As a compliance advisor, we often use the word “essential” when describing elements of a compliance program.   One of those “essential” elements is fostering internal reporting and communication.

The lifeblood for a Chief Compliance Officer is internal information and reports.  The sources of such information can be whistleblowers, employees who want to report an idea or a concern, a hotline or other anonymous report, or supervisors within the organization.

The CCO can learn from all of these sources and needs to encourage internal reporting.  The more information that is reported the better picture the CCO can develop of internal operations. 

How do you create an atmosphere for internal reporting?  There are three basic steps every organization needs to take.

1.  Create incentives to report matters internally.  The company has to reward employees who come forward, not necessarily with money other benefits but use the power of the corporate “bully pulpit” to reward reporting which leads to innovation or improvements in the company’s operations, and ultimately to the “bottom line.”  Employees hold the key to critical information.  Surveys have shown employees are unlikely to report any problems or ideas to their immediate supervisors for fear of retaliation or upsetting the day-to-say relationship between supervisor and employee.  When corporate leaders commit themselves to encouraging employees to step forward and promise rewards, companies perform better and increase internal reporting.  A CCO has to push through a commitment to this concept with senior leadership and the corporate board.  In the absence of such an environment, the CCO’s sources of information will go underground and the CCO will lose valuable intelligence and data.

 2.  Prevent any hint or opportunity for retaliation.  Employees are often unwilling to come forward because they believe they will be retaliated against.  As a result, ideas for improvements are often buried in distinct offices and suffocated in the corporate organization.  CCOs have to be vigilant to protecting employees and encouraging internal reporting.  The CCOs message has to be supported with resources, personnel, internal postings, emails and other means by which employees can be reminded of the importance of reporting and the company’s commitment to preventing retaliation.  In this area, the Human Resources department has to be part of the team and keep a close eye on any hint of supervisor retaliation against employees that step forward.

 3.  Communicate the corporate message and value of internal reporting.  The CCO will fail in encouraging internal reporting if the company does not adopt a consistent communications strategy.  From the top of the board to each supervisor in a company, the message must be strong and must be clear – we want you to step forward with new ideas, reports of problems, and actions that can be taken to improve our company.  The company has to make it clear they will reward the employee, they will value the idea or report, and they will protect the employee from any possible retribution.  Every possible avenue for communicating this message has to be used, not just once a year, or quarterly, but on a regular basis.  Corporate actions must be taken to reward employees who come forward by identifying the employee, trumpeting the employee’s action, and highlighting the corporate improvement which resulted from the employee’s action.  Once a commitment is communicated and demonstrated, the CCO can be the ambassador for change, reform and improvement.

CCOs need to embrace these three principles and secure commitments from corporate leaders to these three ideas.  Without them, the CCO is doomed to fail.  The company needs to recognize these basic requirements.