Whistleblowing: What Industry Leaders Need to Know and Do

Issue 11 and Volume 118.

By Carrie S. Penman, NAVEX Global

Stories about whistleblowing and retaliation are front page news these days. The SEC has recently given multi-million dollar rewards to whistleblowers and levied fines and penalties on organizations that have engaged in retaliation against employees who raise concerns. The power and utility industry has been aware of these issues for decades. For too long, corporate cultures of accountability have been scuttled, and with negative results.

Nearly 20 years ago it was a utility industry whistleblower, George Galatis, who was featured on the March 4, 1996 cover of Time magazine. He had reported nuclear safety issues at a power plant in Connecticut that would eventually lead to the plant’s shut down. This shutdown, however, did not occur before his employer had retaliated against him, reinforcing a culture of submission and compliance in the face of mounting problems. At the time, Westinghouse Electric Corporation offered assistance to the utility, who was also its customer.

Today, more and more employees, including those within the utilities and Power Engineering industry, are using formal internal reporting programs, a key component of an effective ethics and compliance program. Research using the NAVEX Global database, which represents about 2 million hotline reports received by clients during the past five years, shows a 33 percent increase in reporting rates to company hotlines. The concerns shared through these internal channels are also being substantiated at a significantly higher rate than ever before – now at 40 percent, up from 29 percent five years ago.

Executives and business leaders can no longer complain that internal whistleblowers are simply “malcontents”. Nor can it be said that anonymous reports should be taken any less seriously. The data shows that 36 percent of anonymous reports received in 2013 were substantiated. Overall, employees are providing high quality, actionable reports, and companies must ensure that they have effective programs and processes to investigate and address these concerns in a timely and professional way.

In addition, the spread of information outside traditional channels moves quickly within the 24/7 news cycle. Social media that is accessible to any employee, contractor, or customer can amplify this information exponentially. A problem that might have remained contained at a far-off outpost, or in the hands of a third party vendor or contractor, can now move quickly. This means quick internal responses to reports of problems are imperative.

Key Metrics to Watch

In the past, the power and utility industry has been slow to respond to whistleblowers or concerned employees. Five years ago, when an employee reported a problem, statistics show it took industry companies nearly 90 days to close a case. Now best practice organizations close cases in an average of 30 days. The power industry has made good progress.

The median time it now takes to close a case in the power industry is 46 days – which is still higher than the current 36-day median of all industries, but nonetheless a significant improvement. Substantial delays in case closures can have negative results, including loss of employee confidence in the reporting program and belief that management does not regard their employees seriously. When employees lose confidence in a program, they look to other channels like outside entities and government agencies to listen to their reports. Worse, they may stop reporting at all, thereby allowing potential problems to grow worse.

In another dramatic change, the number of repeat reporters to company hotlines has doubled in five years, and these reporters continue to provide high quality information. In 2013, issues reported by repeat callers were substantiated at a higher rate than those reported by first-time callers. This shows that organizations should take matters provided by these reporters seriously.

The data is not good when it comes to issues of retaliation. Very few reports of retaliation come directly into company hotlines. Less than 1 percent of the total hotline reports are primary allegations of retaliation, and these reports are substantiated at a significantly lower rate (12 percent) than all other types of reports (40 percent). Noting that 40 percent of complaints filed with the EEOC last year involved allegations of retaliation, it is evident that employees who have raised issues and later experienced retaliation are not willing to give their organizations a chance to perpetrate further abuse. Instead, they are more likely to take their issues outside the company.

A Call to Action

Forces outside the power industry may add urgency to the task of upgrading internal reporting processes within the industry. In recent weeks, the SEC announced its first whistleblower award to an audit and compliance professional. The $300,000 award announcement noted that the recipient had “reported concerns to appropriate personnel within the company, including a supervisor,” but after 120 days, had gone to the SEC when he believed the company failed to take action. A clear message is sent to the workforce when an audit or compliance professional feels there is no choice but to report a problem outside the company.

Bigger than this was a second SEC announcement in September of an award on the scale of a lottery win. The $30 million award given outside the U.S. will be registered by whistleblowers everywhere, and underscores the importance of global action. Given that most power and utility industry companies are publicly traded corporations, the proactive enforcement stance of the SEC needs to be considered in ensuring effective formalized reporting processes.

Finally, the 2010 rupture and explosion of a natural gas pipe that killed eight people and destroyed 38 homes demonstrates that work in this area is never done, and that fostering a culture in which employee concerns are encouraged and appreciated can save lives. In the long investigation that followed the accident, it was discovered that engineers had raised concerns about inaccuracies in the company’s data concerning line locations.

The power industry has taken enormous strides toward accountability, but more must be done. The current media attention on whistleblowing outside organizations should serve as a strong reminder to the power and utility industry that constant “care and feeding” are necessary to support a culture in which concerns are encouraged and truly accepted.

Next Steps and Best Practice Responses

So what can industry leadership do to support and further the great progress it has made in ensuring that employees have multiple safe and responsive reporting channels available to them?

Assure employees with both words and actions that the company will follow up on their concerns and will enforce a policy of no tolerance for retaliation. Publish sanitized cases of issues addressed to help demonstrate actions taken.

Establish processes and systems that ensure reports older than 30 days are flagged, reviewed, and escalated to ensure appropriate and timely action. Closely monitor progress. Ensure that there are sufficient and properly trained resources available to manage the increasing volume of reports expected in the coming year. Develop formal case management systems to manage reports and identify areas of concern for leadership.

Keep the lines of communication open with the internal reporter during the course of an investigation. Communicate throughout the process to inform the reporter that the company is working on the issue and that it will let him know when the matter has been addressed.

Train supervisors on how to respond. Keep in mind that hotline reports represent only about 1 percent of issues raised by a company’s employees. Remember that employees regularly identify issues to other recognized resources like human resources and their immediate managers. Ensure that all local line management (including supervisors within the plant, as well as those out in the field) are trained and equipped to handle issues raised directly to them. Use case management systems to track all resources that receive reports in order to gain a broader view of the issues that are raised.

Ensure that there is a robust communication plan in place to explain and demystify all the reporting processes available to employees. Send periodic reminders about these plans and include this information in all relevant training sessions.

Ensuring that a company has a strong ethics and compliance program will not only improve that company’s corporate culture, it will also help protect its people, reputation, and bottom line.


Carrie S. Penman is the Chief Compliance Officer and Senior Vice President of Advisory Services at NAVEX Global

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