A rat, a snitch, a “skunk at the picnic.” Whistleblowers have heard it all. While employers, and especially those with something to hide, often look down on these employees, a simple shift in perspective and dedication to a strong company culture can make you view whistleblowers as a tool rather than trouble.

While many avenues exist for bringing misconduct to light, most employees go internal first. This means that they follow whatever channel the company has made them aware of in the past, like a meeting with a higher-up or an anonymous call to an HR or compliance hotline. Since 2017, nearly 50 of the financially rewarded whistleblowers in the Securities and Exchange Commission’s (SEC) program first contacted an internal reporting system before working alongside the agency to bring an enforcement action.

That is 50 employees who felt comfortable enough to go internal. Fifty employees considered their coworkers, their management, and their company’s culture and felt safe enough to report there. That should be celebrated, and in fact, the SEC does celebrate this by offering whistleblowers increased financial rewards if it is proved that they first reported internally before being in touch with the agency.

But why did these employees end up becoming informants for the SEC? The answer is simple but tragic. Most retaliation cases are triggered because employees report potential misconduct to their bosses. Once faced with retaliation, these otherwise loyal employees will jump ship and go to the government – as they should. Companies that do not welcome internal whistleblowing ultimately deserve what they get: intrusive government investigations, high fines and penalties, and potential criminal charges.

Whistleblower retaliation

Whistleblower retaliation cases are no joke, and a predatory internal reporting system that uses the information against the whistleblower can cause serious harm.

When an employee who has turned whistleblower makes a report, it is important to consider where they are coming from. Most whistleblowers are not familiar with government reward programs and, therefore, do not get moneybags in their eyes when they come across fraud. Take Sherron Watkins, for example. When Watkins first discovered the signs of financial collapse at Enron, she did not run to the SEC and open an investigation that would one day land her millions of dollars in reward. Instead, she went internal as a concerned employee who knew that the company and its shareholders’ funds were on the brink of breakdown.

When faced with an internal whistleblower, managers should see it as a chance to clean up their act and handle any issues within the company before an external investigation can lead to bankruptcy and even jail. Sherron pointed out the red flags, but several cover-ups inevitably landed Enron in about every federal hot seat available. As the SEC rules layout, companies have 120 days to report themselves after a whistleblower internally raises a securities violation. After those 120 days, it is open season for the SEC, and every compliance officer, director, attorney, or auditor who has learned about the violations can file for a reward. Moreover, compliance personnel do not have to wait 120 days if there is any sign of major cover-up or impending financial doom.

How managers can handle whistleblowers

I advise business leaders to run a clean company as a whistleblower attorney. This may seem like a “no-brainer,” but when confronted with accusations of misconduct, many leaders have an initial response of defensiveness that truly does not serve them or those they lead. The best thing a manager can do if they learn of misconduct is to avoid shooting the messenger. Ensure there is a compliance culture and that everyone who works for the company knows that.  Furthermore, do not be afraid of workers reporting to the government, and never try to stop them through threats, intimidation, or nondisclosure agreements. Companies that do not retaliate and cooperate with government investigations always show significant leniency. Employees have a right to report misconduct to federal agencies – do not hide your head in the sand and try to pretend these laws don’t exist.

Finally, beware of advice from established corporate attorneys. Many are living in the past. For example, a case went before the U.S. Supreme Court under Dodd-Frank. The issue was simple: Should Dodd-Frank protect whistleblowers who reported internally from retaliation?  Every corporate attorney who participated in that case, including the Chamber of Commerce, argued that companies should be able to fire whistleblowers who reported fraud to their managers (including reporting fraud to the Audit Committee). These corporate lawyers actually argued that to be protected under Dodd-Frank, an employee must report directly to the U.S. Securities and Exchange Commission.

Unfortunately, the Supreme Court ignored the arguments made by whistleblower advocates who begged the Court to protect internal reporting. If the representatives of Big Business did not think internal whistleblowers should be protected, why rock the boat? If corporate America’s leading attorneys gave the green light to fire employees who participated in compliance programs, why should the Supreme Court argue with the “experts.” The Court unanimously held that internal whistleblowers had no rights under Dodd-Frank.

What company wants their employees to ignore internal compliance programs? What company wants employees who witness fraud to report directly to the SEC and bypass all audit functions? Unfortunately, that is the position of the Chamber of Commerce and all the corporate attorneys who have followed their disastrous line of reasoning. Is it any wonder that over 60,000 employees have now filed claims with the SEC? Is it any wonder that the SEC has paid whistleblowers who reported frauds to their agency over $1.5 billion in rewards, including the eye-popping $275 million award paid in May 2023?

Whistleblowing in corporate America is here to stay. It deters wrongdoing. It detects serious crimes. It protects innocent investors. Whistleblowers are not the enemy. The enemy lies in corporate cultures that demand silence and reward, hiding the truth. That is where the battle must be fought.

Rules for Whistleblowers, published June 1st, 2023, is a roadmap on how to be an effective whistleblower in the 21st century. The book covers whistleblower retaliation, the 120-day rule, and corporate hotlines, as well as detailed discussions on anonymity, evidence gathering, and how to qualify for rewards under various laws and programs.