Launched last summer, the whistleblower program offered by the Ontario Securities Commission (OSC) is meant to enhance protections for investors and reporting employees by revealing wrongdoing. While not providing exact numbers, the commission said the program has been “fruitful out of the gate.”
For employers, the change is also having an impact — not only do they need to have updated policies and agreements, they must also take greater care when it comes to terminations and internal reporting processes, according to experts.
“It requires companies to take a really hard look at their processes, at their programs, and make sure that their employees understand their rights, make sure management understands their obligations to ensure that complainants are not hampered in their ability to provide information about the organization, including their supervisors, safely in the organization. And also to make sure that their employment contracts and policies reflect the evolving norms that are reflected in these policies,” said Lawrence Ritchie, a partner at Osler in Toronto.
The OSC launched the program — which included the addition of a new policy to the Securities Act — to encourage individuals to report information on serious securities- or derivatives-related misconduct to the commission or, where appropriate, through an internal reporting mechanism.
“This program is a powerful addition to our enforcement arsenal and a ‘game-changer’ for securities enforcement in Canada,” said Heidi Franken, chief of the Office of the Whistleblower in Toronto.
Overall, one of the most immediate impacts of the whistleblower program will be on firm culture and “tone at the top,” she said.
“We expect our program to encourage companies to continually strengthen their compliance systems and to foster an environment where whistleblowers can come forward to report serious securities misconduct internally, without fear of reprisal.”
Individuals who meet eligibility criteria and who voluntarily submit information to the OSC regarding a breach of Ontario securities law may be eligible for a whistleblower award of up to $5 million.
“The payment of a financial incentive is critical to the success of our program because it recognizes the personal and professional risks that whistleblowers take when speaking up about misconduct. We know from consultations with various stakeholders that these risks can deter whistleblowers from coming forward. By offering awards up to $5 million, we are hoping to tip the balance in favour of reporting,” said Franken.
But this kind of incentive is a concern for employers, said Lisa Talbot, a partner at Torys in Toronto.
“If you do have a disgruntled employee who may have some interest in, or some vendetta against, the company or some interest in causing damage to the company… this program could be used as a sword rather as is intended, as I understand it, as a method to protect the investing public, so that certainly is a concern. And employers are trying to manage that concern by having good relationships with their employees, by hiring carefully, by making termination decisions at the appropriate time and not allowing situations to fester.”
Increased protections for complainants and whistleblowers within the law have generally been seen as positive, said Ritchie, “and something that responsible companies have effectively dealt with through internal policies and protocols.”
However, the concept of a bounty for information “has potential to set up a de facto competitor with internal compliance regimes” and this is a concern of businesses, he said.
There is a large body of study and evidence that suggests most whistleblowers want the problem to be resolved, and that’s their primary motivation, said Ritchie.
“That may reduce the kinds of concerns businesses have about the impact of whistleblower awards but, nonetheless, the fact that companies have to be in this situation where there is an incentive for individuals to report externally as opposed to internally, that cloud is still there and makes it a much more difficult job for compliance and legal terms internally.”
In fairness, the OSC has recognized this and created incentives for complainants to go to their employers first — but there’s no requirement to do so, he said.
“My personal concern is that tying a whistleblower award to a financial sanction militates towards punishment as opposed to focusing on remediation.”
Quebec’s Autorité des marchés financiers (AMF) also introduced a whistleblower program in June 2016, but it does not offer a potential reward to whistleblowers.
“Further to a review of various whistleblower programs around the world, including in the United Kingdom and Australia, the AMF concluded that it cannot be established with certainty that financial incentives generate more quality reporting of wrongdoing, and that the key component of any whistleblower program is in fact the protection offered to whistleblowers,” said Sylvain Théberge, director of media relations and public affairs at AMF in Montreal.
Since last summer, Quebec has received 43 cases about wrongdoing under the laws and regulations administered by the AMF and, of those, 17 have led to an investigation, he said.
While the OSC said in September it had received more than 30 tips through the program, according to media reports, it would not provide updated numbers.
“It’s early days, but certainly we have received credible tips. We are pleased that the very existence of our program is having a deterrent effect,” said Kate Ballotta, senior public affairs specialist at the commission.
While the commission encourages whistleblowers to report potential violations through an internal compliance and reporting mechanism with their employer, it does not require them to do so as there may be circumstances in which a whistleblower may wish to go directly to the OSC.
“Reporting internally is a positive factor that may increase the amount of a whistleblower reward. Of course, we recognize that in some cases it may not be appropriate for whistleblowers to report internally, particularly where members of senior management are involved in the misconduct,” said Franken.
It’s important employers ensure their policies state employees don’t necessarily have to go through the internal process first, that they could go directly to the OSC if that is their choice, said Talbot.
“But certainly, from an employer’s perspective, there are benefits in employees bringing situations to the attention of the employer first so that the employer does have an opportunity to understand the context and to conduct remediation if that’s necessary.”
All of the employees should know about the employer’s internal whistleblowing program and to whom complaints or concerns can be raised, she said.
“They should be ensuring that there is training not only about the availability of the program but for those who are in charge of administering the program, that they’re well-trained in terms of how to do so.”
Most meaningful whistleblower complaints are from people who first go internally, said Ritchie.
“Nonetheless, when you are a compliance officer or you have systems and processes in place as a business, there is this shadow that there may be some problems internally that you don’t know about because someone has chosen to take the complaint externally,” he said.
“And that is a problem for businesses because responsible businesses, first and foremost, want to fix whatever problems come to light. And if people are choosing to tell outsiders, as opposed to working within the internal system or process, that information isn’t being conveyed to the people who are in the position to remedy the shortcoming.”
The best way to encourage employees to report internally is to give them confidence that any steps they take will be confidential and there’ll be no adverse consequences to bringing evidence or suspicions of wrongdoing to the attention of the employer, he said, “(and) the company will take meaningful steps to remedy any wrongdoing once it’s investigated and determined to actually exist.”
The Ontario act also allows the OSC to take enforcement action against employers that take a reprisal against whistleblowers, such as disciplining, demoting or terminating an employee, or threatening to do so.
As a result, employers should review existing discipline policies to ensure they do not conflict with the amendments, said Talbot.
“Discipline policies should be clear that employees will not be disciplined for exercising their rights under any provincial or federal statute.”
And supervisors and other leaders should be aware of the new prohibition against retaliation and its implications, she said.
“The employer should be cautious in a termination to ensure there is no link between the fact of the employee reporting and the termination decision. Even when there is no link, employers, if they know an employee has reported under the whistleblower program, should make sure that any of their internal documents, emails concerning the decision-making process, don’t make that link.”
Internal record-keeping is ever more relevant now, particularly when employers are considering dismissing employees who are thought to be complicit in corporate misconduct, said Ritchie.
“The OSC will be looking for documentation such as performance appraisals when investigating allegations of retaliation by employers against employees,” he said. “You don’t want what’s a bona fide action within the rights of the employee to be clouded by an allegation that they were the subject of retribution, and not just for that individual but also for other employees who become aware of these things because it’ll undermine their own confidence in the bona fides of the company’s approach, which is crucial. It really requires companies to understand their obligations and be very, very cautious as to their motivations or their perceived motivations.”
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