Compliance officers and other financial services firm executives are told they need to be proactive about creating a strong culture of compliance within their organization, and for good reason. In firms where employees feel empowered and supported to do the right thing and to make decisions that demonstrate their commitment to putting clients first, compliance risk is lessened – significantly so. The overall cost of compliance is lower in organizations that approach compliance as a valued business partner rather than as a hindrance.
Under Dodd-Frank, whistleblowers enjoy legal protections, as well as the potential to reap financial rewards for sounding the alarm when tips result in significant successful enforcement actions. Most firms have adopted internal whistleblower programs too, intended both to comply with regulatory mandates and to encourage employees to come forward with information or allegations about potential wrongdoing or ethical issues within the organization.
Where Do Internal Whistleblower Policies Belong?
In some firms, the whistleblower and ethics programs are housed within an existing business line or service. In others, it is a standalone function.
Many financial services firms opt for legal department management/ownership of the whistleblower process. However, doing so may be perceived by employees as meaning they need to talk to a company attorney in order to bring their complaint forward – something that can be intimidating to a rank-and-file worker. There may also be an inherent conflict of interest with having whistleblowers sound the alarm through company lawyers, because the legal department’s client is the firm itself.
Structurally, it arguably makes more sense for firms to create and manage their whistleblower program inside (or substantially within) the compliance department. Compliance should already function in an oversight capacity, objectively identifying, preventing, detecting, and correcting risks to the organization and its clients. Regardless where the program resides, it must function effectively in order to bolster, and not harm, the firm’s culture of compliance.
What Should Managers Do When Becoming Aware of Employees’ Concerns?
To be effective, a firm’s whistleblower program should include one or more independent reporting mechanisms for employees, mechanisms that allow workers to bring their concerns to light outside their regular reporting channels.
When an employee must reach out first to their manager to notify them of a potential compliance violation or ethical issue, there may be a tendency for the manager to want to take ownership of and resolve the issue quickly. Or, in firms that lack a strong compliance culture, to downplay the employee’s report in the hopes that it will simply go away. Employees, fearing their manager may take this latter approach, may be reluctant to say anything in the first place. Of course, this goes against the very reason firms have instituted whistleblower programs in the first place.
Firms can limit this risk and enhance their whistleblowing and ethics programs by creating hotlines, dedicated email addresses, or other ways for employees to report potential issues anonymously. This approach also helps ensure process consistency and improves confidence in the reporting structure.
What is a Manager’s Role in the Investigative Process?
While the whistleblowing issue-reporting function should not be directly in managers’ hands, managers still have important roles to play in their firms’ programs.
First, managers play a key role in compliance training – including training and communication about where and how employees can report suspected wrongdoing. Managers should help ensure employees understand the whistleblower complaint reporting process. These communications should underscore the firm’s commitment to adhering to its compliance culture by investigating all allegations fully.
Managers should also work to make sure employees understand that the firm will strive to safeguard whistleblowing employees’ anonymity to the extent possible, throughout the investigatory process. Ultimately, managers should strive to reassure employees that retaliation against employees who bring ethical or compliance violations to light will simply not be tolerated.
Because they are often on the front lines with employees, managers are also in positions where they may become aware of potential wrongdoing directly – without receiving an official whistleblower’s report. Comments made in passing, information gleaned during employee performance reviews and in departing employees’ exit interviews may warrant investigation through the firm’s whistleblower program. Managers should be ever watchful for such information and should direct employees to the whistleblower reporting channels, or report the issue directly.
Ultimately, a manager’s words and actions about their firm’s whistleblower program can, and should, support the firm’s top-down compliance culture and instill respect and confidence in the process.