Whistleblower's Record $279 Million Award Underscores Importance of Tipster Protections and Hotlines
A whistleblower on Ericsson recently received the largest ever award of $279 million from the U.S. Securities and Exchange Commission (SEC). This unprecedented award underscores the crucial role of whistleblowers in corporate governance and risk management, and the importance of robust protections and mechanisms to encourage and support these individuals.
The Big Picture:
Whistleblowers play a significant role in maintaining business integrity, enforcing regulatory compliance, and mitigating risks. By uncovering unethical behaviors and illicit activities, whistleblowers can help save companies from costly fines and reputational damage, while protecting public interest.
Principled Performers, however, don't depend on whistleblowers and regulators as a backstop. They implement strong capabilities so that individuals and systems can "push" information about potential (and actual!) misconduct to the appropriate individuals before problems escalate.
The Ericsson case serves as a recent example of whistleblower influence. The SEC's award was tied to a $1.1 billion settlement Ericsson reached with U.S. authorities over a bribery scheme. The company was alleged to have made illegal payments to secure business in several countries.
Despite the risks associated with whistleblowing, such as retaliation or career repercussions, the trend of reporting misconduct is on the rise. In 2019, 63.8% of whistleblower reports were initiated by employees, indicating an increasing initiative to report wrongdoing. Furthermore, 58.9% of whistleblower reports were anonymous in 2018, a figure that increased by 11.4% since 2014, suggesting that more individuals feel empowered to report wrongdoings without fear of retribution or backlash (see whistleblowing statistics).
What the Numbers Say
- 21.2% of all reported cases in 2020 resulted from whistleblowers.
- The SEC received whistleblower tips in 2020 where 23.3% were related to corporate disclosure and financials, while 17% were related to offering fraud.
- Whistleblower-related actions led to recoveries of over $500 million USD through the False Claims Act in the fiscal year 2019.
- Approximately 45% of U.S. based companies reported receiving at least one whistleblowing-related report in 2018.
How it All Connects
Notification (the proactive capability that includes "whistleblowing" as a final measure) plays a crucial role in GRC. Whistleblower hotlines are a fundamental part of the GRC Capability Model (specifically found in the element P6 - Notification)
By exposing misconduct, whistleblowers aid in upholding the standards of corporate governance, managing risk, ensuring compliance, and promoting a culture of integrity and transparency within organizations.
- The record $279 million whistleblower award highlights the importance of whistleblower protections and hotlines.
- Whistleblowing plays a significant role in corporate governance, risk management, and compliance (GRC), and promotes a culture of transparency and trust.
- Despite the risks, the trend of reporting misconduct is on the rise, with more individuals feeling empowered to report wrongdoings.
- Understand the significance of notification and whistleblowing in maintaining corporate integrity.
- Establish robust notification mechanisms and hotlines within your organization.
- Promote a culture that encourages employees to report misconduct without fear of retaliation.
- Act on reports promptly and effectively to mitigate risks and maintain compliance.
- Regularly review and improve your organization's notification / whistleblowing policies and procedures to ensure their effectiveness.