On the heels of the three-year anniversary of the Dodd Frank Act, which became law in July 2010, and just ahead of the related two-year anniversary of the SEC whistleblower program, introduced August 2011, concerns about “ethical conduct” in the financial industry made headlines again.

On July 25^th came sobering news about the indictment of a major Wall Street hedge fund firm accused of permitting a systematic insider trading scheme for almost fifteen years. Is there “a whole culture here where red flags were ignored (and) compliance efforts were more or less window dressing” as quoted in a Reuters story? [Flitter, 2013]

This news came very shortly after publication of a New York Times story about the release of a report titled Wall Street in Crisis: A Perfect Storm Looming. [Sorkin, 2013]

Here are some of the disturbing findings contained in this report, from responses to a survey of financial industry insiders:

• 26% of respondents said they believed compensation and bonus plans at their firms incent employees to compromise ethical standards;
• 24% said they would commit insider trading to make ten million dollars, if they could get away with it. For those with under ten years of experience that figure jumps to 38%;
• 23% said that they had observed or had first hand knowledge of wrongdoing in the workplace;
• 17% said they expected their leaders would be likely to look the other way if they suspected a top performer was engaged in insider trading; and
• 15% doubted their leaders would report it to the authorities if they learned of a top performer’s wrongdoing.

On a more positive note, 60% of respondents were aware of the SEC whistleblower program (although 40% were not), and 89% of respondents indicated they’d be willing to report misconduct if it could be done with anonymity, employment protections, and a monetary award, factors present in the SEC whistleblower program. [Thomas, 2013] At the same time, the caveats indicate a continuing concern about retaliation.

One lesson we can learn from these and other recent events is that actions still speak louder than words. Employees take their cues from their leaders. If employees perceive lip service over commitment or if they believe the rules will be applied differently to a favored few, they may well look the other way after observing ethics violations, fraud, or other wrongdoing in the workplace.

Employee reporting, however, is an important part of any firm’s internal control system. If employees believe their leaders have an honest commitment to ethical behavior, they are more likely to report misconduct when they suspect it.

Another lesson is that we cannot take employee attitudes and behavior for granted.  Although the majority of employees show up to do the best job they can, there will always be some who are unaware of the rules or who choose to disregard them. It’s important to keep awareness of company ethics and compliance rules high, through on-going communication, training and other initiatives.

Finally, one more lesson we can learn is that regardless of the corporate climate and culture, many employees want an assurance of anonymity if they are going to be comfortable reporting wrongdoing. Anonymous whistleblower hotlines can be a powerful tool for an individual firm.

Ethical Advocate provides comprehensive ethics and compliance solutions, including ethics and compliance training and confidential and anonymous hotlines, meeting your regulatory and reporting needs. Let us know how we can help you.

References:

Flitter, Emily, Svea Herbst-Bayliss, and Jonathan Stempel. “U.S. Charges SAC Capital with Insider Trading Crimes”, Reuters.com, July, 25, 2013.

Sorkin, Andrew Ross. “On Wall Street, A Culture of Greed Won’t Let Go”, New York Times DealBook blog, July 15, 2013.

Thomas, Jordan. “Wall Street in Crisis: A Perfect Storm Looming”, SECWhistleblowerAdvocate.com, July 16, 2013.