External Whistleblowing System – The Five Main Reasons an Organisation would want to set one up

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1) Wrongdoing

Businesses and organisations often need to set up an external whistleblowing solution because they’ve been caught out in the recent past.

By ‘caught out’ I mean they’ve just emerged from a reputation damaging incident or incidents, probably involving legal action, and possibly involving judicial fines or even criminal trials and sentences.

The actual wrongdoing in the workplace could have been anything – fraud, racism, sexism, corruption, insider trading – but it’s the consequences that really matter here.

These wrongdoing incidents really do cause damage to an organisation.

A private business might sustain such reputational damage that it impacts on profit, turnover and even their ability to recruit. A listed company might suffer a slump in share price and force directors and the board to resign. A charitable organisation might find its funding reviewed and cut or see its donations dwindling away to nothing.

In the worst possible cases, the business might go bankrupt or the organisation collapse.

That’s how bad it can get.

So, it’s no wonder these organisations want to prevent it from happening again. It’s no wonder they want to show they’re proactively making changes.

They want to be seen to be changing for the better.

They know that only by improving their whistleblowing policies and whistleblowing systems will they be able to mitigate any further damage to their reputation.

Implementing an external whistleblowing hotline helps these organisations in several ways.

Firstly, simply putting a tried-and-tested, reliable, whistleblowing system in place can be pointed to as taking a robust action to help prevent future wrongdoing.

It can be pointed to as concrete evidence of change.

Secondly, using an external whistleblowing supplier lends an air of independence to any whistleblowing process. Especially if that vendor allows anonymous and semi-anonymous reporting. Indeed, one of the main blockers to making an employee becoming a whistleblower is the fear of retaliation by colleagues.

By promoting the independence of a whistleblowing process an organisation can actually encourage more reports, potentially leading to recouping losses, providing earlier warning of wrongdoing or simply preventing it from happening in the first place.

And thirdly, implementing a new external whistleblower hotline actively provides confidence… confidence in the senior management of a company… confidence that senior managers know what they’re doing and are simply not prepared to accept any tolerance of wrongdoing.

This last, more than anything else sends a message to any potential wrongdoers… that wrongdoing – in whatever form it takes – will not be tolerated.

2) New Legislation

New whistleblowing legislation and customs guidelines will always have an impact on businesses and organisations.

In January 2021 it was additional US Customs and Border Protection (CBP) guidance being implemented.

December of 2021 saw the implementation of EU Whistleblowing Directive.

This also had – and is having – a knock-on effect in the UK, despite Brexit, due to the need to maintain a level playing field.

2022 has already seen companies around the world making assessments on how this major piece of EU legislation affects their legal obligations, especially for those with divisions or legal entities within the European Union.

On January 1st, 2023, the German Government will implement the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) compelling organisations with both direct and indirect suppliers to conduct due diligence obligations in order to improve human rights, material standards and environmental protection.

You only have to take a glance at the above to realise new whistleblower legislation needs constant monitoring and where necessary, actions taken to remain compliant.

3) Do the Right Thing

Many senior managers and directors want to do what’s right by their employees, and implementing an external whistleblowing reporting process as part of an Environmental Social Governance (ESG) plan is a quick and easy way to help do that.

But the really interesting thing is that there are massive benefits to doing the right thing too.

Workplace bullying or poor behaviour from a manager is cited by 15% as a cause of stress, mental health and depression in employees.[1]

By taking a proactive approach and addressing poor working conditions through a whistleblowing reporting line, an organisation can potentially increase staff retention and productivity.

Plainly speaking, looking after your employees means they will look after you.

4) It’s Good PR

Gaining buy-in for a new whistleblower support service becomes an ‘easy sell’ when it will also allow the organisation to present a positive view of itself to both customers and employees.

Whilst being ‘seen’ to be caring has only a modest positive effect on share prices – ie: the perceived value of a company – being seen to lack a caring attitude can have a significant detrimental effect on an organisations value.

This can amply be seen in the Science Direct article ‘When ESG meets AAA: The effect of ESG rating changes on stock returns’.

This study of US companies between 2016-21 found that ESG – of which whistleblowing is a big part – provides modest gains of 0.5%, but the lack of ESG incurs a huge -1.2% per month risk.[2]

So, the real question becomes, why would an organisation not want to implement something that will actively support its value?

5) Future Proofing

Some companies only begin to look at fraud hotlines and whistleblowing vendors after they’ve been inadvertently caught up in wrongdoing by an employee or employees… other businesses and organisations might take a more far-sighted view – some might say wiser, even – and try to future-proof themselves ahead of time.

Think of future-proofing an organisation through a whistleblowing solution as a kind of insurance.

Quite often, simply having a whistleblower reporting system in place will actively discourage wrongdoing in the first place, and whilst you can never prove a negative – ie: you’ll never know how much wrongdoing you’ve avoided yourself – we might be able to see, through comparison of statistics within your industry, how much trouble an organisation ‘might’ have side-stepped.

For instance, fraud losses were 50% smaller at organisations with whistleblowing hotlines than those without[3]… and for every 1 EUR invested in whistleblower protection, there is a 22:1 ratio of potential payback in funds recovered[4].

What Will Your Reason be for Implementing a Whistleblowing Process?

There you have it… the Five Main Reasons an Organisation would want to set up an External Whistleblowing Service.

More and more businesses and organisations are choosing external whistleblowing service providers to help them implement whistleblowing report channels as part of the governance policies.

It’s not hard to see why.

Installing a whistleblowing system is relatively cheap in comparison to taking on staff and overheads internally; it ticks the legislation boxes; it helps you avoid trouble… both personnel and criminal; it can help improve productivity and good will amongst staff; they make you look good in the eyes of the world… which reflects in your stock and organizational value, and should the worst happen and wrongdoing occurs, you can genuinely say you’ve tried to stop it.

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