Study Shows Rise in Ethics and Compliance Reporting Rates

Greater employee trust and decreased resolution time account for part of the rise

By Rosemarie Lally, J.D. April 14, 2017

The number of employees who used corporate ethics and compliance hotlines spiked last year.

The overall employee reporting rate has been trending consistently upward, with a 56 percent increase in the number of reports per 100 employees from 2010 to 2016, according to Navex Global's 2017 Ethics & Compliance Hotline & Incident Management Benchmark Report. The reporting rate rose in 2016 to a median of 1.4 reports per 100 employees.

Each year, Navex, an ethics and compliance consulting firm based in Lake Oswego, Ore., analyzes anonymous data collected through its hotline and incident management systems to create an ethics and compliance benchmarking report that enables employers to gauge how their performance matches up to industry norms. The analysis is based on data gathered from 927,000 individual reports received by 2,382 of Navex's clients in 2016.

Reasons for Rise in Reports

"This ongoing increase in the number of reports received is very encouraging," said Carrie Penman, Navex chief compliance officer for advisory services and co-author of the report. "It shows that organizations have done a good job of publicizing the program and building employee trust."

Other factors that are likely to have contributed to the steady increase in reporting are greater use of unified incident management systems and decreased resolution times, said co-author Edwin O'Mara, Navex operations manager for advisory services. However, the uptick in overall reporting coupled with a corresponding drop in anonymous reporting indicate that the most significant factor may be employee confidence that reporting will make a positive difference in the workplace, he suggested.

"Employees want to do the right thing," Penman stressed. "I find it encouraging that more people are filing internal reports and that more of those reports are being substantiated."

Matt Kelly, CEO of Radical Compliance, an independent consulting firm based in Cambridge, Mass., agreed, saying that "Overall, the results are good news," and show that employees are engaging more with their companies than in past years. He added that the higher substantiation rate for "named reports," in which the employee divulges his or her identity, is especially positive because it shows that employees are not afraid to step forward to voice their concerns.

The report noted that organizations that documented reports from all channels in their incident management system—from hotlines, the Web, open-door reports, manager submissions, letters and direct e-mails—captured 58 percent more reports than organizations that documented only reports made through Web and hotline channels. Using a unified case management system provides a more disciplined, systematic method for tracking, investigating and resolving issues while providing a more holistic view of issues raised across the whole organization, the report said. "With more data captured, issues that appear to be a 'one-off' for one department can become part of a trend when combined with reports from multiple departments."

Employers need to seriously think through what metrics they want from incident reports, Kelly added. "Focusing on the desired metrics can identify weak spots in policy and procedures, and also identify weak managers or even weak divisions that aren't taking corporate policies seriously."

Further, "The results highlight the importance of having a holistic management system that picks up reports from all channels, including person-to-person communication—one of the most common ways that problems are reported," he said. "If you don't have an efficient system for capturing all data, you're missing an important piece of the big picture. Good data give employers better analytics and allow better policy development."

Case Closure Time Drops

Case closure time decreased for the first time in six years, dropping from 46 days in 2015 to 42 days in 2016, O'Mara noted. "Although there is still much room for improvement, we're really encouraged by that decrease," he said, especially in light of the increased number of reports.

Penman agreed, stating that "The fact that case closure times dropped while the number of reports rose makes me suspect that additional staff resources are being deployed." Yet even more resources may be needed; despite the improvement, taking 42 or more days to resolve a report "sends a bad message to the workforce—that perhaps their concerns aren't important—when the real reason for a delay may be lack of resources," she said.

Stressing the importance of timely resolution in maintaining employees' morale and confidence in the reporting system, O'Mara and Penman offered several suggestions on how organizations could decrease their case closure times:

  • Improve investigation efficiencies, including research protocols, interview processes and investigators' final determinations.
  • Use a unified incident management system to track the progress of complaints.
  • Increase investigation resources.

Kelly also found the improved case closure rate encouraging, but noted that the fact that the rate is still over 40 days indicates that more employers need to adopt a good investigations protocol. "However, multiple factors contribute to the case closure rate," he added, "and much is beyond the control of HR." For instance, complex investigations into misappropriation or corporate wrongdoing take time. On the other hand, workplace respect or harassment claims are really policy and training problems that employers can—and should—fix by developing and enunciating clear policies and training employees on what is expected of them, he said.

The percentages of the kinds of reports received have remained consistent over the past six years:

  • Human resources (72 percent).
  • Business integrity (14 percent).
  • Environment, health and safety (7 percent).
  • Misuse and misappropriation of corporate assets (5 percent).
  • Accounting, auditing and financial reporting (2 percent).

The health care industry received the highest number of business integrity-related reports, while the retail industry had the highest level of HR reports this year.

Retaliation Reports

Reports of retaliation have increased from 0.52 percent in 2011 to 0.93 percent in 2016. But 45 percent of Equal Employment Opportunity Commission charge claims in 2016 included a retaliation claim, O'Mara noted.

Organizations can encourage employee reporting of retaliation internally in several ways, according to the report's co-authors:

  • Employers can show that they take retaliation seriously as demonstrated by the substantiation rate of retaliation reports, which rose from 12 percent in 2014 and has remained around 26 percent since.
  • Regular communication can reassure employees that the company is doing its best to prevent retaliation. "It's important to tell stories," Penman said, suggesting that employers present a real-life case study of retaliation (with parties' confidentiality protected) and show how the company responded appropriately.
  • Train managers on how to avoid retaliation.
  • Employers should monitor the performance ratings and conditions of employment for employees who have been interviewed as part of a workplace investigation to ensure that they are not being retaliated against for their cooperation. Employers can also follow up with a reporting employee as well as investigation participants for six months to ensure that they are not suffering retaliation.

"Employers can encourage workers to bring retaliation to their attention by sticking to their guns about employee discipline," Kelly added. Employers must engage middle managers "to make them aware of what retaliation is, how management views it, how to avoid it—if you can do this, they'll manage better and get the results that management wants."

[SHRM members-only HR Q&A: How do we handle an employee who habitually bypasses his supervisor or internal procedures with complaints?]

Finally, the report emphasized that organizations should encourage employees to view the hotline as an information resource, rather than simply a reporting channel. Increasing employee awareness of the hotline as a helpline "can help increase the likelihood that your employees will feel comfortable asking for help—and take preventative action to avoid misconduct," the report said.

To foster employee use, Kelly suggested publicizing the hotline in company newsletters, on internal websites, in company e-mails, and at town hall meetings. "Develop a library of corporate policies and make it available in an interactive online format for your employees," allowing them to research their own questions and then use the hotline for specific assistance, he counseled.

Rosemarie Lally, J.D., is a freelance legal writer and editor based in Washington, D.C.

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