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.

Nonetheless, the mere prospect of jaw-dropping jury awards may convince some CFOs to bring in third-party hotline vendors to handle employee complaints. Some observers say contracting an outsourcer could prove crucial if a whistle-blower is later fired for, say, poor performance. With an outsourcer running a hotline and information kept confidential and anonymous, they assert a supervisor would likely be free of blame if they fired an underachieving employee. Why? There would be no way for the supervisor to know that the individual was the one who lodged a complaint.

Other experts warn that complaint hotlines set up entirely in-house for Sarbanes-Oxley compliance can overload the directors or officers handling the calls. “My concern would be that they would not have the time to do it effectively or management’s position wouldn’t be able to independently deal with employee complaints,” says attorney Rains.

The issue, however, is up for debate. Hugh Donnelly, vice president of audit at Pfizer, notes that the company uses a third-party hotline vendor. The drug maker’s compliance officer serves as the initial point of contact with the company’s outsourcer.

While Donnelly says Pfizer’s audit committee will have the final say on whether the company’s current practice will come up to the SEC’s requirements, he’s comfortable leaving the filtering to his compliance officer. “If any financial items would come through that,” Donnelly explains, “my compliance offer would clearly get me involved to assist on the investigation, if that’s required.”

Jocelyn Arel, partner with Testa, Hurwitz & Thibeault, LLP, suggests that companies that want to take the most conservative approach to complaint notification systems should have allegations go directly to the audit committee — without going through senior management. “It depends how an individual company defines anonymous,” she says.

Realistically, though, Arel concedes that even with a small number of cases to validate, audit committee members are generally too busy to handle more than a few complaints.

Mayhem or Maytag?

Whether they get more than that remains to be seen. For the moment, though, J.C. Penney’s Barton is worried how to best filter thousands of worker phone calls once the retailer rolls out its hotline in the next few months. Barton says he’s come to expect the avalanche after discussing Sarbanes-Oxley hotline compliance with the general counsel at retail rival, Sears.

Eckerd Corp., J.C. Penney’s drugstore chain subsidiary, may also provide Barton with a glimpse of what he can expect. Eckerd already has an operational hotline that is staffed at all hours by the company’s loss prevention group. But just six calls out of thousands made to the center over the last six months were related to accounting or auditing matters. The group’s manager passed the reports to the compliance officer who serves as the gatekeeper for further investigation by appropriate members of the staff. “I assume they are resolved,” Barton says of the six calls, “and are not a big issue.”


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