It’s time for a walk down economic-implosion memory lane.
Remember Sherron Watkins, a former vice president at Enron? She went down in history as a famous whistleblower who told her bosses, including the then CEO Kenneth Lay, that the company was basically a Ponzi scheme.
“I am incredibly nervous that we will implode in a wave of accounting scandals,” she wrote in a letter to Lay. “My 8 years of Enron work history will be worth nothing on my resume, the business world will consider the past successes as nothing but an elaborate accounting hoax.”
She ended up testifying to Congress about the scandal, which was just one of many scandals to come and ultimately take down our nation’s economy. But it wasn’t Watkins who really blew the whistle on dirty dealings at Enron. You see, her attempts to stop the company from doing bad went nowhere because she was basically trying to reason with the criminals themselves. That’s why it’s so important for employees to have other means — beyond company channels — and incentives, if they are ever going to expose unlawful corporate behavior.
That’s where the Dodd-Frank financial reform law comes in. It created more incentives, including a whistleblower bounty, for employees to step forward, something that’s very difficult for them to do because they can lose their jobs as a result, and many have. The legislation actually calls for financial incentives of up to 30 percent of funds recovered for information employees give regulators that leads to prosecution.
In a Wall Street Journal article today, we find out Google and General Electric are among a host of companies that want to put the kibosh on financial incentives for exposing wrongdoing, even though the program is already paying off in terms of tips from employees. These major employers believe employees will bypass company channels and go straight to government regulators, mainly motivated by the rewards.
Unfortunately, company channels are not doing enough, and workers are increasingly nervous about reporting problems internally for fear of losing their jobs in this crummy economy. This from a KPMG report:
More than half (57 percent) of the respondents reported that they would feel comfortable using a hotline to report misconduct, which is up from 40 percent when we began surveying. However, only half (53 percent) believed they would be protected form retaliation and even fewer (39 percent) believed that they would be satisfied with the outcome if they reported misconduct to management.
Despite this, corporations are pushing to take the teeth out of the Dodd-Frank law’s incentives program, but lawmakers should keep their eyes on the prize, getting employees to step up when they see crooked behavior, a bunch of which got us into this economic mess we’re in now.
The Project On Government Oversight, known as POGO, offered a reality check on why such provisions were added to the financial reform legislation: “Congress was only concerned about improving the free flow of information from whistleblowers to the SEC and protecting those whistleblowers from retaliation, not about protecting corporate compliance programs.”
The Securities and Exchange Commission is seeking comment on the new program. Here’s an excerpt from a letter already submitted by the following firms, General Electric Company, Google Inc., Honeywell Inc., JPMorgan Chase & Co., Microsoft Corp., and Northrop Grumman Corp.:
“Any whistleblower bounty program creates the potential for monetary incentives to cause employees to bypass or ignore internal compliance reporting mechanisms for the possibility of a substantial financial reward.”
It’s a strange twist on the greed argument. The whistleblower bounty is supposed to stop corporate greed, but, these firms argue, it could create employee greed.
So the choice for the SEC may come down to who they think will be greedier?