More and more companies are installing mechanisms to identify compliance violations as early as possible. Employees and external stakeholders (such as suppliers, customers or the general public) should be given the opportunity to communicate a company’s unethical and illegal behavior to a reporting office in total confidence.
Above all, digital whistleblowing systems are on the rise. Here, we answer the most important questions about this new compliance solution:
1. What Are the Advantages of Whistleblower Systems in General?
An internal whistleblowing system is an early-warning system for identifying and combating maladministration and forms the basis for successful risk management. Informants can pass on information within a fully internal system, keeping the information from leaking to external sources and thus avoiding reputation damage to the company.
The Whistleblowing Report 2018 collected data on the distribution, technical and organizational design, and effectiveness of whistleblowing solutions.
Employee feedback is the best way to detect compliance violations. Experience shows that companies and organizations lose around 7% of their annual revenue through fraudulent activities. Evidence of such activity which is passed on anonymously and securely can help to detect a significant proportion of these cases, thereby minimizing financial damage to companies caused by compliance issues. This is confirmed by a study conducted jointly with HTW Chur in Switzerland: more than half of feedback received via internal whistleblowing systems uncovered compliance-relevant abuses and misconduct.
2. Do We Need a Whistleblowing System?
When it comes to setting up internal whistleblower systems, the demands on companies around the world have soared in recent years. In the US, whistleblower systems that allow confidential and anonymous reporting are already mandatory for all listed US public companies. There is no single solution in Europe, but legislation is increasingly calling for the use of whistleblower systems. It is not uncommon for companies to face heavy fines if, for example, corruption is uncovered and the company failed to take all necessary and reasonable organizational measures to prevent it.
Although reporting systems are not yet mandatory in every country, they are already exemplary in nature: they strengthen the confidence of employees and external stakeholders (such as suppliers, customers or the general public) in the company, contribute significantly to reputation protection and reduce entrepreneurial risks.
3. Is a Telephone Hotline Enough?
Hotlines or ombudsmen do not provide complete anonymity. While these methods are important, companies should additionally offer anonymous, digital message channeling. Already existing contact points such as helplines or ombudspersons can usually be easily integrated into professional, digital whistleblower systems. Our EQS Integriy Line, for example, offers such a feature.
Hotlines do not provide complete anonymity.
Digital solutions offer a simple and secure way of anonymous contact and communication between the whistleblower and the company. Digital whistleblower software is also an excellent data and risk management tool that generates statistics on a wide range of data, such as which country is reporting the most incidents or which types of offenses occur most frequently.
4. Does This System Just Produce Costs or Also Results?
Evaluations in Switzerland have shown that a company loses an average around 7% of its revenue due to economic crimes such as fraud, embezzlement or corruption. A company with €100 million in revenue would lose €7 million annually.
If only 10% of these offenses are detected and avoided due to an anonymous digital whistleblowing system, that company would save €700,000 a year. An internal reporting system costs a fraction of this amount per year. Thus, implementing and maintaining a whistleblower system more than pays off.
5. Will We Be Inundated with Reports?
Not at all: our experience shows that companies with an internal reporting system receive an average of 8 reports per 1,000 employees annually. So, if your company employs 5,000 people, you can expect about 40 reports a year, or 3-4 per month.
Companies receive an average of 8 reports per 1,000 employees annually.
It is also a paradox. Ideally, if a company doesn’t receive any reports, it means that all is well. And yet, as a company, you should do everything in your power to facilitate receiving reports: create a trusting company culture, provide reasonable channels in all relevant languages, and efficiently channel communications within the company. And if then, you aren’t receiving any reports, you’re really doing everything right.
6. Should We Allow Anonymous Feedback?
Absolutely. The disadvantage of anonymous feedback is that usually no communication between the whistleblower and the company is possible, making comprehensive clarification of any incident more difficult – especially if there is a lack of important information that can only be obtained through the notifying person. On the other hand, sufficient protection in the form of anonymity is particularly important to many whistleblowers. Therefore, they should be given the option of anonymous messaging, as there are ultimately solutions which make anonymous dialogue possible.
When choosing a whistleblowing system, companies should ensure that communications between a whistleblower and a company can also be conducted anonymously in order to address a larger circle of potential whistleblowers.
What would a whistleblowing system look like in practice? I would like to introduce you to EQS Integrity Line.