HEIDI FRANKEN on ethical innovation in Finance

The head of the OSC’S Office of the Whistleblower describes its creative solution for ending securities misconduct.

You head up the Ontario Securities Commission’s new Office of the Whistleblower. What is its mission?

The program is primarily an investor protection policy aimed at serious securities misconduct. This misconduct can be difficult to detect without the assistance of a knowledgeable whistleblower. The earlier we know about misconduct, the more protective orders we can issue, the greater our ability to minimize harm to investors and, therefore, the stronger the deterrent message.

We did extensive research on programs in Canada and around the world, including the Securities and Exchange Commission’s (SEC) program in the U.S. We then designed a program specific to Ontario’s needs that not only offers excellent incentives for whistleblowers to come forward and report misconduct, but also offers important protective measures for them.

A recent SEC study found that 80 per cent of whistleblowers reported the misconduct to the SEC after trying to raise their concerns internally. Why would that be?

As you indicate, a large majority of whistleblowers attempted to report internally first. This indicates to us that

companies not only have to focus on how to intake tips — for instance, through a whistleblowing hotline — but also on how they deal with the complaints that do come in. Clearly, these procedures are not as effective as they should be, and the result is that the whistleblower feels that their concerns have not been heard.

One of our goals is to change the culture around whistleblowing. We know from our own research that what motivates whistleblowers to report is simple: They want the misconduct to stop. It is very important that there be a tone at the top that supports and values whistleblowing, and these individuals need to believe that they can come forward without fear of reprisal. Whistleblowers take personal and professional risks by speaking up about misconduct and they’re only going to do so if they feel they can come forward in a safe and protected way.

Companies should also look at their board’s involvement in the reporting process and whether employees fully understand the internal reporting systems in place. Sadly, in many cases compliance and internal control systems are not working as effectively as they could.

Does that 80 per cent number reflect what’s happening in Canada as well?

It’s still early days for our program, so it’s difficult to quantify, but I can tell you that anecdotally, individuals do want to report and handle these things internally. They want to stay employed with their employer, and they want the misconduct they have observed to be addressed, so they can move on.

We don’t require whistleblowers to have reported internally before they come to the OSC, but we encourage them to do so. For example, the Whistleblower Award that we offer is in a range of five to 15 per cent of total sanctions ordered, where the sanctions exceed one million dollars. Where a whistleblower lands in that range is based on a number of factors, but if they reported internally first, before reporting to us, this would be a positive factor that could increase the award.

One of your goals is ‘credible deterrence’. What does that look like? Can you describe how a typical misconduct case unfolds?

Obviously, confidentiality for our whistleblowers is of primary importance to us, so I can’t get into specifics, but I can generally describe the process. Whistleblower reports

One of our goals is to change the culture around whistleblowing in this country.