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The U.K.’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) recently began rolling out new whistleblower rules, with which financial organisations will be required to comply. These rules have not been universally welcomed, however.
Indeed, according to the FCA’s Policy Statement, feedback from financial industry insiders included several concerns over the new whistleblowing rules. Here, we share our thoughts on three of the key concerns and, based on our experience working with thousands of companies around the globe, offer guidance for whistleblower hotline success. To read the rest of our commentary—including our take on whether the requirements for reports to the board were too vague; create less board visibility on issues get a full analysis, please see our our white paper.
Concern #1: Additional Burden on Business
Our Take: Hotlines are a Critical “Safety Valve”
Some financial firms feel that the new whistleblower rules are just another bureaucratic requirement that, along with other U.K. and European regulatory requirements, is a hindrance to doing business efficiently. Given that firms already offer other ways to raise concerns, they believe the requirement to establish a whistleblower hotline and have a “whistleblower’s champion” is unnecessary and overly prescriptive.
The vast majority of employee concerns and allegations of wrongdoing will, indeed, be raised through channels other than a hotline. Data from our most recent whistleblowing hotline benchmark report, based on hotline reports from more than 2,300 organisations representing 34 million employees indicate that in 2015, the median number of issues raised through hotlines was 1.3 per 100 employees.
While this number may seem low, it indicates that some employees—even with other reporting channels available to them—are uncomfortable using standard reporting options. Whistleblower hotlines thus represent a crucial outlet for those individuals who have knowledge of potential violations but are wary of speaking to their manager, HR, or others.
Organisations that want to prevent violations of law and policy and that recognise the commercial value of their reputations strive to create a “speak up” culture in which raising concerns is encouraged. Offering a hotline is essential to ensuring that all employees—including those who fear retribution—have an outlet to alert the organisation to issues that could result in investigations, lawsuits, reputational damage and loss of high-value talent. If the organisation doesn’t know about wrongdoing, it can’t correct it before it becomes a fiasco.
Tips for Success:
- Offer both toll-free telephone and website options so that employees can raise issues at any time, in a method that is convenient for them.
- Publicise the hotline and website—frequently and in a variety of forms. Make it easy for employees to speak up when the need arises.
- Educate your employees about how the process works once they use the hotline. If they don’t know what will happen next, they may be reluctant to speak up.
- Forbid reprisals against those who speak up in good faith—and then punish those who do retaliate. Failure to protect whistleblowers indicates that the organisation is not, in fact, serious about wanting employees to speak up.
Concern #2: Anonymous Reporting Encourages False Accusations
Our Take: Value of Anonymity Outweighs the Risk of Misuse
Some managers and leaders worry that allowing employees to raise concerns anonymously will provide an avenue for false, malicious or vexatious frivolous allegations.
While it is undeniable that some employees may see the whistleblower hotline as an opportunity to lie about co-worker or manager behaviour, the reality is that very few do.
Far more typical are employees who do not have all the facts, misunderstand what has happened, or raise issues based on secondhand information. For additional insights on anonymous reporting, download the full white paper.
Tips for Success:
- Allow employees to report anonymously. At the same time, educate them on the value of providing their name (which allows the organisation to more thoroughly investigate the concern).
- Use call-back codes or special user IDs to allow anonymous reporters to call back or re-enter the system to get questions or follow-up messages from investigators—and encourage them to check back in.
- Train investigators to view each allegation neutrally and not to assume that it is true (or false). False accusations will be revealed through a lack of evidence.
Concern #3: Lack of Board Insight
Our Take: Boards Don’t Need a Government Mandate to Take Whistleblowing Seriously
The regulations require a single individual to be responsible for the whistleblowers’ champion role—unlike other UK policy codes (including the U.K.’s Corporate Governance Code), which place ultimate responsibility at the board level. Some commentators argue that this creates a risk that boards and senior managers may pay less attention to the issues that arise.
Boards that care about shareholder value, company reputation and integrity will exercise oversight over whistleblowing even without the mandate in the new whistleblowing rules. They will ensure that the “whistleblower’s champion” has sufficient authority and resources to be effective. Boards that embrace making money by violating the law and cheating, conversely, are unlikely to be moved by a mandate to oversee whistleblowing, and instead likely will pay only lip service to it.
Also, the Corporate Governance Code puts the onus of oversight on boards and nothing in the new whistleblower rules prevents boards from exercising such oversight.
Tips for Success:
- Help boards understand the value of encouraging employees to speak up and how a strong culture of integrity enhances the corporate reputation/brand, helps attract and retain the best talent, and, as an increasing number of studies has shown, often results in superior financial performance and company valuations.
- Equip boards with a list of questions they should be asking the Chief Ethics and Compliance Officer (or equivalent role) to ensure the organisation is aware of and mitigating legal and reputational risks. Among these will be questions about the effectiveness of the whistleblower’s champion and the hotline mechanisms.