Dial ”M” for Malfeasance

New regulations will require companies to put in complaint systems for employees. But CFOs say setting up good lines of communication can be a real pain.

Hotline experts say there are things companies can do to help protect the confidentiality of complaints, however. Mostly, it’s a matter of getting good information upfront so a company’s audit committee doesn’t have to track down the whistle-blower.

To ensure a complete report, David Mair, former director or risk management at the U.S. Olympic Committee, recommends that employers require hotline callers to provide some basic information when calling in. He says employees should recount the exact nature of the fraud, such as “I believe that this transaction was improperly reported.”

He says workers should also be asked when they first become aware of the action being reported, how they came to possess the information they are reporting, and if they participated in the transaction. It’s also important to make sure that employees indicate whether they actually witnessed the alleged transgression. Many third-party providers are familiar with the questions and say they can customize support to cover all the necessary bases.

As employers get better at dealing with tips and complaints, it’s possible that employees will become less fearful about reporting indiscretions. There’s some evidence, in fact, that employees are already getting more comfortable blowing the whistle on employers — and sharing their identity when doing it.

Over the past six months, only 48 percent of callers to the corporate ethics hotlines run by The Network Inc. have requested anonymity. That’s a steep drop from an average of 75 percent over the past 20 years, says CEO Tony Malone, whose company provides hotline services to about 1,000 companies.

Malone ascribes the change — which predates the anti-retaliatory measures in Sarbanes-Oxley — to a growing awareness among employees of the harm that unethical corporate behavior can cause. Says Malone: “Employees are profoundly aware that inappropriate behavior can bring about the ruin of their company and damage them personally.”

Is This Where We Go to Complain?

Meanwhile, employers seem to be profoundly aware that retaliation against a whistleblower can damage them financially.

To date, relatively few suits alleging retribution against whistle-blowers have made it to trial. In fact, corporate boards seem hell-bent on keeping such cases from ever reaching a courtroom.

It doesn’t take a super-genius to figure out why. Bob McMullan, CFO of GlobespanVirata Inc., says that when whistle-blowers bring litigation against management of a company for such claims as wrongful termination, the American justice system tends to run in reverse. “Companies have to prove their innocence,” he asserts. “[The claim] is deemed to be correct.”

Darryl Rains, an attorney at Morrison & Foerster, concurs. “Two-thirds of jurors come to court believing that corporate executives are dishonest and will lie to make a buck,” he notes. “Those statistics predate Enron.”

Such jury predilections may explain why Walt Disney Co. recently settled a reported $20 million “whistle-blower” lawsuit for an undisclosed amount. A former executive brought the suit, claiming she was fired for refusing to help the company allegedly cheat the Internal Revenue Service. Disney management declined comment for this story, but has reportedly called the allegations “shameful and untrue.”

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