Are Ethics Hotlines Effective?

By Ann B. Dunham, SHRM-SCP, and Shawn Stout-Jough, SHRM-SCP February 26, 2020
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yes

Hotlines promote an ethical culture by offering employees a convenient, anonymous way to report wrongdoing.

Ann B. Dunham
Organizations must have an ethics hotline to help promote a culture of honesty and accountability. It shows employees that business leaders truly want to hear from them. 

Developing effective lines of communication is one of the fundamental elements of an effective compliance program, according to the U.S. Department of Health and Human Services Office of Inspector General’s compliance program tips. Some advantages of providing ethics hotlines include:

They encourage employees to report wrongdoing. While most employees report improprieties to their immediate supervisor, hotlines can give them another way to voice their concerns. Employers should encourage workers to report alleged improprieties internally so that business leaders can investigate and correct a problem as quickly as possible. When workers don’t feel comfortable speaking up, they might decide to file a lawsuit or share their concerns with an outside agency or media outlet, resulting in large fines and damage to the company’s reputation.

They are convenient. The hotline should be available 24 hours a day, seven days a week, to allow all employees access during nonwork hours. Employees have told me that they leave work thinking about a situation and don’t decide to report it until they get home. They also appreciate being able to call from the privacy of their homes.

They offer anonymity. Some employees are more comfortable reporting concerns anonymously, especially if they fear retaliation. Anonymous reports can be harder to investigate because HR professionals can’t ask for more detailed information to aid the investigation. But don’t discount anonymous reports because they can help identify a pattern of problems involving a specific manager or department. Some independent third-party hotline providers assign numbers to callers to protect their identities and enable them to check back online to see if investigators’ have additional questions. Our organization chooses to use an internal hotline system, and it works well for us.

Employers can’t guarantee confidentiality because in some situations, such as legal proceedings, they will be required to release the employees’ names. However, HR should make every effort to protect the identities of those who raise concerns and shield them from retaliation.

They reinforce the ethical culture you want. All reports should be investigated. We had a report on our ethics hotline that alerted us to a situation in which an employee was engaging in unethical behavior. We were able to stop the behavior and monitor the situation going forward. We informed the reporter as well so employees know that we don’t tolerate unethical behavior. 

When employees know we take their concerns seriously, they’ll feel that they’ve done something good for the organization, and they’ll be more likely to report issues in the future. Even if a report was made anonymously, general information about the incident can be shared with employees through senior leaders or the employee newsletter.

Of course, a hotline doesn’t do any good if employees don’t know it exists. So it’s important for the HR team to remind employees frequently via workplace posters, the company intranet, new employee orientation sessions and annual employee education sessions.

While the hotline might not be used much, it provides another avenue for employees to report misconduct. If it alerts a company to just one incident of wrongdoing that it wouldn’t have known about otherwise, it could save the organization millions of dollars. 

Ann B. Dunham, SHRM-SCP, is compliance officer and HIPAA privacy officer at Hannibal Regional Healthcare System in Hannibal, Mo.

No

Hotlines create a false sense of security and can create more problems than they solve.

Shawn Stout-Jough

The thought of an ethics hotline makes most HR professionals cringe. A hotline allows employees to report misconduct while remaining anonymous, which makes it difficult to investigate their allegations.

HR professionals want employees to report concerns, but is a reactive tool the answer? 

The 2019 Global Business Ethics Survey found that more reports of misconduct were made to direct supervisors (a median of 51 percent) compared to hotlines (6 percent). In another study by NavexGlobal, organizations tracking hotline and web reports saw a median of 1.1 reports per 100 employees compared to a median of 2.1 reports from all sources. So they represent a small number of the overall reports.

Publicly traded companies are required to have independent hotlines under the federal Sarbanes-Oxley Act, prompted by the accounting scandals at the now-defunct Enron and WorldCom. Other companies choose to provide them voluntarily.

However, companies need to recognize their limitations:

HR still handles the complaints. Even if the complaint is being taken by an external third party, it eventually comes to the HR department for investigation. So why not encourage employees to report concerns directly to HR? What happens to hotline complaints when the HR professional responsible for monitoring the hotline is too busy, on vacation or taking a leave of absence? If a company isn’t diligent in reassigning this task, there’s a potential liability.

Anonymous tips present a lose-lose situation. A thorough investigation can’t be conducted if the person leaving the anonymous tip doesn’t provide enough detail and doesn’t respond to follow-up questions. HR professionals are forced to do the best they can with the limited information, which means the alleged misconduct often can’t be proven and the issue is left unresolved. 

Anonymous reports are less likely to be substantiated (a median of 38 percent) compared to those made by individuals who provided their names (50 percent), according to Navex Global’s 2019 Ethics & Compliance Hotline Benchmark Report. In 2018, 57 percent of reports were anonymous and only 20 percent of those anonymous reporters followed up regarding their complaint. 

Retaliation still occurs. Wells Fargo is a well-publicized example of a company that has faced retaliation claims by whistleblowers using the company hotline. Wells Fargo settled a claim in 2017 for $5.4 million to an employee who alleged he was fired after using the company’s hotline to report suspected fraud, according to a CNN report. Even use of an independent third-party hotline service won’t prevent this if the company culture tolerates bad behavior. 

Misconduct still happens. A study by the Association of Certified Fraud Examiners showed that 63 percent of companies that experienced occupational fraud had an ethics hotline. This statistic suggests that an ethics hotline is not a deterrent to wrongdoing.

Hotlines invite employee vendettas. Hotlines can attract biased or false complaints against another employee or manager that can waste HR professionals’ time and damage morale.

An ethics hotline is a reactive tool, not a stand-alone solution. It creates a false sense of security, wastes valuable HR time on needless investigations, and doesn’t eliminate retaliation and misconduct. If the goal is to establish an ethical culture, then a company needs a proactive and strategic approach that involves a complete ethics and compliance plan. 

Shawn Stout-Jough, SHRM-SCP, is the founder and principal consultant at Strategic HR Advisory LLC in San Diego. She is a SHRM Advocacy Team member.

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