Credible and effective whistleblowing Directors' safety valve to corporate failures

Whistle-blowing is the act of revealing unethical activities that a business engages in as well as identifying potential threats that may not involve employee misconduct such as cybersecurity risks. It is significant to internal compliance because it reveals information suggestive of wrongdoing. These illicit acts could be revealed from internal sources (employees) or external sources such as suppliers and communities. The importance of whistleblowing has been underscored by numerous high-profile corporate scandals such as Enron, Lehman Brothers, and Volkswagen among others highlighting how internal oversight can sometimes fail, hence making the role of whistleblowers indispensable.

Consequently, boards need to be vigilant and ensure that robust disclosure mechanisms are in place to report any activities that are not aligned with the company’s values, policies and procedures to avoid potential reputation damage through negative publicity or regulatory investigations. Whistleblowing can also help protect the company from financial losses stemming from fines/compensations hence averting potential corporate failures.

The following points can guide a board in ensuring that effective whistleblowing mechanisms are in place:

1. Promote a whistleblowing culture: This can be done by creating a conducive environment that will shield the whistleblower from retaliation fostering a safer environment for reporting misconduct. The Board should also demonstrate that the company takes action when reports are submitted.
2. Policies and procedures: This means ensuring the effectiveness of whistleblowing policies and procedures on a regular basis as part of their oversight of the system of internal control.
3. Internal audit: A strong Internal Audit team will play a vital role in supporting the board to provide assurance that the whistleblowing policies and procedures are effective in achieving appropriate outcomes. Internal audit can also be used as a channel of reporting as well as to carry out independent investigations on issues raised.
4. Effective Audit Committee Chair: In instances where the Internal Audit is involved in investigations, the Chair of the Audit Committee needs to confirm that their wider assurance roles are not compromised as well as ensure that the team have the appropriate skills set to execute the investigations. Where appropriate, the audit committee can rely on an independent party to conduct the investigations, for example, in instances where Internal Audit is compromised.
5. Awareness: The policies and procedures would not be useful to internal and external stakeholders if they are not aware of them. The board should be assured by the Executive team that regular awareness sessions are held with staff to keep them informed. The policies and procedures should also be part of the induction package for staff.  In relation to external parties such as suppliers, the whistleblowing hotlines or reporting channels should be highlighted in their contracts. The same information should also be on the company website.

Whistleblowing serves as a critical safety valve in corporate governance. By enabling the exposure of wrongdoing, it helps foster a culture of integrity and accountability and hence protects the company from potential corporate failures as well as helping it sustain trust in the corporate world.

This is a guest blog which contains the views of the author and does not necessarily represent the views of the IoD.