Whistleblowing policy: an element of corporate governance.

Author:Olander, Susan

The cascade effect from the Sarbanes-Oxley Act of 2002 continues to be felt in a multitude of ways by all businesses, including electric cooperatives. New "best practices" in corporate governance are being established on a daily basis; among them is the increasing adoption of corporate whistleblower policies.

The strong media and public focus on corporate governance continues, and directors of all types of businesses are being asked to demonstrate a clear commitment to their legal and ethical responsibilities in governing their companies. Management and key staff are also being held accountable and asked to act responsibly. The term "best practices" is defined as those processes, practices or methodologies that have been proven to lead to improved performance. These "best practices" are the performance levels to which management and directors of all companies may presumably be held should their actions be challenged either by their members, by the media or in the courts.

As has been noted in numerous seminars and conferences, in the post-Sarbanes-Oxley environment, greater attention needs to be given to the responsibilities of the Board of Directors and the Board's relationship with management. Directors must emphatically demonstrate their commitment to and their understanding of their fiduciary duties: the traditional duties of care, loyalty and obedience and the new "duty of attention." In addition to focusing on these duties, the Board must become more conscious of requesting relevant information and documenting decisions made. Directors must also re-affirm their understanding of the Board's basic functions, including:

* Provide advice and counsel to management

* Monitor management's performance

* Oversee the effective auditing of the cooperative, and

* Report to the membership and others on the financial health of the organization.

Those broad goals encompass a multitude of smaller issues, among them the establishment of whistleblowing policies. This article will clearly define what is meant by whistleblowing, address both the legal and the practical implications of whistleblowing and discuss the establishment of procedures for employees to report suspected wrongdoing.


Section 1107 of Sarbanes-Oxley (or "the Act") makes it a federal crime for any person, and that includes all individuals and businesses, to deliberately retaliate against anyone who provides a law enforcement officer with truthful information regarding the commission or possible commission of any federal crime. (1) Unlawful retaliation includes interfering with someone's lawful employment, such as firing, refusing to promote or reducing pay. This crime is punishable by fines and/or up to ten (10) years in prison.

While this provision extends to all businesses, including cooperatives, only the audit committees of public companies with securities listed on a national stock exchange are required by Sarbanes-Oxley to establish procedures for handling whistleblower complaints (including complaints by employees) regarding accounting, internal controls or auditing matters. This may seem a rather narrow scope for defining specific whistleblower requirements. The larger picture--or cascade effect--should persuade prudent cooperatives that it makes sense for them to consider whether they have--or should adopt--an adequate system that encourages employees to report suspected illegal conduct or violations of the cooperative's policies or procedures as a means of strengthening the commitment to a code of conduct.

In order to comply with the criminal whistleblower provisions of Sarbanes-Oxley, cooperatives should review their existing employee policies regarding discipline and termination. In all likelihood, your cooperative already has a policy that prohibits discrimination or retaliation against an employee complaining of discrimination. Generally, these policies are very detailed and tie unacceptable behavior to very specific provisions in the law. Therefore, these policies may not be broad enough to cover the contemplated whistleblowing protection that is set forth in Section 1107 of the Act. Your cooperative may need to review and possibly adopt a new policy to include language broad enough to encompass this type of whistleblowing and to ensure that supervisors and managers are aware of and understand this provision in the law.


Let's start with the definition of a whistleblower. Any employee of an organization or company who speaks out about the organization in an effort to correct perceived...

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