Fresh Air for Whistleblowers

Is your company prepared for what may be a symphony of whistleblowing in the next few years by employees of U.S. corporations – both public and private? In a recent article for Leader’s Edge magazine, titled, "Fresh Air for Whistleblowers," I discussed how to prepare for the U.S. Supreme Court’s recent decision to expand whistleblower protections.

An image of a whistle with a white string on a table with a green background.

Until recently, most of us thought of the anti-retaliation provisions of Sarbanes-Oxley as something that only applied to public companies and their employees. But on March 4, 2014, the Supreme Court issued a decision in Lawson v. FMR LLC that said the Sarbanes-Oxley protection for whistleblowers would also apply to employees of companies that contract with public companies.

So now, it’s not just employees of the approximately 5,000 public companies in the U.S. who are protected against retaliation for whistleblowing. Also protected are the huge numbers of additional personnel employed by private companies that contract with public companies.

Consider, too, how the impact of the expansion of the Supreme Court’s recent decision is likely to be amplified by the Dodd-Frank whistleblower incentive program at the Office of the Whistleblower which gives individuals with high-value information 10 percent to 30 percent of monetary sanctions collected through the U.S. Securities and Exchange Commission, if the sanction exceeds $1 million.

Safeguard Your Company with Whistleblower Hotlines

The best defense for the bad outcomes that follow when whistleblowers are forced to take extreme action, whether you’re a private or public company is, of course, an ethical culture and the top-down commitment to encouraging whistleblowing if someone has information about wrong-doings.

After Lawson, private companies that work with public companies will want to consider implementing the kind of whistleblower intake systems and anti-retaliation training that public companies already deploy. This includes a whistleblower hotline.

In my article for Leader’s Edge, I touch on a couple areas that corporate decision-makers should focus on to prepare for whistleblowing:

  • Provide employees with a 100-percent anonymous process to raise concerns.
  • Address the concerns straightaway to demonstrate commitment to the program.
  • Review how accessible the whistleblower hotline is; ensure it’s easily available to both employees and the employees of the companies you hire.

Whistleblowing and Insurance Issues

Given that Lawson massively expanded the number of protected whistleblowers, we should expect more whistleblowing. Some of these whistleblowers may suffer from inappropriate retaliation and may sue their employers.

Here are some key issues to discuss with your trusted insurance broker when it comes to coverage for the types of suits that can evolve out of mishandled whistleblower situations:

  • Employment practice suits, and the purchase of employment practices liability insurance.
  • Investigations of corporate entities vs. individuals, and expanding D&O coverage for investigations by the SEC.
  • Whistleblowers as directors and officers, and understanding the “insured versus insured” clause of a D&O policy, as well as the scope of possible negotiated carve-backs.
  • Negotiating fraud exclusions that can only be triggered by a final adjudication of wrong doing.

As I mentioned in my article at Leader’s Edge, Lawson is not a disaster for corporate America. Most directors want to know about potentially harmful acts occurring at the company, and most employees want to be able to report it safely.

But Lawson did make the issue a bit more urgent. Now is the time to prepare for what may be a symphony of whistleblowing in the coming years. This includes setting up processes internally, and securing the right kind of insurance coverage in the event your company is involved in a whistleblowing incident.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email:



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