Among the tasks in-house counsel have to deal with are internal complaints filed by whistleblowers. Good governance practice requires companies to have internal complaint mechanisms, and they should be handled in a confidential, assertive manner. If not, companies open themselves up to fines and the whistleblowers may collect.
That’s just what happened last week, according to Omar Madhany of the Toronto-based law firm Borden Ladner Gervais. The Ontario Securities Commission (OSC) announced that it had awarded $7.5 million to three whistleblowers who provided tips that led to OSC enforcement actions. The awards were the first ever made by a Canadian securities regulator and garnered significant press coverage due to their size. The OSC is the Canadian equivalent of the U.S. Securities and Exchange Commission.
So what should in-house counsel do? First of all, take a deep breath. Despite the publicity surrounding this and other big awards, Madhany says that most employee whistleblowers first take their complaints to the company. But don’t ignore these complaints; they won’t go away. Madhany gives a step-by-step guide on how to deal with them.
1. Triage. The first step in responding to a whistleblower complaint is assessing the potential impact of the complaint on the company. The potential impact of a complaint depends on two factors: (1) the financial, legal, and reputational risk to the company; and (2) the credibility of the complaint.
2. Determine who will investigate the complaint. Once you have assessed the potential impact of the complaint, determine whether it should be investigated by the company or by outside counsel. Ask two questions. First, what was the outcome of the triage analysis? Whistleblower reports that have a minimal potential impact can typically be investigated by human resources, compliance, or legal. Consider taking complaints with a big potential impact to outside counsel, especially to avoid the appearance of a conflict of interest.
3. Respond to the whistleblower. Assure the complainant that you’re taking the issue seriously. And ask him or her for detailed information, so that you can understand the nature of the complaint better. Also assure the employee that you are following established company procedure.
4. Inform others at the company. The decision about who at the company to inform about the whistleblower report and how much to tell them is fraught with difficulty. On the one hand, certain employees of the company may need to know about the report in order to ensure that the company fulfills its legal obligations. On the other hand, disclosure of the report to others at the company could compromise the integrity of the investigation.
5. Inform third parties. An often overlooked aspect of dealing with a whistleblower complaint is the need in certain circumstances to report the complaint to third parties. Prompt reporting to third parties where appropriate can avoid significant negative consequences for the company in the future.