Accounting scandals and bankruptcies in the USA have exposed the weaknesses of the corporate governance system’s orientation on a pure capital market and the structural deficits of an internal corporate governance by a board system, demonstrating the importance that corporate governance has in a functioning capital market and free market economic structure.
The Whistleblower Protection Act, passed in 1989 and revised in 1994, protects government employees who, “in good faith,” draw attention to breaches of law, waste of resources or abuse of sovereign authority.
Individual states have passed legal regulations protecting the rights of whistleblowers in the private sector. These regulations make it unlawful to dismiss or otherwise discriminate a whistleblower. Should an employer violate such laws, the affected party has the right to be rehired and reimbursed for missed pay, damages and legal costs.
The Sarbanes-Oxley Act of 2002 is an attempt by the US legislator to improve corporate governance and regain lost trust in the capital market. All companies that are listed on the US stock exchange must fulfill the requirements of the Sarbanes-Oxley Act.
German companies are also required to establish an appropriate formal procedure for dealing with anonymous complaints, criticisms and questions concerning faulty accounting and auditing as well as incorrect internal controls (Section 301.4). A further requirement of the S-O Act is to protect whistleblowers from retribution by the employer, management, other employees and subcontractors in the case of corruption disclosure (Section 806).
SEC. 301. PUBLIC COMPANY AUDIT COMMITTEES. "(4) COMPLAINTS. - Each audit committee shall establish procedures for - "(A) the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and "(B) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.
SEC. 806. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO PROVIDE EVIDENCE OF FRAUD. "(a) WHISTLEBLOWER PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES. - No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee - "(1) to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by - "(A) a Federal regulatory or law enforcement agency; "(B) any Member of Congress or any committee of Congress; or "(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct); or "(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.
The American law standardizes time periods within which whistleblowers’ complaints have to be addressed and dictates that whistleblowers be informed of process proceedings. The Special Counsel is required to submit an annual report to the US congress on the number and handling of the submitted complaints.
In order to better protect whistleblowers from retributions, the new regulations forbid the Special Counsel the disclosure of the whistleblower’s identity, unless it is a matter of an exceptional case (as in the prevention of a crime or avoiding social harm). Above all, requests for interim legal requirements can be made in order to protect whistleblowers during case proceedings. The whistleblower’s legal costs and expenditures are reimbursed.
In addition to these procedural protection regulations, the law allows whistleblowers to request the transfer to other departments should a fear of retribution exist.