Whistle-Blower Woes

Many companies think the whistle-blower provisions of Sarbanes-Oxley will spark nuisance suits by disgruntled employees. The truth is far more complex.

But reporting ethics violations is still perilous. While Coke, for example, now has a link on its Website for employees who want to report issues regarding accounting, controls, auditing, or other matters, all comments are forwarded to senior management rather than to the board or a third party. And while the site’s FAQs section assures employees that they can “report suspected violations of the [conduct] code without fear of reprisal or retaliation,” few are likely to do so after Whitley’s experience.

Meanwhile, whistle-blowers still have to find their next job. Olofson is now consulting as he looks for permanent employment. “While this cloud is hanging over him, it’s very difficult for him to find work that would make sense for him otherwise,” says Murphy, his attorney. “His career path has been dramatically impacted by coming forward with his concerns.”

And after sending out about 150 résumés, networking with about 50 people, and working with six recruiters, Whitley has had one interview in three months. For anyone else, that could be chalked up to the state of the economy. But Whitley has no doubt what has blown an ill wind on his job prospects: blowing the whistle at Coke.

Alix Nyberg is a staff writer at CFO.

How to Respond to Whistle-Blowers

Many companies are scrambling to establish toll-free hotlines and Web-based mechanisms that allow audit-committee members to hear directly from employees, suppliers, and customers who want to voice concerns about accounting or internal controls. According to the Sarbanes-Oxley Act of 2002 and Securities and Exchange Commission rules, such systems must allow for anonymity and be in place by a company’s first annual meeting after January 15, 2004, or by October 31, 2004, whichever comes first.

But CFOs may do well to become better listeners. Most whistle-blowers say they never would have gone public with their concerns about the financial statements if senior management had been more attentive to them. And opening up the lines of communication doesn’t necessarily mean opening Pandora’s box.

Only about 5 percent of anonymous employee complaints received at United Technologies Corp. (UTC) each year relate to possible financial wrongdoing, says Patrick Gnazzo, the vice president in charge of investigating such claims. (UTC employees can report abuse anonymously through the company’s Dialog program, which uses printed and online forms, or its ombudsman office, which fields phone calls.) Neither that percentage, nor the absolute volume, has changed much in the 17 years the office has been in existence, he says, not even after Sarbanes-Oxley. “If you’re all trying to do the right thing in the first place, what’s the fear of hearing from people?” asks Gnazzo.

The big question, of course, is how to separate the wheat from the chaff when confronted with an allegation. In fact, attorneys say the threshold for launching an investigation is pretty low. “If it violates the laws of nature, you don’t have any obligation to investigate,” says Jeff Stone, an attorney with McDermott, Will and Emery in Chicago. “But if it could be true, the prudent and wise thing to do would be to conduct an investigation.” Indeed, at UTC, Gnazzo will check out accounting-related complaints even when the financial exposure is extremely low, or even zero. “If you take care of the $120 cases, you take care of the larger issues at the same time,” he says.

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