Review: The Organizational Ombudsman: Origins, Roles, and Operations–A Legal Guide

Charles L. Howard

I heard Charles L. Howard discuss working on ombuds issues and his book The Organizational Ombudsman during panel presentations at the Silicon Valley Chapter of the National Association of Corporate Directors and at Stanford University. With all the advantages such offices offer to corporations I was wondering why more corporations haven’t set up programs.

At the recent NACD Directorship 100 program I asked that question during a panel focused on whistle-blowing and other mechanisms to report and resolve ethical issues. None of the panelists had any experience with organizational ombudsman at the companies they represented. Looking to the audience of several hundred, they too seemed to offer nothing but blank stares. My naive question had unintentionally turned into a “gotcha” moment. Don’t let it happen to you. I expect to hear much more about organizational ombudsman in the future and this book will certainly help spread the word.

A 2007 National Business Ethics Survey (NBES) found employees three to ten times more likely to report to an ombudsman than a hotline. 82% of whistle blowers in a study of pharmaceutical companies reported being subjected to various pressures by the company in response to their complaints. So, whistle-blowing is something most employees would rather not do. On the other side, companies can face large financial and even more important reputational losses as ethical violations are uncovered. Given just those few facts, why have so few companies taken the softer approach trying to resolve issues through an ombudsman?

Without a lot of time and effort (and a research grant), I can’t answer that question but I can review Howard’s book with that question in mind. Further, does his book provide an adequate guide to companies seeking to explore setting up such offices?  If not fully offering a step-by-step approach, does it at least offer enough to convince readers it is an idea worth exploring?

Briefly, the organizational ombuds is an independent, neutral, confidential and informal resource made available to employees to discuss issues, get information, and help them find ways to report and/or resolve their concerns regarding ethical issues in the workplace. Glance at my coverage of panel discussions and watch the videos on my prior post for an introduction to the subject, since I won’t cover that again here.

The book begins with origins of the organizational ombudsman, including the formation and evolution of organizations and treatment by the American Bar Association (publisher of the book).  I would have preferred a briefer summary and reference to details in an appendix or CD. He then moves on to discuss demographics and globalization to convince readers that these new pressures on organizations demand an ethically grounded flexibility best served by the ombuds function.

Shifting to law, he argues that most employees are uncomfortable reporting misconduct out of fear of retaliation and because they may be unsure or their own perceptions. He discusses a wide variety of laws from the Foreign Corrupt Practices Act and Sarbanes-Oxley to Title VII of the Civil Right Act and the spread of various reporting laws and systems.

The author argues effectively that, while necessary, these formal mechanisms are not sufficient. Live conversations with an ombudsman, rather than through anonymous e-mails and phone calls, can help employees place their situation in context. An alternative, independent ombuds channel of communication can help employees use formal channels more effectively and can also serve to diffuse many cases by resolving conflicts informally.

Key to success is confidentiality and not being a mandatory notice or reporting channel — independence and neutrality are required for long-term success. Also key is the ability to have an extended conversation, rather than simply reporting. While ombuds don’t reveal the substance of their conversations, they do typically pass along issues and trends to management enabling organizations to make structural or systematic changes.

The median punitive award for plaintiffs in employment discrimination lawsuits in one study cited was $350,000. Clearly, litigation costs can mount quickly, so an ombuds program can pay for itself by avoiding such expenses. Perhaps more important, however, is the increased likelihood that a company with such a program will have a trusting, more cooperative and ethical environment.

Since confidentiality is so crucial, Howard’s advice on how to structure such a program is important. If you are already convinced an ombuds program may be worthwhile, you can essentially skim the first two chapters and go directly to the heart of the matter in Chapter 3, How Can Ombuds’ Confidentiality be Protected? I’m not going to run through all the rationale he provides but I’ll touch on major sections of the chapter.

  • Imputed Notice – Cites Restatement (Second) of the Law of Agency (ALI). Ombuds programs must publicize the fact that they are created as an alternate or supplemental channel of communication, and they do not serve as agents for an organization for purposes of receiving notice of claims. Howard goes on to cite pages of case law around what the courts have found to be confidential. While generally supportive, the cases also provide lessons in the importance of not vesting the ombuds with authority to receive complaints and participate in investigations.  He goes on to discuss the International Ombudsman Association Standards of Practice and primarily paragraph F of the 2004 American Bar Standards for the Establishment and Operation of Ombuds Offices (Resolution).  The ABA language is problematic; the IOA standards much better. Howard provides very useful practice tips on interpretation of these documents, especially the ABA language.
  • Legal Basis for Ombuds Confidentiality – Howard begins with the Federal Rule of Evidence 501, which provides the courts with the flexibility to develop rules of privilege on a case-by-case basis. He discusses the “Wigmore test,” and steps through pages of case law. There appears to have been several cases building the development of privilege. Yet, like many things in life one deeply flawed case (Carman v. McDonnell Douglas Corp.) in 1997 keeps turning up as a “fly in the ointment.” The facts in the case didn’t justify recognition of an ombuds privilege, so it casts a cloud over all ombuds programs and gets cited without careful analysis frequently. In crisis there is opportunity. Howard’s take is that “the court’s opinion serves as a useful guide in articulating several issues that should be addressed by ombuds in seeking recognition of an ombudsman privilege.” Unfortunately, Carman is not the only such case. Unlike the attorney-client relationship, the ombuds does not represent and act on behalf of the client. Instead, they are independent and neutral. That concept may be difficult for our adversarial legal system to grasp. Howard also runs through various statutes that, while helpful, do not speak directly to ombuds programs. Knowledge of these laws is key, however, because of lack of laws clearly addressing the ombuds function.  Again, Howard provides indispensable practice tips with regard to privilege, implied contracts and other grounds for confidentiality.
  • Documentation – The burden is on the party seeking to assert confidentiality to prove entitlement. Howard discusses the ombuds charter, contract, position descriptions, documentation publicizing the ombuds office, operations, trend reports and measures of effectiveness, again offering critical practice tips.
  • Protecting Confidentiality in Litigation – Howard offers advice on what to avoid, on the idea of authorizing the ombuds to retain independent counsel, preparing motions and several litigation practice tips.

Chapter 4 of the book covers a plethora of useful topics from an overview of discovery and alternative dispute resolution to records retention and the Freedom of Information Act (FOIA). A total of fourteen appendixes cover various standards, best practices, laws and examples.

After reading the book I can say I’m still amazed more companies haven’t added ombuds functions. Setting up such an office and operating it so that confidentiality, independence and neutrality are protected is no easy task but there appears to be much more upside than downside, if done right. The flawed cases referenced where confidentiality was denied appear to be deeply flawed. However, I wouldn’t undertake such a task without Howard’s book and I would also want to join the International Ombudsman Association to discuss the idea with several who have set up and operated such offices. While it isn’t an “idiot’s guide” or step-by-step approach, the subject matter doesn’t lend itself to that possibility at this stage of development. Charles Howard’s essential guide for organizational ombudsman will undoubtedly facilitate growth of this important function that could help develop a culture of trust, candor and accountability.

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