Monday, December 19, 2011

Corporate Secretaries Society Supports House Whistleblower Legislation Requiring Initial Reporting to Company

In a letter to House Capital Markets subcommittee leaders, the Society of Corporate Secretaries and Governance Professionals expressed support for the Whistleblower Improvement Act as it move towards the House floor. In the Society’s view, companies need the information they receive through their internal compliance programs and hotlines to stop wrongdoing as well as for other purposes. Companies use all the information received, assured the Society, no matter how minor, to improve the workplace and their compliance programs.

The Society believes that the incentive in current SEC regulations for employees to first report to the SEC rather than to raise a concern with a manager or report it via an internal hotline tips the balance too far. H.R. 2483 conditions receipt of an award on first reporting to the company except where the company lacks an anti-retaliation policy or an internal reporting system with anonymous reporting or the SEC determines in a preliminary investigation not exceeding 30 days that internal reporting was not a viable option because the alleged misconduct was committed by or involved the complicity of the highest level of management, or because there is other evidence of bad faith on the part of the company.

The legislation would also clarify that Section 21F of the Exchange Act does not prohibit or restrict any employer from enforcing any established employment agreements, workplace policies, or codes of conduct against a whistleblower, and further clarifies that if an employer takes adverse action against a whistleblower for any violation of such agreements, policies, or codes, it will not constitute retaliation. The Society believes that companies should be allowed to enforce existing codes of conduct, and notes that such codes and compliance programs have been enhanced since passage of the Sarbanes-Oxley Act.

According to the Society, a regime that undercuts compliance code requirements that employees report to their managers or elsewhere in the company any suspected wrongdoing would hurt a company’s ability to police their own employees for the ultimate benefit of the investors and the public. Company compliance systems should be the first line of defense in upholding federal securities regulations.

More broadly, Society members, many of whom are compliance personnel or oversee the compliance function, feel strongly that legal and compliance personnel with similar responsibilities who have a duty to report wrongdoing should never receive a bounty for doing what they are required to do by virtue of their role. In addition, someone who committed or facilitated, wrongdoing should not benefit financially from his or her own misconduct by receiving an award.

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