One of several difficult compliance questions facing companies revolves around reporting of employee concerns. If the number of complaints coming in on a company hotline goes down over time, is corporate misconduct going down or are employees losing trust in the company’s speak up system?

These are two diametrically opposite conclusions.

Compliance officers have to be realistic and objective when analyzing this question. Misconduct rates do not just go down by themselves. Instead a CCO has to fairly identify trends and influences that support the conclusion that misconduct is going down. Such a trend does not occur in a vacuum.

If the positive conclusion is true – that misconduct rates are going down – there would be other indicators of a positive ethical culture. For example, the CCO should ask:

• Has the CEO or the board made an increased effort to demonstrate their commitment to an ethical culture?
• Have they taken affirmative and proactive steps to promote a positive ethical culture?
• Have mid-level managers reported any evidence that employee conduct has been improving?
• Are employees reporting misconduct incidents committed by other employees?
• Are there other positive developments that support a conclusion that the company’s compliance program is taking hold?

In the absence of positive indicators of ethical improvement, a CCO should avoid the simplistic conclusion that a reduction in employee complaints means that employee conduct is improving.

In certain situations, a CCO should be concerned that employee-reporting rates on hotlines have declined over time. Such a phenomenon can reflect a serious culture problem in the company – the employees do not trust the reporting system and are not using existing employee reporting systems. Such a breakdown is a significant risk to the company. When misconduct goes underground, the company’s risk profile increases and a culture of misconduct can spread rapidly throughout the company.

We are all aware of situations where employees are afraid the raise difficult concerns. In fact, this phenomena has specifically been cited in a number of major government enforcement actions, including the BP Deepwater Horizon case, the GM ignition system problem, VW’s emissions cheating scandal, and Wells Fargo’s sales incentives program. In each of these cases, a robust speak up culture could have saved the respective companies from significant misconduct, government enforcement actions and reputational damage.

Employees who distrust a company’s reporting system may have reached this attitude for a variety of reasons. Employees who experience significant delays in responding to concerns usually conclude that the company does not care about their concerns. Additionally, if a company fails to discipline managers, employees or executives who engage in misconduct, employees will rapidly lose faith in the company’s commitment to organizational justice.

A company’s attitude towards internal employee reporting systems becomes very obvious – a company is either committed to encouraging employee reporting as a vital source of information needed to address risks and misconduct, or a company displays a “do not care” attitude by failing to respond timely and with commitment to addressing employee concerns.

CCOs know the score on a company’s commitment to a speak up culture – sometimes they may turn a blind eye from realizing that the decline in employee reporting is a serious warning sign. By failing to acknowledge this risk, CCOs are exacerbating the risk and failing to act when they should be doing something to address the problem. On the other hand, a CCO who acknowledges the problem, has embraced an important first step – the CCO’s company has a real culture problem and needs to address the issue quickly before the situation deteriorates and the company experiences a serious incident.