March 31, 2015

Hotline Benchmarking: Leap in Retaliation Report Substantiation Rates

NAVEX Global’s just-published annual hotline benchmark report reveals some noteworthy findings, including:

– Substantiation rates for retaliation reports spiked from a consistently historical 10-12% to 27%
– Substantiation rates for repeat reporters are higher than rates for first-time reporters
– Five-year trend of rising report volume continues
– Case closure times continue to climb
– Low rate of anonymous reporters who follow up with their initial report still worryingly low
– Allegations vs. inquiries reveal a fairly steady 80%/20% split

The increasing substantiation rate (i.e., rate of allegations determined to have at least some merit) for retaliation reports – which more than doubled in 2014 compared to 2013 – is particularly noteworthy. As NAVEX Chief Compliance Officer, SVP Carrie Penman noted, while the statistic could be an anomaly, the SEC’s “recent focus on retaliation has caused companies to take a deep dive into these allegations.” Widely publicized, the WSJ recently reported that the SEC sent letters to a number of companies seeking copies of employment agreements and confidentiality training materials since Dodd-Frank’s 2010 effective date that might indicate attempts to stifle employee reporting to the SEC in violation of the law.

Also significant is the higher substantiation rate for repeat reporters. This is important because at least historically – there has been concern that companies may perceive repeat reporters/complainants as less credible – a practice that SEC Chair White has cautioned against in the past.

See also this more recent WSJ article noting potential challenges to the SEC’s authority to enforce Dodd-Frank’s anti-retaliation provisions.

How to Handle Informal SEC Communications

This recent Compliance Week article provides guidance about how to handle informal SEC communications – including informal requests for information such as the SEC’s recent whistleblower-related inquiry.

According to former SEC enforcement attorney BakerHostetler’s Marc Powers, “Cooperation with the SEC may be in a company’s best interest, but compliance has to be carefully planned and considered. No matter how friendly the voice on the other end of the phone may be, or how cordial a letter is, regulators are not paid to be your friend. ‘If it is an enforcement group, their primary goal is to ferret out wrongdoing from whatever the situation.'”

The article also provides some useful tips from SEC Deputy Chief Accountant Dan Murdock’s remarks at the December 2014 AICPA Conference and, more recently, PLI’s 2015 SEC Speaks conference, about how to most appropriately utilize Staff’s frequent speeches – which often appear to be guidance-like in nature, but are almost always qualified as reflecting the views of the speaker only, not the SEC. For example, he characterized such speeches as generally having a five-year shelf life due to, among other things, evolving staff thinking and business models.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Are Nominating/Governance Committee Chairs Undervalued?
– CEO Involvement in CEO Succession
– Practical Guidance on Internal Audit Independence
– Enhancing COSO’s ERM Framework
– Bigger Penalties When Whistleblowers Involved


– by Randi Val Morrison