Compliance Programs: Illusory Promises of Protected Disclosures

Many corporate compliance programs provide a mechanism for providing a “protected” means of reporting compliance concerns to ethics officers, compliance officials, and a range of other designated officials.  Most provide some sort of assurance as to an employee being protected from retaliation for reporting their concerns.  At the same time, most add a caveat that the protections only apply to disclosures made in “good faith”.

What does “good faith” really mean?  Too often what is considered good faith serves as an after-the-fact basis to deny the protected status of an employee’s disclosures.  Similarly, what constitutes good faith is assessed in an extremely narrow manner by the company to justify the actions taken against an employee.  Should the employee have another agenda or an ulterior motive, companies frequently claim a lack of good faith.  In so doing, the truth or accuracy of what is disclosed becomes irrelevant to the analysis.

Often, to their detriment, companies use a good faith analysis as justification to terminate legitimate whistleblowers.  Artful defenses are constructed to claim that what was being reported could be disregarded.  Too often, motive is the determining fact as to what constitutes good faith.  And too frequently, this results in the relevance or the validity of what is being reported being ignored.

Focusing on motive as opposed to the validity of the allegations is dangerous.  It is unsupported in the law; it undermines the effectiveness of a compliance program; and it defies common sense.  Motive is not relevant to a determination of retaliation under most whistleblower statutes.1  One can have a questionable and, indeed, ulterior motive and still recover.

Most important, focusing on the motive of the messenger puts at risk the effectiveness of a compliance program.  Even if the messenger seeks to “get back” or retaliate against a colleague or supervisor, the allegation may be valid or lead compliance officials to serious problems that can be corrected at an early stage.

The failure to take such allegations seriously puts at risk the effectiveness of a company’s compliance program as well as its internal controls.  Unaddressed concerns can evolve into major issues that put a company at risk.  This may in various way extend to its financial viability.  For companies that are issuers, unaddressed concerns can lead to security violations.

Focusing on motive as opposed to the validity of the concerns also defies common sense.  Should an emergency dispatch operator disregard a call from a seven year old?  Should police ignore a claim of domestic violence because of repeated complaints?  Should allegations of corporate malfeasance be disregarded if disclosed in the course of a contentious divorce.  Should a leaked story from an opposition party be disregarded by enforcement officials because it is politically motivated?  The situations are endless.

The purpose of an effective compliance program is not only to deter questionable conduct, it is also to enable a company to timely address questionable conduct, let alone a host of other issues.  Early detection allows for measures to be taken to address the concerns raised and to otherwise limit the potential damage.  The focus should be on eliciting as much information as possible.  Focusing on motive is counterproductive and is likely to deter the timely internal reporting of concerns.

Whether in the context of anti-bribery compliance, the implementation of internal controls, or other compliance contexts, companies jeopardize the effectiveness of their compliance policies and internal controls when they limit their protections to disclosures made in good faith.  Abuses of disclosure policies can and should be policed.  But the goal should be to maximize the likelihood that concerns are brought to the attention of responsible officials in a timely manner.


1E.g., Guay v. Burford’s Tree Surgeons, Inc., ARB No. 2006-0131, ALJ No. 2005-STA-00045, slip op. at 7 (ARB Jun. 30, 2008); Diaz-Robainas v. Florida Light & Power Co., No. 1992-ERA-00010, slip op. at 15 (Sec’y Jan. 19, 1996).