Every business and public body has failings from time to time, but occasionally inadequate systems of governance or controls can lead to dangerous situations or criminal behavior. Where such failures arise, often the first people to notice or suspect it will be those who work in, or with, the organization.

Enter Whistleblowers, individuals who call attention to a wrong-doing (whether to the employer or other relevant organization). Such people are encouraged to reveal serious malpractice, corruption and fraud in organizations in the hope of preventing mistakes from leading to disasters.

Encouraging and protecting whistleblowers is a high priority for governments seeking to minimize the scandals of the past arising from public and private sector failings in relation to workplace safety, consumer confidence, corruption and fraud.

More than 40 countries have introduced some form of whistleblowing legislation, and the levels of compensation paid to whistleblowers who have been unfairly treated as a result of speaking up are increasing in countries where laws have been established for some time.

For example, the US Securities and Exchange Commission (SEC) made its largest award in September 2014 of $30 million to a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act provides that the commission pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action yielding monetary sanctions of more than $1 million. The award amount is required to be between 10 percent and 30 percent of the total monetary sanctions collected in the commission’s action or any related action such as in a criminal case.

In the UK, where there is no financial incentive to an individual to report concerns, a director of a company received an award of £3.4 million in compensation for automatic unfair dismissal for raising concerns about his fellow directors’ activities in 2013.

However, employers face a delicate balancing act in managing whistleblowing within their organization, particularly those that operate globally where differing cultural issues make it difficult to manage risk and deal with disclosures, which might involve other issues such as data protection.

On the one hand, the law attempts to change the culture of organizations by encouraging individuals, in some cases offering financial incentives, and making it acceptable to come forward, to disclose information on negative activities in the organization such as corrupt practices and mismanagement; and on the other hand, organizations are required to ensure that employees and workers come forward without fear of being sanctioned for their disclosures.

The starting point for all organizations is to have a well-drafted policy on whistleblowing. Whistleblowing policies are required in various jurisdictions either by legislation (as in the US) or by regulators (as in the UK, where the Financial Conduct Authority will expect regulated companies to have a policy).

A well-drafted whistleblowing policy sets clear standards of behavior for employees but should also take into account relevant legislation in the jurisdiction in which the organization operates. An effective process for dealing with disclosures properly and appropriately should help to avoid expensive claims by picking up on disclosures at an early stage and managing them correctly. A policy and prompt response to disclosures may also limit the risk of notifications to regulators.

Reasons for a well-drafted policy on whistleblowing include:

  • Demonstrates good corporate governance and effective risk management;
  • Deters malpractice and avoids wrong-doing by maintaining or improving performance;
  • Protects staff, customers and the public;
  • Meeting the expectations of regulators;
  • Encouraging employees to raise matters internally avoids the potential for external disclosure;
  • Reducing financial losses;
  • Letting employees know that wrong-doing will not be tolerated can improve staff morale;
  • Demonstrating a commitment to good governance is likely to enhance the employer’s reputation and increase investor confidence.

Such a policy and procedure should be a standard element of a well-managed organization that cares about its reputation and its future because any complaint that requires investigating takes time and money away from what the business does best.