Whistleblower protections have now been extended to employees of many private companies. Recently, the U.S. Supreme Court ruled in Lawson v. FMR LLC that Sarbanes-Oxley Act (SOX) Section 806, which protects employees from retaliation, also applies to private companies, contractors and subcontractors that provide services to public companies. “Retaliation” is broadly defined to include the discharge, demotion, suspension, threatening, harassment or any discrimination against a whistleblower. The Lawson decision has made SOX Section 806 an important consideration for private companies. Are you ready?
There are several important questions to consider: Are we aware of anti-retaliation risks? Do we have effective anti-retaliation policies and procedures? Do these policies and procedures address how we deal with whistleblower complaints, which are likely to increase? If so, do we have a compliance program to ensure these policies and procedures are being followed and are effective?
The government has long recognized the importance of leveraging witness information in enforcement. Traditional investigative tactics are reactionary and slow paced. In contrast, firsthand knowledge of illegal activity is direct and relevant, reducing the need for fishing expeditions. Whistleblower information is like having a detailed treasure map pointing to relevant evidence and culprits. It is well established that anonymous tips—the first-hand knowledge brought forward by whistleblowers—is by far the most effective source of information about suspected fraud.
How Does the Government Promote Assistance from Whistleblowers?
Although financial incentives can be substantial (often a percentage of funds recovered), many whistleblowers are motivated by the desire to correct a perceived wrong. However, would-be whistleblowers may hesitate to share their knowledge for fear of retaliation. The government recognizes the chilling effect this specter of retaliation has on whistleblowers, and SOX Section 806 was its response.
Anti-Retaliation Policies and Procedures—A Must
Whistleblower protections must be deeply rooted in your compliance and ethics policy. Anti-retaliation is an ethical issue that must be addressed from the top. To be effective, these policies and procedures must address a variety of closely related considerations:
- Encouraging whistleblowers to come forward with relevant information
- Providing a reporting mechanism for handling increased whistleblower reports
- Establishing investigative procedures to resolve complaints
- Promoting acceptance of anti-retaliation policies throughout the organization
Establishing effective policies and procedures requires several steps. First, retaliatory risks must be assessed in order to design procedures that fit your organization. During this assessment, top leaders must make it clear that they fully support the policies, and the procedures must reflect management’s ethical tone. Once the policies and procedures have been adopted, compliance must be monitored continuously and the procedures updated over time. An effective internal audit group usually can accomplish this monitoring. Finally, whistleblower reports must be investigated. Some will require an extensive third-party investigation culminating in appropriate remedial actions, which may include litigation or voluntary disclosure to the government.
Engaging the Right Resources
Few organizations have internal resources with the investigative skills required to deal with fraud. You should consult a qualified firm with investigative and risk advisory professionals who can help your organization prepare for these new requirements. For example, a professional service provider can conduct a risk assessment to identify potential retaliatory risks, design and implement appropriate anti-retaliatory policies and procedures, and help design and implement a comprehensive compliance monitoring program. If your organization doesn’t yet have a well-established internal audit department, you may also consider hiring an outside firm to facilitate the implementation and monitoring of your new plan.
Whistleblower protection against retaliation is already part of the governance of many private companies. With the Lawson decision, though, employers must be proactive in developing, implementing and monitoring anti-retaliation policies. Not only do such actions provide appropriate and lawful protections for whistleblowers, they demonstrate your commitment to ethical behavior.