Using Whistleblower Laws to Uphold Social Responsibility Commitments

people-walking-inside-buildingToday, we expect Wall Street to be as much a part of the community as Main Street. For corporations with social responsibility commitments and investor groups with social responsibility mandates, whistleblowers are a crucial force for compliance. Whistleblowers ensure that businesses play by the rules, including those that they’ve set for themselves, as part of their social responsibility commitments. As the number of whistleblower claims rise, both in quality and scope, the potential impact of these cases on socially responsible investing, and on companies committed to and impacted by such frameworks, needs to be placed in the spotlight.

Social responsibility commitments have been instituted by a wide range of companies. This blog post focuses specifically on publicly-traded companies. For example, groups like Starbucks have these commitments to work in such a way to benefit society at-large. A simple read-through of Starbucks’s webpage on social responsibility commitments demonstrates the types of efforts being made by these companies, such as sustainability efforts and community building.

U.S. whistleblower laws incentivize corporate insiders to report wrongdoing through whistleblower rewards. These disclosures directly impact socially responsible investors, who rely on corporate social responsibility commitments when making decisions. Moreover, this helps uphold the validity of social responsibility mandates. In this way, whistleblower laws not only encourage disclosures that lead to prosecutions but also ensure that companies can no longer hide their wrongdoing.

Whistleblowing is a force for both domestic and international accountability. Many U.S. provisions apply to foreign whistleblowers insofar as the violation reported falls under U.S. jurisdiction.

Whistleblower rewards are effective. In FY 2017 alone, 4,484 whistleblowers contacted the U.S. Securities and Exchange Commission (SEC), and the number has been increasing yearly; the number was only 3,001 in FY 2012, and 334 in FY 2011. This increase from 334 to 4,484 is a result of major reform, which came . The changes within the SEC’s whistleblower program bolstered publicity for the program, leading to higher awareness of options available to whistleblowers, directly impacting the program’s usage.

The failure to follow social responsibility commitments can open a corporation to significant risk, legally and financially. Investors may make their decision to invest based on corporate social responsibility commitments. The discovery that a company is not complying with such commitments could impact stock value, investor confidence, and consumer trust. Like all discovery of such illicit actions, these violations are most likely to be uncovered through whistleblower tips.

The nexus between modernized whistleblower protection laws, social responsibility commitments, and the material impact on investors is key. It is here where whistleblowers play a critical role in holding corporations accountable to their commitments and the law, as well as to their consumers and employees. Failure to follow these obligations can lead to exposure of bad behavior, heavy costs to the delinquent parties, and great rewards for the brave informants. While it may be intimidating for an individual to speak out against the wealthy and powerful, all must be aware that the law is on their side, protections do exist, and there are financial incentives available.

We know that investors value social responsibility commitments by publicly-traded companies. Yet investors should look not only at the existence of such commitments, but also whether or not they are upheld. Whistleblowers are a tool for persons concerned with socially responsible investing. They can use these laws to hold companies accountable and ensure that they adhere to lawful corporate activity. Whistleblower laws must be widely understood and supported if the goal is to empower individuals to use their rights and protections to build a more transparent, accountable, compliant corporate and financial landscape.

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