“It was the best of times, it was the worst of times….”

Charles Dickens penned those famous words to capture an era in England. The Wall Street Journal struck a similar note with the headline it gave to an article that summarized the results of the Ethics Resource Center’s 2011 National Ethics Survey (NES):

“Survey Sees Less Misconduct But More Reporting and Retaliation”

The survey itself seemed to predict a fairly bleak future for ethical business practices in general. Further, it certainly cast a dark shadow over the fate of whistleblowers: While the reporting of misconduct increased from 58 percent in 2007 to 65 percent in 2011, the rate of those experiencing retaliation nearly doubled, jumping from 12 percent of all whistleblowers to 22 percent over the same period.

It was that increase that caught the eye of Jordan Thomas, the partner who chairs the whistleblower representation practice at Labatan Sucharow LLP. Thomas called the figure “a very concerning statistic, and it’s one that is inconsistent with cultures of integrity.”

Cultures of integrity

Good management and profitability are ultimately consistent with cultures of integrity, and we will look at the various dimensions of an organization’s ethical climate in just a moment. But first we will quickly summarize the steep organizational price of unethical behavior and retaliation against whistleblowers. According to a 2011 NES report supplement that focused on retaliation issues:

• 46 percent of those employees who experienced retaliation felt disengaged from their companies, compared to 26 percent of all employees.
• 14 percent of all whistleblowers and 23 percent of those who experienced retaliation plan to leave their employers in less than one year, compared to just 11 percent of all employees.
• Only 52 percent of all whistleblowers and 31 percent of those who experienced retaliation plan to stay on the job for five years or until retirement, compared to 59 percent of all employees.

These figures capture the high price in employee turnover that organizations are forced to pay for unethical behavior, and especially when the original unethical behavior is followed by retaliation. In his summary of the 2011 NES report for Strategic Finance, Curtis C. Verschoor listed these forms of retaliation:

• exclusion from decisions and work activity by supervisor or management
• given a “cold shoulder” by other employees
• verbal abuse by coworkers, supervisor, or someone else in management
• near loss of job
• denial of promotions or raises
• hours or pay cut
• relocation or reassignment
• demotion
• online harassment
• physical harm to their person or property
• harassment at home

Components of ethical organizational culture

The 2011 NES report asserts that “victimhood is not inevitable,” and says that according to research, strong ethical cultures, ethics and compliance programs, consistently applied high standards of accountability, and positive “management behaviors” are all associated with lower incidents of retaliation. To “deconstruct” this somewhat, it would be good to look at the various dimensions or aspects of a complex organization’s ethical culture. In the article “The relationship of ethical climate to deviant workplace behavior” for Corporate Governance, Steven H. Appelbaum, Kyle J. Degree, and Mathieu Lay identified six different “climates.” Examine the list and see which predominate in your organization:

Examining this list, it is apparent that not all are within the direct control of management. However, many of the most severe cases of unethical behavior in the workplace, including retaliation, positively correlate to the “instrumental” climate. It should be noted that an absence of corporate rules and a lack of commitment to professional standards will tend to allow the instrumental climate — every man for himself — to rise. This is where compliance programs and consistently applied standards of accountability are important.

In their article for Journal of Business Ethics, “An Examination of the Layers of Workplace Influences in Ethical Judgments: Whistleblowing Likelihood and Perseverance in Public Accounting,” Eileen Z. Taylor and Mary B. Curtis discuss how various aspects of the overall ethics culture work with one another. For example, high levels of professional identity will prompt an auditor to report a violation initially, but it’s the auditor’s commitment to the organization as a whole that drives perseverance in reporting.

The 2011 NES survey found that ethics and compliance programs are excellent tools for reducing retaliation. For organizations that fail to have all of the complements of these programs, some 36 percent of all whistleblowers say they have been retaliated against. For companies that have comprehensive ethics and compliance programs in place, that figure falls to just one in 50 among whistleblowers.

Additional concerns

New laws and court rulings make compliance programs and diligence toward creating an ethical climate even more important than just a few years ago. With respect to the financial industry segment of the economy, Dodd-Frank changes the nature of whistleblowing.

Dodd-Frank creates financial incentives for whistleblowers to provide information directly to the Security Exchange Commission and Commodities Futures Trading Commission. While employees can still report internally, Dodd-Frank includes what have been called “bounty” provisions. Whistleblowers can be rewarded at least $100,000, and in cases where government sanctions of more than $1 million are levied, whistleblowers can get between 10 and 30 percent.[1]

Finally, the in the case of Thompson v. North American Stainless, the U.S. Supreme Court, in an 8-0 opinion, ruled that not only do Title VII bans on retaliation cover the whistleblower, they also protect a co-worker who is closely related to the whistleblower. This further reinforces the high level of vigilance that needs to be kept with regards to the prevention of retaliation as well as the maintenance of a strong compliance program and ethical climate.