Public enquiries, established to find the facts behind many scandals and disasters, have shown time and again that they could have been prevented. Several have found that staff had known about key problems but either were too scared to sound the alarm or spoke up only to be ignored.
Employers should encourage staff to report possible concerns about malpractice internally. Any failure to do so could prove disastrous.
When Enron vice-president Sherron Watkins anonymously emailed her then Chairman, Kenneth Lay, in 2001, warning that the company would "implode in a wave of accounting scandals", a limited investigation into her concerns concluded there was no problem. The rest is history. Some workers on the North Sea oil rig Piper Alpha knew of the dangers that eventually led to its explosion, but didn't want to jeopardise their jobs by making a fuss, for example. And when the performance of Bristol Royal Infirmary's baby heart unit was investigated after Dr Steve Bolsin went public with his concerns about its unusually high death rate, the inquiry found that he had raised the issue internally eight times without success.
The human and business costs of getting it wrong can include:
- Lost lives
- Lost jobs
- Court cases leading to compensation payouts, fines and even imprisonment
- Damaged reputations
- Lost customers
- Increased insurance premiums
- Increased regulatory scrutiny
Every organisation faces the risk that something will go seriously wrong. It could be a fraud, a danger to health and safety, a production fault or a threat to the environment. The first people to know about a problem are often those who work in or with the organisation. While many of us wouldn't hesitate to warn our firm if we were to see something unlawful or dangerous at work, others may face a dilemma. Even though the management may need to know about any wrongdoing in order to handle risk and perhaps avert disaster, they may be unsure of how their concerns will be received and perhaps fear that the messenger will be shot. They may think that they could be mistaken and be unwilling to cause unnecessary trouble. Crucially, they may believe that raising an issue is pointless - i.e. they will be ignored and that no action will be taken. Sometimes they may simply not know how to proceed with their concerns.
As an early warning system, a whistle blowing policy can help an organisation to detect wrongdoing and take corrective action before a problem becomes a crisis. But its deterrent effect is even more beneficial. Someone tempted to take an unnecessary risk or commit malpractice may think twice if they believe that their conduct is likely to be challenged by others in the organisation. An employer that encourages its staff to speak up, and which is responsive to their concerns, can prevent problems from occurring in the first place. Equally, it will be more confident that, where there is a problem, its managers will be alerted early enough to act effectively. A whistle-blowing system strengthens and supports good management and is an essential tool for controlling risk.
An organisation whose culture encourages whistle-blowing demonstrates to all its stakeholders that it is serious about its governance. This increases confidence in the organisation and can lead to regulators to apply a lighter touch. Promoting internal whistle-blowing also reduces the chances that information will be leaked to the media before the organisation has a chance to respond. Staff can feel confident in raising their concerns, because they have been clearly shown how to do so.
A good internal whistle-blowing policy will:
- Signal that the organisation views any malpractice as a serious issue to be tackled.
- Distinguish a concern from a grievance.
- Give potential whistle-blowers the chance to raise a concern outside their management line.
- Provide potential whistle-blowers with access to independent advice.
- Respect the individual's confidentiality if that person requests it.
- Explain when and how staff may properly raise concerns outside the organisation - eg. to a regulator.
- Signal that victimising a bona fide whistle-blower or making a malicious false allegation are both disciplinary matters.
It's obvious that any type of malpractice is bad for business. Whistle-blowing arrangements can deter and detect wrongdoing by helping to ensure that people are safe in raising their concerns. Organisations can find out about a problem before it becomes a crisis and at the same time demonstrate accountability, good risk management and sound governance.
Cathy James is a legal officer at Pubic Concern at Work, United Kingdom, an independent charity that promotes accountability, good governance and responsible whistle-blowing. This article is contributed by CIMA (The Chartered Institute of Management Accountants) and it first appeared in Financial Management, CIMA's monthly magazine for its members.
