The multi-billion dollar settlements for Bank of America and JP Morgan have dominated the news cycle. However, I was shocked to read a recent article in the Economist about the staggering amount of fines levied against large companies doing business in the U.S. Year-to-date, it’s $50 billion.
Typically, one in 20 of settlements against corporate offenders is precipitated by a whistleblower, not a regulator.
That begs the question – who are these defenders of the common good and how has the whistleblowing process changed?
“Incentivized Integrity”
Two clear changes are evident. First, the settlements – whether triggered by a whistleblower or not – are much bigger. Second, whistleblowers have much more support under Dodd-Frank.
Say what you want about the excessive length of Dodd-Frank, but it created a powerful new weapon to thwart corporate cheaters – The SEC Office of the WhistleBlower. Here’s an excerpt from the site:
The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected. Bolded emphasis ours.
That’s a big change from the past. Prior to Dodd-Frank, the price of identifying wrongdoing often meant losing your job or suffering through a long period in the wilderness while the legal process played out.
Today, whistleblowers can receive a hedge fund manager-like payout of 10% to 30% for sticking out their neck.
As an official in the Justice Department exquisitely described it, Dodd-Frank creates an “incentivized integrity program.” At the same time, Dodd-Frank, in essence, is disintermediating class-action attorneys, so the money goes directly to those who stood up for what’s right.
Who blows the whistle?
Whistleblowers today come in all flavors from tmz.com to disgruntled employees.
The most effective whistleblowers are disgruntled employees – at all levels of an organization. For employers, any employee is a potential whistleblower if you’re doing something you shouldn’t.
Whistleblowers take this drastic step when they are so disgusted by the firm’s behavior that turning to the authorities is the only solution. Usually, whistleblowers don’t do that until they have left their firm. They know how difficult it will be to continue working at a place where they are completely at odds with the firm’s direction.
Crossing The Line
The topic of job security and whistleblowing employees reminds me of my own experiences with whistleblowers.
At one of my first executive meetings at a company that shall remain nameless, there were a number of things said that left me incredulous. But the following statement by a gray-haired executive I had always looked up to is one I’ve never forgotten:
“Jeff, your job is to make sure you are comfortable telling our employees little white lies.”
No kidding.
Wait, There’s More
I wish that was my only personal experience with questionable actions exposed by a whistleblower, but two others are worth noting.
The first one was when Noreen Harrington called the office of Elliot Spitzer to blow the whistle on Canary Capital Partners for late trading of mutual funds.
That decision had an unanticipated ripple effect that led to the dismal of myself and 33 colleagues at Bank of America, as well as many others at other financial institutions. Many of us, including myself, had no part whatsoever in a fraud perpetrated by a select few, but were collateral damage of the regulatory approach at that time.
As depicted in the documentary, Client 9, Noreen was a reluctant whistleblower by her own account. She lost her job and was blacklisted by the financial community. Had the Dodd-Frank whistleblower rule been in effect, it would have protected and compensated people like Noreen. Her 10%-30% payment would have been $6 million.
Your Mother Is Watching
My second experience as a whistleblower was when I was in pre-school.
I was four years old. My mother, unbeknownst to me, came to watch my class through a two-way mirror. When I get home that day, she asked the obligatory question, “How was school?” I said “okay” and proceeded to eat my dinner.
My mother then said she was at school today and saw how poorly I treated my classmates.
I was devastated.
You Can’t Get Away With It
As business leaders, we need to assume that your Mom is always watching you through a two-way mirror. You need to act accordingly in your business and personal life.
What’s more, don’t assume you can get away with it. The people in your own organization are always watching and are the most likely to turn you in.
Our world has changed for the better because of the Dodd-Frank whistleblower rule.
Jeff Spears is Founder and CEO of Sanctuary Wealth Services, champion of the independent advisor and author of the acclaimed blog,Wealth Consigliere. Follow Jeff on Twitter and Facebook.
