Whistleblowing in the boardroom – Part 2

A step in the right direction

An area that businesses need to get right in their operations is an effective whistleblowing framework. One of the existing requirements under the draft bill is for all large proprietary and publicly listed companies, as defined by the Corporations Act, to have a whistleblower policy in place.

Whistleblowing is a critical action that enables employees to raise awareness of people within their organisation partaking in fraud, corruption and other forms of misconduct. If corporations wish to maintain their integrity, it is essential to prevent, find and deal with any misconduct that transpires within their organisation.

Whistleblowing is an important step in the right direction. What will make this a reality, though, is a culture of balance between trust and good internal controls. The reporting framework only works effectively when an organisation’s employees are prepared to speak up.

I believe whistleblowing is a critical control mechanism, but it requires a lot more than just a hotline or a policy. Business leaders must also lead from the front. They must encourage employees to make the right choice and speak up. They do this not only by talking the talk but also walking the walk. Ethical, consistent and transparent leadership not only breeds a positive and open internal culture but also helps deter misconduct in the long term.

Encouraging and embracing hotlines

One of the key tools for businesses to more effectively identify dishonest activity in their company has been a whistleblower hotline. The ACFE report found organisations that utilised a hotline, detected fraud by way of tips-offs 50 per cent more often than those that didn’t. Just by simply having a hotline, they lost $229,000 less when they experienced a scandal.

Hotlines provide companies with a greater assurance that they have knowledge over what is happening in their business. In contrast, the report said that organisations without hotlines were more than twice as likely to detect fraud by accident. In most cases, there will be an individual that has knowledge of an incident, though they will not highlight it until there is a safe avenue to raise awareness to the company or through external sources.

In order to effectively implement a whistleblower hotline, a company must be trained effectively to professionally receive the disclosure of sensitive material and ensure the effective management of such matters. If whistleblowers want to remain anonymous, companies must also enable this to occur; but also set up processes that enable the organisation to return to the whistleblower if more information is required or needs to be tested. Getting this balance right is important, not just for the whistleblower but other stakeholders involved in the process. There is value, too, in organisations electing to use an outsourced whistleblower hotline service as they are independent.

Whistleblowers appreciate talking to an independent, objective and skilled professional. Yet, while many companies are now adopting external hotlines as an option for employees, it is not uncommon for the service to only be symbolic. A worrying trend we find with some organisations is that they are including a whistleblower hotline just to tick a box. It is disappointing to see that businesses aren’t properly embracing this service and providing support for employees to have the courage to contact the hotline. This can sometimes be because of a strong ethical culture. But often it is because people don’t know they have an option to report or don’t trust the process. Companies seem to only be concerned with meeting the criteria placed by regulations, without properly considering the real benefits that a hotline provides.