Recent data from the Freshfields whistleblowing survey suggests that managers in the United States across a range of seniorities and responsibilities are increasingly attuned to issues related to whistleblowing in their organizations, and in the US more broadly.
Our survey gathered respondents’ views on a variety of whistleblowing related topics (see here for a previous blog post discussing awareness of whistleblowing procedures and training on them); however, a few key trends in the US data stand out. This blog post details the stand-out US statistics and discusses their implications for securities and shareholder litigation.
An increased involvement in whistleblowing
The data in our survey reveals that there has been an overall increase of respondents in all jurisdictions surveyed who reported being involved in whistleblowing in some capacity (43% in 2023, up from 32% in 2020).
In the US, 60% of survey respondents reported being involved in whistleblowing in some way – whether through being aware of a colleague whistleblowing, having someone report a whistleblowing concern to them, being the person against whom a whistleblowing report was made, or being a whistleblower themselves. This is a marked increase from the answers in the 2020 survey, where 18% of US respondents reported being involved in whistleblowing in some way.
There was also a corresponding increase in US respondents who reported that they had been whistleblowers themselves – 23% of US respondents reported being the one to blow the whistle, compared to only 7% of respondents in 2020.
Comparatively, the other four jurisdictions surveyed (the United Kingdom, France, Germany and Hong Kong) saw smaller shifts in respondent involvement in whistleblowing, with France actually seeing a decrease (27% in 2023, down from 35% in 2020).
External reporting of whistleblowing concerns
Another key issue highlighted was around reporting routes for incidents of whistleblowing, with the data in the survey suggesting that there was a decrease in the number of respondents who would report whistleblowing concerns to their direct line managers (40% overall in 2023, compared to 46% overall in 2020). The numbers were even lower in the US – only one third (32%) of US respondents said that they would report incidents of whistleblowing to their direct managers, down from 46% in 2020.
The decrease in US respondents who would report to their direct managers was accompanied by a rise in the number of US respondents who would report incidents of whistleblowing directly to authorities (24%, up from 21% in 2020) and on social media (16%, up from 2% in 2020). Younger respondents were especially likely to blow the whistle using social media compared to their older counterparts – 18% of US respondents aged 25-34 would report directly on social media, compared to 0% of respondents aged 55+.
Anonymity of whistleblowers
Further, our survey suggests that US respondents are especially concerned about knowing the identity of whistleblowers – 81% of US respondents reported that they believe that it is important for their companies to know the identity of whistleblowers, up from 24% in 2020. This belief was shared across sectors, including the Financial Services sector (82%), the Education sector (87%), and the IT sector (92%).
US respondents’ interest in the identity of whistleblowers is high compared to other jurisdictions such as Germany and the UK, where 61% and 48% of respondents respectively held the same belief. Respondents’ interest in unveiling whistleblowers in the US is at odds with the current national regulatory regime, where laws such as the Sarbanes-Oxley Act require that US public companies facilitate anonymous disclosure of whistleblowing claims.
Impact of remote / hybrid working on whistleblowing
Our survey also sought to gauge respondents’ perspectives on the potential impacts of remote / hybrid working on whistleblowing. The US data suggests that respondents believe that there will be long-term impacts of this new way of working, with 94% of respondents reporting that whistleblowing will be affected in some way. However, US respondents were divided on what the long-term impacts will actually be.
Just over 41% of respondents in the US reported that they believe that remote / hybrid working will mean that employees will be more likely to report concerns externally or on social media because remote working makes employees feel less connected with their employers, echoing the growing trend of US respondents reporting that they would use social media to report whistleblowing concerns.
Additionally, 39% of US respondents felt that workers are more likely to feel comfortable whistleblowing in the privacy of their own homes, and 31% of US respondents reported a belief that people will be more comfortable overall blowing the whistle due to remote / hybrid working arrangements.
In contrast, 39% of US respondents felt that workers in a remote / hybrid working environment are less likely to be aware of instances likely to trigger whistleblowing, and 33% of US respondents thought that there would be fewer occurrences of incidents altogether.
Implications for securities and shareholder litigation
The results of our survey suggest several valuable lessons for companies to consider regarding securities and shareholder litigation.
- First, the survey results back up the US trend of an increase in the use of “confidential witnesses” in securities litigation. We have discussed this practice elsewhere, but the mechanics of “confidential witnesses” are simple: plaintiffs’ lawyers, seeking to highlight weaknesses in securities complaints to extract settlements, target former company employees in the hopes of generating some unfavorable commentary about the company or its leaders. The former employees’ views are often distorted and, when unfavorable to the theory advocated by the plaintiffs’ lawyers, simply omitted from the complaint. The survey results may suggest an increased willingness of current or former employees to engage with such attempts made by plaintiffs’ lawyers, in a good faith but fundamentally unsophisticated way. Increased employee education, carefully revised separation agreements and thoughtful exit interviews that include legal personnel can all help clarify the difference between this pernicious “confidential witness” practice and true whistleblowing. We have discussed additional policy proposals for both US Congress and federal courts to consider in a prior article.
- Second, and this is especially true for Delaware corporations, the survey results enforce that audit committees and boards of directors should examine internal controls with an eye towards capturing live employee feedback. Most companies have whistleblower hotlines, but enhanced measures could range from traditional town halls (including a board member) to dedicated channels (including new technologies like instant messages) through which employees can safely and confidentially raise concerns in real time. Providing employees with internal channels for expressing grievances or concerns, outside of their direct reporting line, might make the difference between having a chance to address a budding problem internally and learning about it on social media or in the news. In particular contexts, where employee feedback can help identify “mission critical” risks or deficiencies, it would not be surprising to see Delaware courts probing a company’s handling of internal employee feedback beyond the bare minimum hotlines.
- Finally, the survey results suggest a significant shift in how companies might want to position their responses to US Securities and Exchange Commission (SEC) inquiries or investigations that stem from whistleblower concerns. Some of the most successful and thoughtful strategies in such cases have included a thorough examination of the allegations by outside counsel (which does not always have to be independent, depending on the situation) and dialogue with the staff of the SEC’s Division of Enforcement. Some of the least successful strategies have focused on outright rejection of any allegations, cursory investigations either by non-lawyers or in-house attorneys that are already stretched thin and may not always utilize best practices, and an adversarial relationship with SEC staff. Naturally, there is no universal solution that fits every such investigation, but the survey results indicate that the time to create internal protocols about such contingencies is now.
Our survey findings underscore the importance to companies of adequately and accurately advertising their whistleblowing policies to employees and implementing robust procedures for addressing whistleblowers’ concerns.
Beyond facilitating the overarching goals of uncovering and addressing misconduct within a company, proper disclosure and education with respect to the company’s whistleblowing policies may carry the added benefit of employee empowerment and increased confidence in the company’s organizational and reporting structure. With respect to the increasing risk amongst younger demographics of conducting whistleblowing on social media and/or to regulators or other external entities, appropriate advertising of whistleblowing policies and robust and appropriate follow-through may serve to further emphasize the confidential and secure whistleblowing processes available to employees. This may reduce the likelihood of instances of “external” whistleblowing and corresponding organizational and reputational harm associated with addressing such acts of whistleblowing (and related legal and public relations costs and efforts).
While it will often be very challenging to share the results of a whistleblower-initiated investigation with a whistleblower, the adoption and implementation of robust policies requiring follow-up, and communication when practicable, are likely to benefit most organizations in the long run by increasing the odds of channeling concerns to internal, company resources.
To access the full whistleblowing survey report, please click here. The Freshfields team would be happy to discuss any of the themes in the report in more detail.