Whistleblowers are needed. That’s the consensus among all those who recently submitted comments on the whistleblower compensation program the Ontario Securities Commission (OSC) has proposed.

Even staunch investment industry partisans acknowledged that insider informants play a vital role in bringing to light wrongdoing that otherwise would continue harming investors and capital markets. Furthermore, there’s widespread agreement that whistleblowers often face career-ending repercussions for reporting their co-workers, superiors or firms to authorities — hence the need for monetary compensation.

Consensus over the OSC proposal breaks down, however, on one of the central questions it raises: Should whistleblowers have to report what they know to their firm’s senior management before approaching regulators?

Each investment industry commentator has urged the OSC to require — or at least heavily encourage — internal reporting before an informant gains access to whistleblower compensation. The rationale for this position rests on two points:

  1. Letting whistleblowers circumvent their firms’ internal reporting systems undermines the credibility of those systems, ultimately making it harder for good firms to maintain a culture of compliance.
  2. Firms should have an opportunity to investigate and address the whistleblower’s allegations so that any real malfeasance can be interdicted quickly, while meritless accusations can be dispelled with equal dispatch, before the matter escalates into a wasteful drawn-out regulatory investigation.

Although both of these arguments are cast as having public interest elements, they really focus primarily on the firm’s interest in getting on top of the issues and the evidence. In effect, they try to shift the spotlight away from protecting the whistleblower and instead aim to protect the firm against baseless allegations or a process in which accusations can be made from the shadows. The industry arguments play to our inborn sense that fairness dictates all accusers must reveal themselves, so their credibility may be assessed.

Yet, the whistleblower’s acute vulnerability to reprisal, workplace ostracism and career loss inevitably means fewer whistleblowers will come forward if they cannot do so anonymously. We have to come to grips with that. If we want the benefits whistleblowers can provide — including the revelation of wrongdoing that otherwise would go undetected; the direction to documents and other evidence that otherwise might not be found and perhaps might be destroyed; the cessation of harm that might otherwise continue unabated; and the deterrent effect that a whistleblowing program can have — then we need to create the safest possible environment for whistleblowers.

A whistleblower’s only real guarantee of safety, however, is to keep his or her identity secret. The OSC acknowledges this. Its proposal makes it clear that if the regulator knows the whistleblower’s identity, it may be compelled to reveal it in enforcement proceedings. Accordingly, the OSC intends to consider giving would-be whistleblowers an option of contacting the regulator through a lawyer, who can use solicitor-client privilege as a shield to preserve the whistleblower’s anonymity.

This option is critical to the success of the program. Indeed, anonymity should be the default setting, the standard way in which intake of unsolicited information is handled. Those making contact should be informed immediately that they may be placing themselves at risk and they should be urged to consult legal counsel about how to proceed anonymously if that is their choice.

Meanwhile, the industry’s arguments that whistleblowers must first report wrongdoing internally should be considered in light of the imperative to give employees that choice. Those arguments really have no credence in the absence of firm commitments to act on anonymous complaints. Even with such commitments, it’s difficult to see a compelling reason why the regulator shouldn’t find out about the problem at the same time that the firm’s senior management is informed.

The bottom line is that we need whistleblowers to come forward. Anything inhibiting them from doing so should be eliminated. So, if it’s unsafe for them to reveal their identity, or if they aren’t comfortable complaining to their employer, the process needs to accommodate that. Otherwise there’s little point in trying to develop a whistleblower program at all.