05/ 17/ 2005
by Kelle Campbell
The governance reforms mandated by the Sarbanes-Oxley Act of 2002 have garnered a lot of media coverage in the wake of on-going corporate scandals. However, not as much attention has been paid to the Act’s whistleblower provisions, which prohibit companies from retaliating against employees when they report fraudulent activities. In addition to civil penalties that are applicable to publicly traded companies, the Act created a new crime, punishable by fines and up to 10 years in prison, for retaliating against employees who report any potential federal crime to law enforcement officials. The criminal whistleblower provision of Sarbanes-Oxley applies to private as well as publicly traded employers. So while private companies might consider themselves exempt from the Sarbanes-Oxley Act, they aren’t completely off the hook. Private companies that implement procedures for reporting and handling whistleblower complaints about company wrongdoing are ahead of the game in terms of building employee morale and reducing legal risks.
What Can You Do to Protect Your Company?
To start, your company should establish a firm no-retaliation policy for employees who report suspected wrongdoing. If you already have a procedure for reporting workplace problems such as sexual harassment and discrimination, you should utilize that for lodging Sarbanes-Oxley concerns.
Additionally, small businesses might consider designating a high-ranking member of your organization as an ethics officer to handle complaints. Employees could then report complaints directly to the ethics officer through a designated e-mail address or hotline. Todd Roeser, a business lawyer at Miller Canfield Paddock & Stone, PLC in Troy, Michigan, advises that the ethics officer have independent decisionmaking authority and be a bit removed from the normal operations. "You don't want your ethics officer to also be someone who is the manager of people at your company," he says.
If you prefer the idea of a hotline that allows anonymous reporting, several online services are available. Phillip Slinkard, a business and corporate governance lawyer at the law firm Hughes and Luce, LLP in Austin, Texas, acknowledges, however, that keeping a report anonymous may be difficult for a small business. "From a practical standpoint, it may be virtually impossible for someone to make a complaint, and people at the company not figure who it was that made the complaint," he says. As a result, he believes that everything comes down to setting the tone at the top.
In order to ensure that all employees understand the procedure for making a complaint, you might consider explaining the policy in your employee handbook, code of conduct or other materials you use to orient employees to your workplace. Roeser says that even a simple one-page procedure will suffice as long as all your employees understand it.
Once allegations reach you or your ethics officer, it is essential that you conduct an investigation immediately. If it's not an anonymous report, meet with the employee, take notes and inform the whistleblower of his or her rights. Slinkard recommends allowing employees to follow up and learn what is being done about their reports. If the investigation does raise some concerns, you should involve outside parties, probably an attorney, to help with the process from that point on.
What if you need to fire an employee who has made an allegation of fraud? Roeser recommends that you keep careful documentation so you can prove that the company had reasons for terminating employment that were unrelated to the allegation.
While, instituting measures for protecting whistleblowers may seem like an inconvenience and may seem even more so when someone brings false charges, establishment and adherence to a policy for handling complaints will help protect you in the long run.
