Both employees and companies should know the right procedures for reporting internal problems.
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We have a friend who was recently fired from his position at a large brokerage firm. His offense? Failure to follow internal procedures regarding solicitation of customer trades. He had followed the orders of his manager, who told him what to do, despite the fact that the orders violated company policies. Finally, after many weeks of anguish, he reported the infractions to higher authorities and the manager was fired. Shortly thereafter, our friend was fired for failure to follow company policies, despite the fact that he was following his superior's orders. If it had not been for our friend's whistle-blowing, it is unlikely that the brokerage firm's compliance people would have ever found out about the policy violations.
There is a moral to this story, albeit one that is hard to discern, at least from the perspective of our friend. The moral is that whistle-blowing, if it is to protect the whistle-blower, must occur at the earliest possible time when the illegal or prohibited transaction takes place. It is glib to make such a statement when the whistle-blowing is directed toward the whistle-blower's immediate boss. How can a person take positive actions when such actions involve someone much higher in the company hierarchy and whose credibility is probably greater than that of the whistle-blower? Whistle-blowing gone wrong will result in loss of employment and probable difficulty in finding a new job.
The case of our friend was exacerbated by the financial need created by the recent birth of his first child which made his job even more important than would have normally been the case. Yet, there was no question that our friend knew that what he had been ordered to do was wrong in that it was in direct violation of company policies. Despite this guilty knowledge, our friend thought he was protecting his job by following orders; instead, it eventually cost him his job, even though it was his whistle-blowing that caused his employer to become aware of the situation.
The lesson to be learned from this sad tale is that successful whistle-blowing requires excellent timing. The whistle-blower needs to have adequate documentation to prove the case, but cannot be so far into the misconduct that the whistle-blower becomes tainted with the evil transactions. There is also a lesson to be learned by the compliance personnel of a brokerage firm. There have always been, and always will be, dishonest people among us--those who will always try to take advantage of their positions to the detriment of their employers and to society at large. Whistle-blowing can be a valuable tool in the hands of the compliance staff if they have set up the procedures to empower potential whistle-blowers to provide critical information. A good compliance process will afford all employees "open-door" availability to compliance personnel. Moreover, opportunities must be afforded to permit private one-on-one meetings between employees and their compliance personnel. This can help to avoid the misplaced loyalty between rank-and-file employees and their supervisors that so often results in the violation of criminal laws, of company policies, or of FINRA or SEC rules.
Whistle-blowers must also be assured that they will be protected when they provide compliance staff with critical information. Misplaced loyalty can also occur between compliance personnel and supervisors of the rank-and-file employees. If rank-and-file employees do not understand that they will be taken seriously and that their word carries equal weight with their supervisors, they will be reluctant to report compliance problems and will be more likely to become complicit in any prohibited scheme set in motion by their supervisors.
All personnel should be made aware that the timing of reporting prohibited conduct is as important as is the reporting itself. As the case of our friend clearly established, it is not practical to protect a whistle-blower when he or she has been involved in the misconduct for so long that it is impossible to sort out who was principally at fault. "I was just following orders" is not a viable defense to positive misconduct. Yet, it is human nature to try to protect one's employment. A good compliance procedure that provides opportunities for effective whistle-blowing can help to ameliorate this very human tendency.
We do not mean to promote an atmosphere of suspicion and mistrust in the workplace. Sales personnel have, as their principal jobs, the necessity for aggressive sales practices. A compliance process--particularly one that is receptive to whistle-blowing--should not result in an attitude of general suspicion. Such an attitude is not productive of good sales results. Nevertheless, it is necessary only to read the daily newspapers to become painfully aware that we live in troubled times, particularly in the financial services industry. Legislators, regulators, and the general media are looking closely at what goes on in our industry. If we do not effectively police ourselves and provide our people with effective opportunities to let us know what is going on at our point of contact with the consuming public, we should not be surprised when someone else steps in to ensure that we follow the rules--our own as well as those imposed on us.