What is whistleblowing and why is it important?
Whistleblowing refers to the process of bringing an important, present problem to the attention of the public and relevant authorities. Whistleblowers or whistleblowers come forward to point out misconduct, misuse of resources, illegal activities or unethical practices that could harm the public interest.
Whistleblowers act as watchdogs on a grand scale, reporting misconduct, preventing fraud and corruption, protecting human rights, and ensuring transparent government. Even though most companies adhere to established standards, there are still a few outliers whose behavior, and the resulting failure, cause serious and lasting damage. The most recent prominent example, which initially started with an anonymous tip and prevented potential abuse and government interference, is Austria, where high-ranking government officials were forced to resign as a result of the revealed missteps.
Whistleblowing is also an integral part of democracy and an important mechanism for exposing wrongdoing that would otherwise remain hidden. As such, it plays an essential role in protecting civil rights and ensuring the efficient functioning of society.
What role does whistleblowing play for companies?
Whistleblowing plays a critical role in the corporate landscape by helping companies uncover cases of fraud, corruption or other forms of unethical behavior in a timely manner or at all. Especially for large companies, the risk of abuse or unethical behavior is high due to limited legal and compliance resources, the company may lack the knowledge to effectively address wrongdoing, or the need to create a stronger culture of transparency, integrity and accountability.
Nevertheless, we would also like to concede at this point that, as already mentioned at the beginning, most companies do not aim to exploit and defraud their employees or society. On the contrary, the raison d'etre of a company, especially in Germany and Europe, is to maximize the value of the company for all stakeholders.
The most important aspect for companies in creating an effective whistleblowing system is to create a culture of transparency and integrity. Employees should feel that their concerns are taken seriously and that it is okay to report wrongdoing without fear of reprisal. This can be achieved, for example, by establishing independent points of contact such as compliance or ethics officers or a special hotline for employees.
Whistleblowers can act as observers (or silent observers) as an extended arm of the compliance department to help uncover potential abuse or financial irregularities that would otherwise remain hidden. Whistleblowers can come from outside the company or from within the company's workforce to uncover wrongdoing.
How do companies benefit from institutionalized whistleblowing?
The introduction of a structured whistleblowing system offers companies numerous advantages. In the first instance, whistleblowing embodies an unofficial watchdog, ensuring that legal requirements and codes of conduct and processes are followed. In the second instance, whistleblowing is an undercover journalist exposing unfair business practices before they cause a public scandal. Other benefits for companies include:
An open corporate culture
It is no secret that an open corporate culture can be of great benefit to companies. Whistleblowing, in particular, plays an important role in such a culture. Whistleblowing gives employees the assurance that they can speak up about misconduct or potential problems without fear of retaliation or condemnation. While it can be difficult for companies to create such an environment, it can ultimately help protect the company from a potential scandal or fraud. Creating a safe space for employees to voice their opinions will likely lead to improved employee morale and productivity, and create a sense of trust between employees and management.
Greater trust in the company and its products and services
Whistleblowing plays an important role in creating more trust in the company and its products and services. Whistleblowing involves an employee reporting unethical or illegal activities in the workplace of which he/she is aware, such as fraud or unsafe working practices. This ensures that such activities are uncovered and dealt with at an early stage, resulting in greater safety for customers and greater confidence in the company's reputation.
Better work culture/work climate
An institutionalized system also helps employees identify and report any misconduct or inappropriate behavior, which increases the efficiency of investigations and leads to greater confidence in a company's work culture.
Avoidance of major scandals
Preventing major scandals is a key element of sustainability and integrity in any organization. Whistleblowing, i.e. the reporting of unethical behavior by an individual within a company, can help organizations identify potential issues before they become a major problem. Organizations should therefore ensure early on that their employees feel supported and safe in reporting an issue, as this fosters an environment where ethical missteps are likely to be identified quickly.
As already stated, compliance is an essential function of a company and, when interpreted correctly, can become a mainstay of the company. Correct interpretation means the value-driving implementation of corporate processes and not the punishing and nagging hand that compliance often shows in many companies.
Whistleblowing, if implemented properly, can become a key component of some compliance programs by allowing individuals to directly report violations they observe or learn about. Whistleblowing can also provide organizations with important information that can help them find solutions to complex problems. In hindsight, integrating whistleblowing into compliance strengthens both systems and can provide better assurance of maintaining a safe environment for all of an organization's employees.
What are typical cases reported by whistleblowers in companies?
Sparked by some of the biggest corporate scandals in recent history, whistleblowing has become an important concept for companies seeking to uncover and prevent wrongdoing. From illegal financial practices by major banks during the global crisis of 2007-2008 to falsified emissions figures by car manufacturers, these events have cost companies billions and shown how much could be preserved with proactively established whistleblowing systems.
Other typical cases that whistleblowers regularly uncover in companies:
- Corruption/compliance violations
- Insider trading
- Data misuse
- Human Rights Violations
- Discrimination in the workplace
What is the legal background?
The deadline for implementing the EU Whistleblowing Directive expired in mid-December 2021. On September 29, 2022, the Bundestag held its first reading of the draft whistleblower protection bill submitted as Printed Paper 20/3442 and finally passed it on December 16, 2022. The Whistleblower Protection Act is to enter into force three months after its promulgation in the Federal Law Gazette, so that entry into force is expected in the second quarter of 2023 at the latest. Once the national implementation law (i.e., the Whistleblower Protection Act) enters into force, legal entities under private law and in the public sector with more than 50 employees will be affected, with a transition period until December 2023 for private sector employers with between 50 and 249 employees; this period expressly does not apply to public sector employers.
How can software help implement the whistleblowing policy?
Whistleblowing can help protect employees, but implementing a whistleblowing policy can still be a challenge. Fortunately, there are software solutions that make this process easier.
The use of special software for clearly defined processes is often the more cost-effective alternative to existing solutions. In most cases, general solutions involve labor-intensive process steps that regularly cost employees time and nerves. In addition, manual processes are a source of human errors, which in turn cost a lot of money and time in the reprocessing.
With professional whistleblowing software, employees can easily report concerns and violations, which are then quickly and securely forwarded to the appropriate parties. Managers and directors gain access to the data they need to investigate reported issues, track progress toward resolution, and take preventive action when necessary. Whistleblowing software thus helps companies comply with regulations - as noted earlier - by making it easier for employees to report misconduct, ensuring confidentiality, and allowing administrators to monitor incidents until they are resolved.
By streamlining the whistleblowing process with robust software solutions, organizations can implement effective policies that promote employee trust and support healthy work practices in their workplaces.