6 reasons to implement an internal whistleblowing system & strengthen whistleblowing reporting

Providing employees with a secure, anonymous internal whistleblowing system where they can disclose their concerns about potential wrongdoings can help managers identify problems they may not otherwise learn about through traditional monitoring. Having an option for anonymously reporting something is especially important when the supervisor is part of the disclosed misconduct or when retaliation by the employer or by co-workers is likely. 

Using An Internal Whistleblowing System

Over the last few years, the use of internal whistleblowing has increased significantly. The way companies use these internal whistleblowing systems varies across industries and companies. Larger companies that make more profit tend to have more robust whistleblower programs and see more reports. Firms that see rapid growth tend to use these systems less often. In a study on the use and efficiency of internal whistleblowing systems, researchers Stephen Stubben and Kyle Welch found that a higher amount of internal whistleblowing leads to 3.8% fewer lawsuits and 9.1% lower settlement amounts the following year. An even more significant reduction in legal fees and settlements is seen after 3 years; 6.7% and 21.1% respectively.

Stubben and Welch’s findings show that companies that use internal whistleblowing systems more often don’t necessarily have more problems. “External complaints often reflect a failure of management to address issues internally, internal whistleblowing reports may instead reflect open communication channels between employees and management”, the researchers say.  

Why Companies Under-Utilize Internal Whistleblowing

There are several factors affecting the active use of internal whistleblowing systems by businesses, which can also be interpreted as reasons to implement such a system and address the problem:  

1. Growth vs stability

Rapidly growing companies tend to be less focused on implementing a whistleblowing system and have new employees, making building a corporate culture more challenging. 

2. Profitability of company

Companies with more financial resources are more likely to invest in a strong internal whistleblowing system and promote its use due to the financial rewards in a strong speak up culture

3. The age of the company

Older firms are more likely to actively use internal whistleblowing channels, as they do other systems over time.   

4. Legally risky activities

Companies that face greater legal risks due to the activities they engage in are more likely to use internal whistleblowing reporting channels because the cost of leaving these issues unresolved is greater. 

5. Questionable practices

Companies engaging in questionable financial reporting may be less likely to promote an internal whistleblowing system because they have the incentive to suppress information about potentially illegal behaviour.

6. Size of company

Larger companies see an increase in reports as the number of employees rises and more people use the channel more often. These firms tend to be older, smaller, and more profitable. 

In other words, smaller, less profitable companies with newer employees, tend to under-utilize their whistleblower system, despite the benefits of doing so. Businesses engaged in questionable practices also tend to avoid promoting their internal whistleblowing channel as a way of suppressing potential misconduct. Profitability and robust whistleblowing systems go hand in hand. On the one hand, profitability increases over time when companies implement strong whistleblowing systems. On the other hand, companies with more financial resources are better equipped to implement and promote a strong whistleblowing channel. This doesn’t mean that smaller firms with fewer resources can’t do the same. There are increasingly effective and affordable whistleblowing tools available and good guidance on how to encourage whistleblowing

Why Do Employees Go to The Media? 

In January 2022, French journalist Victor Castanet published his book Les Fossoyeurs about the abuse of nursing home residents by the private firm, Orpea. The book was a result of three years of investigative work that revealed unsanitary and negligent conditions in the homes and numerous interviews with staff, residents, and family members. Castanet later revealed he was offered $15 million EURO to drop his investigation. In an interview with Le Parisien, he said that initially, one nursing home Director approached him and disclosed that the company had been commodifying the care of seniors and was using software to determine the level of service they received. This was creating a clear risk to their health and well-being. 

Several factors can cause whistleblowers to reach out to journalists, such as employees feeling powerless to bring about change within the organisation. A whistleblower is more likely to use an external channel if the person engaging in misconduct has a lot of influence within the company. Additionally, in a hostile climate, an employee is more likely to seek external means of reporting the wrongdoing. The Orpea case is an example of how a total lack of internal mechanisms to address questionable practices can lead to serious legal consequences and a public loss of confidence. The book also outlines the failure of external authorities and governmental regulations for ensuring oversight and quality of care in France. When there is little to no response to employee concerns, a person is more likely to reach out to external channels to report the information. Employees are also more likely to go to the media when they fear retaliation from supervisors or top management. 

How to Strengthen Internal Whistleblower Reporting 

According to the EU Whistleblowing Directive, Member States are encouraged to use internal reporting where a breach can be addressed and there is less chance of retaliation. Businesses must establish these channels if they have 50 or more employees. Under the Directive, a person can make an external report even if they haven’t made one internally. This means, your response to employee concerns can mean the difference between being proactive and dealing with misconduct internally or having to react to public disclosures after they happen. 

If a whistleblower submits a report through the appropriate channels, a person responsible for receiving it must follow up within a reasonable timeframe. The employee’s initial report should be acknowledged within 7 days, and the report should be investigated within no more than 3 months. Feedback should be provided to the person submitting the report. If no action is taken and no follow-up is made by the organisation or company, the whistleblower can report the information through external channels to state or national authorities, or in its absence, to a media outlet. It goes without saying that internal whistleblowing reporting can be a significant resource for management to identify and address concerns within large and growing companies before they reach scandal level and harm consumers. 

The best way to avoid disclosure to the media in the first place is to develop strong internal mechanisms for responding to disclosures by employees. This includes reporting breaches to authorities when they happen, sharing reporting guidelines and procedures with employees, assigning a person responsible for receiving reports, ensuring confidentiality and anonymity are provided when disclosures are made, protecting whistleblowers from retaliation, and following up by investigating the report.