GoodCorporation’s Leo Martin on how companies can encourage their employees to speak out about problems before they turn into crises

Forewarned is forearmed – or so the saying goes. While many a battle may have been won by applying this logic, it seems that the world of business is yet to properly cotton on.

According to the 2015 Ethics at Work survey by the Institute of Business Ethics (IBE) roughly half (45%) of employees who notice misconduct would not raise concerns. Of those who spoke out, 61% said they were not happy with the outcome, more than double since the previous survey in 2012.

Logic should dictate that senior management has a vested interest in discovering a problem before it becomes a scandal. However, the continued fear of persecution, such as experienced by former Olympus chief executive Michael Woodford, and more recently the Barclays whistleblower whose identity the CEO attempted to uncover, would suggest that some management teams still perceive speaking out as an act of disloyalty rather than a chance to learn about, and deal, with any potentially damaging problems.

In recent years, regulators have moved to nudge corporates in the right direction. Under the US Sarbanes-Oxley act business are required to have “speak-up” systems in place. In the UK, individuals raising concerns in the public interest are protected under the Public Interest Disclosure Act. The Financial Reporting Council recommends that all firms have their own internal whistleblowing procedures, considering this an essential component of good governance. The Ministry of Justice includes whistleblowing as a key bribery-prevention measure in its guidance on the UK Bribery Act, while the Financial Conduct Authority and the Prudential Regulation Authority have published rules on whistleblowing clearly stating that confidentiality must be protected, and requiring firms to create a culture that encourages employees to raise concerns about poor behaviour.

Set the right tone

Whistleblowing is most effective when it operates within an open-door culture where employees are actively encouraged to raise their concerns and can do so without fear. In such organisations problems are likely to be aired earlier and can be addressed long before they develop into crisis-management issues.

Senior management are responsible for setting this tone, ensuring that an open and ethical culture is embedded in their organisations. A clear understanding of good corporate behaviour makes wrongdoing easy to spot. It is also far more likely to be reported and dealt with. When concerns are discussed openly, this also reduces the negative connotations of whistleblowing. Indeed, in the very best organisations, blowing the whistle is the last port of call, operating as a backstop if other measures have been tried and failed.

This is also important when working internationally across a range of cultures. In some parts of the world it will be almost impossible to get employees to call a hotline, so instigating a culture that encourages open dialogue about concerns, wrongdoing and malpractice can help to address this problem.

Michael Woodford

Companies also need to ensure that the right training is given, that stakeholders know how to raise concerns and that concerns are acted upon. A whistleblowing line must also be promoted both internally and externally. Many organisations have speak-up systems in place to comply with Sarbanes-Oxley, but have no intention of making them work.

Get training right

Training must cover three key areas: how to raise a concern, how staff will be protected and how the concern will be dealt with. Training should emphasise that staff are encouraged to raise issues with line managers (or a more senior manager if necessary), are empowered to blow the whistle when necessary, and can do so without fear. It should make it clear that the whistleblowing line is for raising concerns about danger, risk, malpractice or wrongdoing that affect others. In the best organisations issues to do with an employees’ personal situations are clearly signposted away from the whistleblowing line towards the grievance procedure. This is really important to get right. The Navex evidence is that 71% of whistleblowing cases are essentially employee-grievance issues, dealing with these issues well is very important, but care must be taken that they do not clog up the whistleblowing system.

But it is not just the hotline users who need training, those designated to receive calls must also be taught how to handle the various concerns raised. According to Public Concern at Work, this is not the case on over half the companies they surveyed.

Credit: Lightspring

All too often speak-up systems are seen as remote, head office activities, which means that employees are mistrustful and fearful about using them. The best systems are tailor-made to the needs of local markets. This can sometimes be as simple as giving it the right name.  “Whistleblowing” can have a very negative connotation; encouraging people to “raise concerns”, “speak-up” and “challenge” is more in keeping with a global corporate culture.

Recruit stakeholders

A whistleblowing policy should be aimed at all stakeholders and this should be reflected in the way it is promoted. Details of the process should be visible on the company website, inside the organisation and through direct communication with relevant customers, suppliers, shareholders and other third parties. In our experience many of the most important cases have actually been raised by suppliers or contractors. It is therefore surprising that so many companies do not extend their whistleblowing lines actively to these stakeholders.

Finally, whistleblowing must be correctly acted upon. Ideally the process should be managed as independently as possible from the day-to-day running of the organisation. Companies must be seen not just to listen, but also to act. Public Concern at Work has found that there is a critical gap between the number of times a person will report a problem before they give up (one to two times), and the number of times on average a company receives a report before it acts (three to four times).

Getting the culture, process, training and communication right may not be easy, but it is the best way to make a whistleblowing system work. It also means that businesses are more likely to find themselves addressing a problem rather than managing a crisis.

Leo Martin is director of business ethics advisers GoodCorporation. GoodCorporation’s Whistleblowing Framework is designed to help organisations test and measure the effectiveness of their whistleblowing procedures.