Whistleblowers – protection, compensation and law reform
Updated: Jan 27, 2018
Below is an edited version of a speech I delivered on the 28th July 2017 at an event organised by the Corporations Committee which forms part of the Business Law Section of the Law Council of Australia.
As I often say when I present to these types of events, I don’t come here with a background in law or academia. Rather, I consider myself a practitioner, in the truest sense of the word. As some of you would know I was publicly named as one of the whistleblowers in the infamous FX trading scandal that rocked the National Australia Bank (NAB) in 2004. Many people consider my story to be unique as I went on to spend a further 12 years at the NAB subsequent to the incident. My hypothesis is that there are many more people like me. People who, after having shone a torch on wrongdoing within their organisation, have remained employed there and gone on to have successful careers. I am not suggesting the experience is necessarily pleasant for these individuals – speaking up rarely is. But given the circumstances the outcome was nonetheless positive.
I have spoken to several whistleblowers who fit this description and I think there are primarily two reasons why we don’t hear from them. The first is that they are not newsworthy. As I like to say, there will not be a story on the front page of the paper tomorrow reporting that hundreds of planes took off and landed safely at airports across Australia today. Secondly, once the incident is over, the majority of whistleblowers want to put the experience behind them. After all, nobody joins an organisation to become known as a whistleblower.
Speaking from personal experience, I too wanted to put the FX trading scandal at the NAB and my role in it behind me. I didn’t want it to define me and dictate who I was. I felt I had more to offer than just being known as “Dennis Gentilin, whistleblower”. And in many ways I did this successfully. I often say that one of my proudest moments at the NAB was when I was hired into my last role. The hiring manager had no idea that I was involved in the FX trading scandal. This in my mind was a real achievement – like I said, I didn’t want my role in the scandal to define me, for better or worse.
A question I often get asked is if I was so keen to put the experience behind me, why am I openly talking about it today? In 2014 I took a sabbatical to complete the manuscript for a book I had been commenced writing on business ethics. Although I had contemplated writing the book without referencing the NAB or the FX trading scandal, when I sought the opinion of my closest colleagues they unanimously told me this would not be possible. So here I am speaking publicly about being a whistleblower. Suffice to say, writing the book was a big decision for me. In many ways it represented a coming out.
The book however is not about the NAB or the FX trading scandal. One of my primary motivations for writing it was that I was becoming disillusioned with the seemingly incessant focus on rules, regulation and compliance as our primary means for explaining and addressing conduct issues within organisations. These formal mechanisms of governance, although important, have some inherent shortcomings. Arguably the main shortcoming associated with them is that they assume humans are rational.
If humans were rational, then formal systems of governance would be sufficient. By simply increasing the likelihood of being caught or increasing the size of the penalty, rational people would, after undertaking a cost benefit analysis, quickly conclude that there is nothing to be gained from engaging in unethical or illegal conduct. However there is now a plethora of research demonstrating that in many (if not most) scenarios, humans don’t respond rationally. Rather, they are guided by their intuitions. Because we are intuitive, there are a whole range of contextual, social and behavioural factors that can influence our conduct.
Therefore, even if we implement the best in class regulatory or compliance frameworks, our organisations are not immune from conduct issues. And the same applies to whistleblowing. Organisations can have the best in class formal whistleblower programs. Programs that guarantee the anonymity of the whistleblower, programs that commit to undertaking an independent investigation, and programs that have the backing of the executive and board. But if people in the organisation feel that speaking up is associated with adverse consequences, or that speaking up is futile because wrongdoing is not appropriately dealt with, or that the messaging from senior leaders, for whatever reason, can’t be trusted, then they will not use internal whistleblowing channels. Their intuitions will tell them it is not wise to do so.
With this as backdrop, I want to turn now to the parliamentary inquiry and whistleblower legislation. The parliamentary inquiry was launched under the banner of whistleblower protection. Amongst other things, the terms of reference state that the inquiry should consider “the most effective ways of integrating whistleblower protection requirements … into Commonwealth law”. One thing I can say with a fair degree of confidence is that if we want to protect whistleblowers, the most effective way to do this is to ensure that when whistleblowers raise concerns within their organisations, they are listened to, respected, and the concerns are appropriately addressed.
