SEC: Don't Pay Whistleblowers Not to Whistle to the SEC

In-House Straight

, Corporate Counsel

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The Securities and Exchange Commission warns corporate counsel to stop thinking of creative ways to circumvent the agency's encouragement to come forward.

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    First: I recognize the importance and validity of whistleblowing policies and practices.

    Second: I also recognize the importance and responsibility of companies to develop compliance programs designed to encourage employees to report problems so that the company can address them (for who else can/will?).

    Are companies who create incentives for employees to report concerns internally first (without preventing them from going outside the company if the problem is not addressed after they‘ve reported it internally) within the scope of Mr. McKessy‘s concerns? Because if they are, the SEC and other regulators need to decide whether they‘re more interested in companies working with their own employees to try to prevent problems / address them as soon as they are uncovered, or if they‘re more interested in setting up incentives for employees to avoid internal reporting systems and head directly to regulators (while the problem at the company continues to fester - perhaps without the company even aware of what‘s going on).

    I don‘t think it‘s at all unreasonable or unseemly for a company to expect its own employees to report illegalities when they see them arise as a condition of employment. Does anyone expect less of someone they hire to do a job? So we have to ask if the point of regulation is to prevent failures (or correct them quickly while they‘re still small) or to encourage an adversarial process, which pits regulators and employees against the companies they would otherwise hope to hope to see succeed?

    Mr. McKessy‘s statements create a no-win situation for companies trying to do the right thing. Because failures will happen in any large-scale endeavor. What we want is for companies to invest in compliance practices which rely on employees being trained, empowered and even rewarded for identifying and reporting problems - What we get under this policy is a wall being erected between the company and the only people who can report on problems when they arise - its employees.

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