Why establish a whistleblowing management system?

Globally, an increasing number of regulators are introducing legislation which require companies to implement whistleblowing management systems. In addition, many multinationals are looking to implement whistleblowing policies and a whistleblowing management system in order to identify and manage potential issues within an organisation, before they become an even greater problem for senior management and general counsels to deal with. This article discusses the benefits of implementing a whistleblowing management system.

Although many jurisdictions have had whistleblowing legislation in force for some time, it is notable that these continue to be enhanced, to ensure greater access to appropriate whistleblowing channels within organisations. In Europe for example, the EU Whistleblowing Directive means that legal entities in the EU with over 250 employees must put in place internal reporting channels together with appropriate protections, enabling employees to securely, confidentially and if preferred, anonymously, submit whistleblowing disclosures.

However, apart from complying with regulatory and legal requirements, there are many other good reasons why companies should have a whistleblowing management system in place - below we examine five of them.

1. Good corporate governance

An effective whistleblowing management system is an important component of good corporate governance. When underpinned by a strong compliance culture, it can act as an early warning system for adverse behaviours or activities and emerging risks. When implemented correctly, it will help reassure employees that they can make reports regarding concerns they have about wrongdoing, in a manner which is secure, confidential and even anonymous, should they prefer. This is likely to lead to a situation where employees are more inclined to make reports, making the whistleblowing process a highly effective and valuable compliance management tool.

2. Meeting ESG (Environmental, Social, and Governance) objectives

The increasing importance of the ESG agenda for businesses across the world means that Boards must be able to identify and manage a range of risks that may impede their efforts to achieve their corporate ESG objectives. Some of these risks are difficult to measure or identify, for example business practices that are harmful to the environment or management actions that are unethical or inconsistent with fair treatment of employees. A properly implemented whistleblowing management system can be an invaluable source of information about potential wrongdoing that would impact the achievement of ESG targets but more importantly, clients and investors increasingly expect well managed ESG-focused companies to have an effective whistleblowing management system in place.

3. Fraud detection

Whistleblowing is one of the most prolific channels for the identification of fraud. According to the Association of Certified Fraud Examiners (ACFE) 43% of all occupational frauds are identified via tip offs with half of those tip offs being made by employees. ACFE also point out that median losses due to fraud are almost double in companies without a whistleblowing system. Fraud by employees is often difficult to detect, and this point is felt even more keenly in the Covid and post-Covid era, where employees work from home or in hybrid work models, and communication channels and supervision are less visible or reactive. In these times, the case for providing employees with a safe and secure channel to provide information in an anonymous and secure manner is compelling. In addition, as well as helping to bring potential fraud to the attention of management, it can act as a powerful deterrent.

4. Workplace culture

Closely related to the achievement of ESG objectives, senior management must work to ensure a workplace culture which is free from bullying, harassment, sexism, racism, nepotism or other unacceptable or discriminatory behaviours. Working in an environment where these behaviours are allowed to flourish can affect the wellbeing and mental health of employees and lower workforce engagement levels, decrease productivity and increase staff turnover. In these circumstances, employees often feel they cannot share concerns with their line management or HR teams; this in turn means that unacceptable behaviour or wrongdoing continues to occur unidentified and unmanaged. Providing a safe and secure channel to anonymously report wrongdoing or behaviours of this nature can help give reluctant employees the confidence to bring these matters to the attention of the company. In cases such as these, it is often preferable to have an external reporting channel that is separate from the internal management regime.

5. Brand and reputation

The implementation of a whistleblowing management system also serves as an indicator to external stakeholders that your company behaves ethically, has progressive values and is serious about addressing wrongdoing. It can act as an ethical backbone for an organisation and demonstrate commitment to good corporate governance, transparency and honesty. In addition, as an early warning system, it can often help identify problems quickly so they can be addressed before becoming systemic. For example, early identification of a serious issue related to health and safety could help protect the wellbeing of employees and avoid damaging the reputation of the company if the problem hadn’t been identified and addressed and a serious incident had occurred.

Conclusion

There are many good reasons for implementing a whistleblowing management system apart from meeting regulatory and legislative requirements. However, to maximise the benefits, any whistleblowing management system needs to be properly implemented.

This includes a range of activities for example, developing the policies and procedures needed to underpin it, providing training and awareness so employees know how and when to use it and putting in place a comprehensive governance structure responsible for overseeing it and ensuring it is adequately resourced and managed.

If you’d like to find more about this increasingly important topic, please contact any of the authors listed below for a free and confidential discussion about how we can help you.