I was therefore heartened to hear the words of Kelly O’Dwyer, the Minister for Revenue and Financial Services, during a recent address at a whistleblowing seminar hosted at the University of Melbourne law school. She stated:
This is why every company and organisation must have their own policies and procedures in place, to provide for the protection of individuals who speak up. They need governance structures that encourage a culture of openness and transparency and a willingness to be self-critical.
She went on to quote Professor AJ Brown from Griffith University who says: “It’s going to be cheaper and better if our laws put a clear onus on organisations to get it right for themselves, wherever reasonable and possible.” This is heartening for me because it is one of the key themes in my submission to the inquiry. If we are serious about protecting whistleblowers, then we must address the root cause of inferior whistleblowing outcomes. To do this, we must place the onus on organisations to create the conditions where people feel that they can (and should) speak up, and when they do so they are listened to, respected and their concerns are appropriately addressed.
This, for me, is the real opportunity here – to craft legislation that attempts to place the onus on organisations to create environments that support speaking up. This is the best way to increase the likelihood of positive whistleblowing outcomes and protect whistleblowers. And to create these environments, a formal whistleblowing program is a baseline requirement for organisations. They must have processes and procedures in place that allow them to assess attitudes towards speaking up. And when they identify areas in their organisations where people are reluctant to voice concerns, they must demonstrate that they are taking appropriate measures to address this.
These measures could take a variety of forms but it is not something we can design a standardised, tick-the-box compliance program for. I know that this is something that might frustrate some of the lawyers in this room. However, if we do create a checklist, you can rest assured that organisations will address the items on the checklist without addressing the underlying issues that make life difficult for whistleblowers.
I now want to briefly speak about financial rewards for whistleblowers, a topic that has generated much discussion. My view on financial rewards is driven by the objectives of the parliamentary inquiry and any associated legislation. I repeat what I said earlier, the parliamentary inquiry was launched under the banner of whistleblower protection. Therefore, any reward scheme associated with the legislation must protect the whistleblower.
In my mind, a bounty system similar to that which operates in the United States (US) is not necessarily the best way to achieve this.* One of the key statistics that people point to when they speak about the success of the US bounty system is the number of disclosures (or “tips” as they like to refer to them). In this light, one could easily make an argument for the efficacy of the bounty system – there has been a significant increase in the number of disclosures since the inception of the system. If our objective was to increase the number of disclosures, I would probably be a proponent of a bounty system. And the bigger the better.
But my main concern with a bounty system is that like any financial incentive, it comes with both intended and unintended consequences. In the US, there is evidence of meritless and vexatious claims being made. This is something that will be difficult to avoid. The ability of bounties and incentives to compromise behaviour is of course not new and is often referred to as the “Cobra effect”. The genesis of this term goes back to the period of British occupation in colonial India. The British authorities, concerned with the size of the cobra population in New Delhi, introduced a bounty program. Citizens received an award each time they handed over a dead cobra to the authorities. Initially the scheme was successful and the cobra population fell. However over time, as some ingenious locals recognised there was an opportunity to make money, cobra farms began surreptitiously opening.
All this being said, and as has been well documented, the costs associated with whistleblowing can be significant. Loss of income, impaired employment prospects, impacts on mental and physical health, family breakdowns and, in extreme cases, forced relocation due to concerns for one’s safety. Whistleblowers who experience these types of inferior outcomes deserve to be compensated. My personal view is that this is best done through some type of safety net. The compensation should be generous and cover a whistleblower for all incurred costs. What’s more, the organisation that has failed them should be made liable. By making organisations liable, the hope is that this will encourage them to more seriously engage and invest in the work required to create environments that embrace those who speak up.
To sum up, we are presented with a big opportunity on the back of the parliamentary inquiry into whistleblower protection. There are some things that I think we can all agree should form part of any resulting legislation .For example, standardising whistleblower legislation across sectors and jurisdictions or ensuring, wherever possible, that we protect the anonymity of whistleblowers is a given. There are some things that should form part of legislation but there has been and will continue to be some debate on what form they should take. Financial compensation is an example of this.
However for me the real opportunity is to structure the legislation in such a way that the onus is placed on organisations to create environments that promote and protect would be whistleblowers. Doing this will not only increase the likelihood that we effectively address the root cause of inferior whistleblowing outcomes, but be associated with a whole range of ancillary benefits.
* The whistleblower program administered by the Securities and Exchange Commission in the US rewards people who submit information that results in prosecutions. The rewards range from 10 to 30 percent of the monetary sanctions collected.