Does the SEC’s whistle-blower award scheme help or hinder?

The complex business of providing an adequate response to the burgeoning demands for risk management and compliance relies on a holistic approach involving, people processes and technology. With the increasing sophistication of financial governance solutions there is an understandable tendency to overlook some of the very real organizational challenges.

One of the most controversial tools in the control environment is the use of whistleblowers. At the core of the concerns is the need to strike a balance between safeguarding the careers of would-be whistleblowers and at the same time protecting management from malicious or unfounded claims.

There is then the vexed question of whether whistleblowers should be rewarded financially. This was brought spectacularly to a head in October this past year when The Securities and Exchange Commission announced an award of more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds. The award is the largest made by the SEC’s whistleblower program to date.

But what expectations does such an award system set up? Does a reward system encourage good citizenship or undermine it?