It’s the job of audit and compliance professionals to ensure a company stays in line with regulations, but employees across all departments should feel empowered to speak up when they see something that isn’t quite right.
Over the past few decades, more and more individuals have found the courage to call out fraud and other misdeeds within their organizations.
Rather than fearing these whistleblowers, business leaders should encourage open communication and create systems to address problems internally. Today’s stakeholders — which include not only investors, but also employees, customers, partners and vendors — expect and demand ethical behavior, which is why it’s so important for companies to address problems from within, before they’re called out for inaction or accused of a cover-up.
At Modern Governance Summit 2022 (MGS), Diligent gathered three pivotal whistleblowers on one stage for the first time: Sherron Watkins, who blew the whistle on Enron’s fraudulent accounting practices in 2002; Cynthia Cooper, who helped expose $3.8 billion in fraud at WorldCom that same year; and Frances Haugen, who disclosed tens of thousands of Facebook's internal documents to the SEC in 2021.
The three women shared their personal stories of how they found the courage to speak up and discussed the importance of a healthy corporate culture.
The Role of Whistleblowers in Corporate Culture
As Haugen explained at MGS, whistleblowers help to create a system of checks and balances within an organization, so building safe channels for them to speak up is essential.
“Lies are liabilities, and they will eventually be exposed,” said Haugen. “Investors are starting to wake up to this idea that if there isn’t transparency, there can be liabilities. There are now employees who have seen courageous people come forward, and they have blueprints for how they can unburden themselves from those lies. That’s why businesses must have a plan for getting closer to the truth.”
Watkins, whose claims against Enron helped lead to the passage of the Sarbanes-Oxley Act, commented on the importance of internal systems for correcting issues. “The word needs to get out that if you don’t have the right systems in place, employees will go outside and you will be caught,” she said.
The Importance of Whistleblower Programs
Various laws at both the state and federal level are designed to protect whistleblowers from retaliation, yet many whistleblowers still face termination, demotion, mistreatment from coworkers and a host of financial repercussions and psychological consequences. Fear of retaliation stops many from coming forward.
“We need to build cultures from the bottom-up. When you have a culture where people feel like they have to lie or hide things, that’s a cognitive load on their shoulders,” said Haugen. “People aren’t going to be able to work well, and you’ll have higher turnover. People even at the very bottom levels should be able to have honest conversations with their managers.”
Speaking at the MGS session “Lessons from a Financial Detective: Avoiding the Due Diligence Mistakes of the Past,” Fola Ojumu, a partner at Kearney & Company, reiterated the importance of telling the truth.
“I’m proud of every whistleblower. It’s not an easy decision,” said Ojumu. “But whistleblowing protects hundreds of thousands more people. People feel real risk. Without whistleblowers, you won’t crack the complex cases.”
In 2010, the SEC’s whistleblower program went into effect, offering direct awards to individuals who voluntarily submit information on violations, which helps address the fear of financial damage that many whistleblowers face. The EU also issued its own Whistleblower Directive in 2021.
While such measures have helped to reemphasize the importance of whistleblowers and the need to protect them, organizations must work internally to build their own culture of compliance that empowers every employee to use their voice.
How to Create an Effective Whistleblower Program: 4 Steps
1. Start by evaluating your culture
Companies that wish to create an effective whistleblower program must start by looking within and reassessing their values.
“In our capital markets, we’ve historically been very driven by shareholder, rather than stakeholder, interests, and meeting short-term earnings guidance and driving executives to make decisions that aren’t necessarily in the long-term interest in the company,” Cooper said at MGS. “You need to assess your current culture, define your purpose, move toward a stakeholder view and then start building a bridge to transform your culture.”
2. Build channels for direct feedback from employees
Watkins endorses informal lines of communication and informal working relationships, which help employees to feel comfortable enough to speak up when something’s not right.
Just as importantly, reporting should be as easy and straightforward as possible. This means making the program accessible via multiple platforms (including phone, email and web), and removing unnecessary barriers (such as asking for more information than necessary in initial reports).
Organizations should have systems in place that simplify incident reporting, automate case management, and allow for secure and discreet follow-ups.
3. Protect confidentiality to the fullest possible extent
Because of the perceived threat of retaliation, a guarantee of confidentiality is essential for most whistleblowers.
When filing a report, whistleblowers should feel confident that their anonymity will be preserved. This also helps to further promote a culture of open and honest communication.
Anonymous dialogue allows management to ask more questions or clarify information without either party revealing their identity.
4. Create a zero-tolerance policy for retaliation
When employees feel they can speak up without fear of retaliation, they’re less likely to take their concerns outside the company.
Organizations need to ensure that their whistleblower programs clearly communicate zero tolerance for any type of retaliatory or discriminatory action.
But promises aren’t enough — if any attempts at retaliation do arise, disciplinary action must follow.
Solutions for Building a Culture of Compliance
A company’s culture is defined from within, but solutions exist to help ensure transparency and compliance every step of the way.
As Cooper reminded audiences, "No matter where you sit – on the board, in middle management, in executive management – we all need to step up to the plate and evaluate if we’re on the right path."
The Diligent Policy and Training Management Solution delivers engaging compliance training and incident management tools that empower all employees to speak up whenever they see a problem, while the Incident Management product automates case management, allowing investigators to focus on critical steps for more timely escalations.
To learn more about how Diligent can help your organization streamline investigations, documents and findings, request a demo.