Board Risk Up as Whistle-Blower Wave Crests

Bracewell’s Matthew Nielsen spoke with Agenda reporter Jennifer Williams-Alvarez about the surge of whistle-blower cases during the pandemic, and how employees are increasingly speaking up outside the company. The uptick is predicted to continue, so board members and executives need to be actively shoring up internal complaint processes and policies.

Indeed, aside from indicating a lack of trust from the workforce, an employee’s reporting out exposes companies to having to defend against an investigation, says Nielsen. “For the company, when you don’t have the proper procedures in place and the ability to investigate and remediate [complaints], those are what turn into the headline-grabbing enforcement actions where you have a whistle-blower go to the government.”

Nielsen also said that while external tips have soared, there has not been a similar uptick in internal complaints. Internal reports have either remained steady or dipped, he adds, which may be a symptom of real or perceived shortcomings in companies’ processes.

While there is no reduced vigor to root out misconduct, Nielsen explains, he echoes that budgets have been cut and ethics and compliance teams may be stretched thin. “All of that kind of creates some opportunity for backlog in reviewing complaints,” he says. “When [employees] go to the SEC, it is because they are exasperated and they don’t see action by the company, whether that’s real or not.”

Another factor, according to Nielsen, is the expectation that President Joe Biden’s administration will increase enforcement activity, which will embolden would-be tipsters to come forward. And when companies endure economic stresses, he adds, that tends to shed light on wrongdoing as well.

“I don’t know if we’re going to hit the same numbers this year as we did in 2020,” says Nielsen, “but I do think you’re going to see a continued increase in the use of the SEC whistle-blower program.”

According to Nielsen, this all means that management and boards need to make sure whistle-blower policies are effective. Having a formalized process may be a given for larger companies, but ensuring that concerns are being addressed and taken seriously, even as resources are under strain, could give companies the opportunity to handle issues internally before a whistle-blower goes to the government.

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