage incidents internally and the subsequent negative publicity that follows large pay-outs. No less troubling is the possibility of heralding the start of a scapegoating culture that seeks to publicly vilify companies already struggling to manage increasingly decentralised operations.

There are also important social-cultural aspects to consider. Whistleblowing already labours under bad PR in much of the world; and I doubt adding financial incentive could make it any less palatable to its critics.

For much of the 20th century, countries across Europe such as Spain and Hungary were governed by authoritarian regimes and dictatorships - reporting corrupt activity could end very badly for the citizens concerned. Developments in data regulation could begin a slow sea change with increasingly robust initiatives being passed to law that seeks to protect individuals’ personal data and ensure confidentiality. Coupled with anti-corruption efforts across many EU member nations we should see a greater acceptance and understanding of whistleblowing as a vital corporate governance tool and not the Orwellian phenomena it’s perceived to be.

Agents of Altruism

Another cultural obstacle that would require navigation is that Europeans may balk at seeing themselves as agents to be financially coerced into doing something they consider should be altruistic in motivation. Although, given the current economic climate, there is a danger of parties with dubious motivations taking advantage of rewards and devising schemes to bend and abuse the system.

However, the benefits of encouraging personal ethics in the workplace or society and rewarding those for taking a stand should be up for discussion. Consider the possible ramifications a whistleblower might be subjected to: loss of earnings, delayed promotion, sanctions, harassment, future career and even material damage. 

While we hear more about the amount of compensation whistleblowers receive, we're also starting to hear more about the hardships and repercussions people face after reporting wrongdoing. Perhaps with added incentives people will be more inclined to navigate whistleblowing procedures or be aware harrassmentthat they exist in the first place; though for the same reasons might it make employers more reticent about' communicating them – something that is already a widespread problem?

So, what's ahead?

Contextualization

Corporate governance is a broad church and perhaps incentivisation should be attuned to suit each socio-cultural context, by country and even industry. What works for the financial industry, where pay-outs align to percentages of hefty earnings, won’t work so well for public sector or healthcare. What is readily accepted in Australia may prove more problematic in Italy.

Such contextualisation could also allow for better communication of reward processes and policies as each governing body would be speaking more directly to their audiences, without any didacticism. The strength of cultural identities must not be underestimated and there is no one-size-fits-all solution. The ultimate aim for whistleblowing is to ensure people feel comfortable with the culture and processes surrounding it, to have faith in policy and the fortitude of those that manage and champion it.

If research and trials indicate that incentivisation might work for all parties involved then it is worth giving it a try.

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Read the rest of our series: 2012 in Retrospect: CSR and Sustainability News, Views & Trends

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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