How to encourage the right kind of whistleblowers

by Eleanor Bloxham for Fortune Magazine, June 15th, 2011.

Dodd-Frank critics argue that offering larger payouts for whistleblowers will cause an uptick in financially-motivated tips, but the concerns are misguided. 

Following in the footsteps of other agencies with successful bounty programs like the IRS, the Dodd-Frank Act has required the SEC to implement protections for whistleblowers and payments of what could be large sums for valuable information related to corporate fraud. While the SEC has been offering these protections and rewards since the Dodd-Frank Act’s passage, on May 25, the SEC established rules that will govern these procedures going forward.

Today, most companies have internal mechanisms that allow employees to blow the whistle. For these systems to work, however, companies need to understand what motivates employees to report wrongdoing internally. And because of the SEC’s new whistle blower program, this is needed now more than ever before.

In response to the new whistleblower requirements, the Greek chorus of Dodd-Frank naysayers stepped forward to lament, “The sky is falling,” as is so often the case with each new Dodd-Frank rule requirement.

“Employees will go for the money” the chorus says. “The bounties provide too much of an incentive. Instead of using corporate whistle blower programs, they’ll go to the SEC. Employees should be forced to use internal channels first.” (continue reading… )

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