Are Boards Serious About Effective Whistleblowing Policies?

By Vijayam Nadarajah

Ethical values and cultures are becoming well integrated across business activities globally. Boards are now taking responsibility for whistle-blower policies within organisations seriously given that the costs associated with fraud are substantial, especially when it involves risks such as reputational damage and costs associated with investigation and remediation of  fraudulent acts.

We have observed that Corporate Malaysia had been experiencing a spate of adverse impacts from internal and external whistle-blower reports on financial irregularities, abuse of public funds and misuse of power.

Whistle-blowers will normally reach out to social media, mass media, and government as well as law enforcement agencies if internal channels to voice wrongdoings frustrate their efforts to raise legitimate ethical concerns, and resolve them. It

It is, therefore, the board’s role to advocate an ethical top-down culture for organisations to foster an accountable and transparent business conduct. This is where a well-managed whistle-blower policy helps organisations to internalise and address wrongdoings by negating any adverse repercussions on corporate image and financial performance.

A whistle-blower exposes information on an illegal and unethical conduct that is found within an organisation. The alleged wrongdoing may be a violation of company policy/rules, laws and regulation, or threat to public interest/national security, as well as fraud and corruption.

A whistle-blower policy requires a hotline, reporting and monitoring processes, as well as investigation procedures to deal with alleged inappropriate corporate behaviours and protection plans for whistle-blowers. The reporting process triggers boards on any wrongdoing.

The public is now questioning on the “true” level of security for whistle-blowers who raise public and private sector wrongdoings, and as a result, the protection laws have come under public and court scrutiny.

A WHISTLE-BLOWER EXPOSES INFORMATION ON A ILLEGAL AND UNETHICAL CONDUCT THAT IS FOUND WITHIN AN ORGANISATION.

Therefore, it is critical for boards to empower and protect employees who report a misconduct so as to maintain a safe and ethical workplace.

PwC reported that millions of ringgit were lost annually in the corporate sector due to a sharp rise in corruption, bribery and cybercrime according to its Global Economic Crime Survey 2016, which suggests companies adopt a whistleblower policy that includes investigating anonymous complaints.

The unofficial feedback on the effectiveness of whistle-blowing hotlines in organisations was, however, alarming and baffling as only a small percentage of whistle-blower reports were followed up by the management and acted upon, creating enormous staff scepticism on policy effectiveness and protection to whistle-blowers. Board involvement was unfortunately perceived to be lukewarm.

In general, staff hesitates to blow the whistle because many feel they have the most to lose as they fear retaliation, legal action, criminal charges, social stigma and termination from any position, office or job.

Boards should inquire on the causes for backlashes in operationalising the whistleblower policy and deal further with the moral responsibility for whistle-blowing and appropriate ethical decision making. In addition, board actions against misconducts should not be selective and compromising. Whistle-blower reports against board members should also be dealt without discrimination and prejudice.

The reporting processes should be kept confidential by setting up an anonymous platform for this purpose. Staff should be protected against any kind of retaliation towards whistle-blowing, including from third parties.

Businesses should also abstain from lawsuits against bonafide whistle-blowers. Through this way, organisations can ensure whistleblower reports remain internal and issues do not escalate, leading companies to be publicly exposed.

WHISTLE-BLOWER REPORTS AGAINST BOARD MEMBERS SHOULD ALSO BE DEALT WITHOUT DISCRIMINATION AND PREJUDICES.

Employees trust and board commitment in the process are important for the policy to be successful. The process can then be audited and monitored for compliance purpose.

The United Nations and the Organisation for Economic Co-operation and Development provide a comprehensive guideline on whistle-blower schemes with policy scope. This also includes human rights, taxation, disclosure policies and consumer interests or competition, aside from corruption and money laundering.

Businesses are encouraged to open their disclosure platform to all stakeholders of their global value chains, including the entire spectrum of suppliers, consistent with the way other corporate social responsibility principles are managed.

Boards should ensure that ethical lapses and “near misses” symptomatic indicators such as staff turnovers and customer feedbacks are escalated to them, with reasons for ethical gaps and causes for failures in the reporting lines of the whistle-blower policy be investigated.