A recent annual study on emerging best practices for hotlines to address organizational misconduct found some thought-provoking trends for those interested in corporate governance. Most U.S. public companies, some of whom are motivated by the SEC’s bounty program, but also a large number of private firms and not-for-profit organizations are likely to be most interested.
Whistleblowing Rates Increase
The most important news is that whistleblower incident reporting rates are on the rise. Per 1,000 employees using an organization-sponsored hotline:
- The 2012 rate of 9.27 reports is substantially higher than 2011’s rate of 8.58.
- Seven out of eight hotline reports originate in North America (with more than 10% coming from unknown locations).
- The anonymity rate increased only very slightly over 2011’s 49%.
- Only one out of five employees who chose to remain anonymous had notified their management before resorting to use of the hotline (the same as in 2011).
Fraud Tops Allegations Reported
When reviewing all incidents reported by whistleblowers, allegations of corporate fraud were found in a significant percentage of cases. In 2012, the resulting Corporate Fraud Index rose to 23.6%, an all-time high since the Index was first reported in 2005.
Construction Sees Steepest Increase in Reports
The construction industry showed a steep 197% increase in the hotline reporting per 1,000 employees over the previous year; jumping from 6.08 hotline reports per 1,000 employees to 18.03. [Note that this was accompanied by an even more dramatic decrease in employee count in the study for this industry sector: from 211,000 employees to 60,000].
Wholesale Trade saw the next largest reporting rate increase (19%).
Only the Retail Trade and Services Industries saw a reporting rate decrease year over year.
By the Numbers, By Company Size
Across all industries, those with between 5,001 – 10,000 employees saw the largest increase (12.6%), while those with between 20,001 – 50,000 employees saw the only decrease (-2.9%), in hotline reporting rates.
Perhaps not surprisingly, construction firms in the 5,001 – 10,000 employee range saw the largest percentage increase in the number of reports (497%).
Those in public administration industry in the 10,001 – 20,000 employee range also saw a substantial increase in the number of reports (147%).
The dark horse was the finance, insurance & real estate sector with 5,001 – 10,000 employees which saw the largest decrease in the number of hotline reports (-40%).
Lots of Interesting Information
This intriguing reporting is full of interesting information for those who believe that fore warned is fore armed when it comes to possible organizational misconduct. Even if it conveys only the perception of wrongdoing, some would think it worthwhile to recognize and address the issues internally; especially in today’s world where one’s reputation is an important but fragile asset.