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How a robust whistleblowing framework can help create long-term value

Effective whistleblowing programs not only make legal and ethical sense, they also help companies to emerge stronger than their competitors.

In brief

  • The importance of whistleblowing in uncovering misconduct is likely to increase as organizations respond to challenges from the COVID-19 pandemic.
  • Companies and their executives need to take responsibility for setting up the right “speak-up culture” for whistleblowers to come forward.
  • Whistleblowing programs form a key pillar of an organization’s corporate governance framework and can help with the creation of long-term value.

The Japanese pictorial maxim of three wise monkeys (each covering their eyes, ears or mouth) embodies the proverbial principle of "see no evil, hear no evil, speak no evil." There are various meanings ascribed to the monkeys and the proverb, but the phrase is most often used to refer to those who deal with impropriety by turning a blind eye. Fortunately, people increasingly wish to speak out when they see or hear of wrongdoing, and organizations not only should want to help them but must help them.

At the same time, the COVID-19 pandemic introduces new challenges for organizations looking to build and maintain a robust integrity framework including their whistleblowing infrastructure. Policies and procedures need to be reviewed through the lens of an increasingly dispersed and remote workforce. Nine in ten respondents to the EY Global Integrity Report 2020 (pdf) Is this the moment of truth for corporate integrity? believe that the pandemic poses an increased risk to ethical business conduct at their organization.

With the realization that the global pandemic and its impact will be felt for the foreseeable future, organizations need to do more to locate and stop unethical behavior, and also to protect those that help do so.

Whistleblowers – employees who expose behavior inside their own organization – play a crucial role in uncovering misconduct. This is just one reason why policies to protect whistleblowing have migrated out of obscurity to near the top of the agenda for many senior legal and compliance professionals. What was once worthy of a fleeting mention as part of a wider discussion around integrity, is increasingly a central concern for businesses, both large and small.

These concerns are coming from inside and outside of organizations, with both employee expectations rising and new legal mandates coming into force. Governments in Europe are in the process of implementing legislation that requires companies to offer increased levels of protection to workers including those in highly regulated industry sectors, such as financial services and healthcare.

As more laws come into place, organizations need to create effective and workable policies around building integrity, and specifically look at whistleblowing. Some progress is being made, but it is not always holistically or even consistently applied.

Data collected for the EY Global Integrity Report 2020 (pdf) found that the vast majority respondents – 94% of the nearly 3,000 companies surveyed – had at least one element of a robust whistleblowing procedure in place. The most common was a code of conduct for how employees should behave in business (47%), followed by regular training on relevant legal, regulatory or professional standards of behavior (38%).

At a macro level, 39% of those surveyed said it had become easier to report concerns over the past three years. Despite this, one in five respondents is more concerned about the level of protection for whistleblowers than they were three years ago with less than one third (27%) believing that they are offered more protection.

Organizations need to understand this entire process – a policy alone is not enough. With whistleblowing laws and rules becoming increasingly widespread, corporations around the world need to build and enhance their current procedures.

A critical concept is the ability for a company to “listen down” – to be able to receive input and feedback from layers below executive management. This helps foster an environment where employees feel comfortable “speaking up” when they see things they believe go against the company’s values.

How EY can help

Fostering the right environment

Organizations must develop and then update regularly comprehensive whistleblowing processes that set out how individuals can report actions that they believe are problematic. This includes how they can disclose these activities and to whom. An equally important part of the process is training and information. It is not enough to set out a policy and bury it inside a rarely-seen or hard-to-access handbook – instead companies should conduct firm-wide training on a recurring basis, so that all employees know their rights under the whistleblowing policy.

 

It is the responsibility of the firm’s leadership to ensure that whistleblowing programs are seen as more than just window dressing. Integrating a whistleblowing policy into a firm’s culture and values in the longer-term is important. Employees feel safe when there is a comprehensive culture of integrity inside the organization and people know that the company is committed to these values.

 

A critical related concept is the ability for a company to “listen down” – to actively be able to receive input and feedback from layers below executive management. This helps foster an environment where employees feel comfortable “speaking up” when they see things they believe go against the values of the company. Indeed, organizations should promote a culture that treats whistleblowing as a duty and responsibility where wrongdoing or unethical behavior is occurring.

 

Fostering security

Effective whistleblowing programs should become self-perpetuating. Employees who have positive experiences with the program will serve as ambassadors for future use of the system.

 

A common approach to handling complaints is the creation of a hotline where employees can file a complaint. This can be a good start, but it is only the beginning. Consideration must also be given to who reviews the information. A neutral board must be deployed, with both the expertise to understand legal and moral requirements, and the gravitas to make recommendations that are taken seriously. This could include external partners, depending on the industry.

 

Communication throughout the process is often a complicating factor. In order to have a “neutral” investigation of the facts, many processes are necessarily opaque. While privacy for both the accused and the accuser are important, any whistleblowing process should have standardized ways of reporting back to the original complainant. An accuser should be trained to know ideally before they make a complaint or when making their first call, when and how they will be informed about the outcome of the case.

 

Whistleblowers have two common concerns when they make their case – that their complaint will be ignored or that they will face consequences and retaliation for blowing the whistle. This is validated by the EY Global Integrity Report 2020, with 53% of respondents who had reported an issue stating they felt under pressure not to report. This was not universal, as respondents reporting pressure varied from 83% in Japan to 38% in Mexico. Local context and customs – as ever – matter.

 

Keeping the whistleblower informed during the process can help with the fears of being ignored, while organizations can allay fears of retaliation by publicizing protections that are in place for whistleblowers and highlighting cases where action brought to light by a whistleblower has led to reform.

Global Integrity Report
of respondents who had reported an issue felt under pressure not to report.

Whistleblowing and the integrity agenda

Regardless of regulatory requirements, companies and their executives need to take responsibility for setting up the right environment so that whistleblowers can come forward. Whistleblowers, quite simply, are neither rare nor the enemy of the company. The EY Global Integrity Report 2020 (pdf) found 37% of respondents had reported issues of misconduct to management or a whistleblowing hotline. A deep-seated cultural change, one that goes beyond lip service and minimum compliance, takes time. But the rewards are many.

This makes not just legal sense but can also help with the long-term value a company creates. Whistleblowing programs form a key pillar of an organization’s corporate governance framework and it is critical for companies to build ethical and humane processes to handle complaints.

By incorporating this as part of their integrity agenda, organizations can ensure that their people don’t turn a blind eye to wrongdoing, are encouraged to speak up and are then rewarded, not penalized, for doing so. Ultimately, this will help them emerge stronger than their competitors, having retained top talent and attracted new customers even during turbulent times.  

Summary

With employee expectations changing and whistleblowing laws becoming increasingly widespread, organizations need to enhance their current procedures. Whistleblowing policies are important, but they are not enough. Companies should conduct training on a recurring basis, so that all employees know their rights and feel safe within a comprehensive culture of integrity. Deep-seated cultural change takes time, but the rewards are many, including retaining top talent and attracting new customers.

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    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.