Financial Employees Still Hesitant to Blow the Whistle on Misconduct

April 17, 2012 - Comments Off

Fortune Magazine wrote last week about a recently released study by the Corporate Executive Board (“CEB”), an Arlington, Virginia-based research and advisory firm, which sought to gather information about the frequency with which financial employees reported wrongdoing.  The study was conducted over a period of four years, and polled over 500,000 employees at 150 companies – mostly financial services firms.  What it found, unfortunately, was that the culture of silence remains solidly in place, and both employees and supervisors were complicit in perpetrating that culture.

The study found that employees do not report 50% of observed misconduct.  In addition, the study found that even when unethical behavior was reported, 60% of managers said they would only divulge information to a senior executive if the estimated impact of the wrongdoing exceeded $1 million.  Thomas Monahan, the chairman and CEO of CEB, explained that the conduct goes unreported because people “fear retaliatory action, including losing their job, failing to get promoted, failing to get a bonus.”  Monahan further explained that companies have failed to create a healthy, ethical culture where people feel “they will not be retaliated against and the company will go and do something” about the wrongdoing. … People need to be highly convinced that this is a potential catastrophe to take the risk.”

In the wake of the Enron scandal and the subprime mortgage debacle, strong laws such as the Sarbanes-Oxley Act of 2002 (“SOX”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) have been passed protecting financial employees from retaliation for reporting wrongdoing.  However, it is incumbent upon employers to make their employees aware of these rights, and in so doing create a culture where employees feel free to report perceived wrongdoing without fear of reprisals.

This change in culture, however, still does not appear to be happening.  The CEB survey reflects the results of a survey we blogged about a few months ago, conducted by the Ethics Resource Center (“ERC”).  That survey also found that roughly half of employees reported misconduct they witnessed.  In addition, the ERC survey found that illegal retaliation against those employees that did report wrongdoing was on the rise.

We also wrote about a study released in November 2011, in which Littler Mendelson polled senior executives at publicly traded companies about their knowledge of the new Dodd-Frank whistleblower provisions.  That survey found that “Just 54% of respondents expressed confidence that executives in their organization understand the concepts of unlawful retaliation and knew not to engage in such conduct.”

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