posted on 24 November 2015
from The Conversation
Death threats, smear campaigns and financial ruin - it may sound like a John Grisham novel, but the sad reality is that this has been the consequence for many public and corporate whistleblowers.
The personal risks associated with blowing the whistle on less than honest corporate practices can be devastating - just ask ex-CBA's Jeff Morris, whose attempts to reveal wrong-doing by the bank have come at a significant cost.
It seems that whistleblowers are regarded as troublemakers by their employers and traitors by fellow workers (see here) and it is this attitude, alongside a lack of financial incentive that, according to the Australian and Securities Investment Commission's Greg Medcraft, has prevented people from stepping forward when wrongdoing is discovered.
Legislative reforms to combat fraud, bribery and corruption were designed to better defend against corporate scandals such as Enron, WorldCom and HIH Insurance. In both Australia and the US, substantial attention was paid to whistleblower reforms and is touted as the 'best defence' against fraud.
However, undermining reforms in the US and Australia is the ongoing fear of reprisals, job losses, harassment and yes, even death threats for whistleblowers.
The legal situation in Australia
Whistleblower provisions form a part of the Corporations Act 2001 (Cth) and protect officers, employees and company contractors. The Australian Securities and Investments Commission (ASIC) enforce the Act, and require whistleblowers to make a "qualifying disclosure", that is, they have the "burden of proof" on whether the corporate misconduct they are reporting breaches the above two Acts.
It is much more straightforward for the public sector. The Public Interest Disclosure Act 2013 (Cth) protects public employees and encourages and facilitates disclosure of suspected corporate wrongdoing. It also supports and protects whistleblowers from adverse consequences and ensures disclosures are properly investigated.
However, private sector whistleblowers are not provided with the same level of protection. They are afforded some protection against retaliation through civil remedies and include the right to seek reinstatement of employment. There are also criminal sanctions that apply should a whistleblower be sued for breach of contractual or secrecy obligations or for defamation should a smear campaign ensue.
However, compared to the protection for government sector employees, there is a lack of comprehensive whistleblower protection in the Australian corporate landscape. Moreover, it is not even compulsory for companies to set up internal whistleblower programs.
There is also the cultural aspect of what it means to be a whistleblower. In Australia (similar in many other countries) it is not acceptable to "dob in a mate". The overall impact is a reduction in the effectiveness of the legislation and helps to explain why whistleblowing is not as effective in exposing corporate misconduct as its architects or supporters would like.
United States legislation
The US, on the other hand, has an incentive scheme offering "financial compensation" to whistleblowers who uncover fraudulent acts, which can be quite lucrative if the law suit is successful and when large sums are involved (see here). In fact, as recently as 2014, one whistleblower received a staggering $US30 million reward.
Known as the Dodd Frank Act (2011), rewards of between 10%-30% of a US Securities Exchange Commission enforcement settlement is given to a person if voluntarily providing information on corporate and securities fraud.
Whistle-blower legislation in the US falls mainly under the Sarbanes-Oxley Act (2002) where you will find anti-retaliation measures (S.806), criminal penalties to deter reprisals against whistleblowers (S.1107), and less stringent burdens of proof for whistleblowers (S.806), especially when compared to those in Australia.
What is alarming is that even with the additional protection offered by SOX for corporate whistleblowers, the Wall Street Journal identified 300 whistle-blower employees who had filed claims against their previous employer for been penalised and none had been reinstated.
Whistleblower programs are seen as a positive step towards reducing incidences of corporate wrong-doing. However, there is much evidence that despite the efforts of legislators across many countries, more is needed. In the US, there is ongoing discussion and recommendations for more reforms for anti-fraud and whistle-blower legislation.
In Australia, the Senate Economics Committee will soon be releasing a discussion paper outlining how to improve whistleblower protection laws and ASIC have publicly called for further reforms.
Most important is the need for protection against reprisals, as well as the need for action to be taken when dodgy practices are reported - the Queensland Health Barlow fraud case demonstrates the latter very well.
Providing incentives could help to overcome an employees reluctance to report wrongdoing as they do in the US. As ASIC boss Medcraft states, whistleblowers need to be properly supported and compensated, potentially for their lifetime earnings.
To get there, however, KordaMentha suggest a number of strategies, including an anonymous whistleblower hotline, a culture of openness and employee support, management responsiveness to whistleblowing and protection against reprisals.
Let's hope the next round of legislation provides the incentives, protection and corporate processes needed to minimise corporate misconduct and protect those who seek to fight the good fight.
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