Whistleblower Policy

Last Updated :

21 Aug, 2024

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Table Of Contents

Whistleblower Policy Meaning

The whistleblower policy is a set of rules and guidelines for all the company stakeholders, be it the employees, contractors, shareholders, vendors, or any other person, to be followed when they see something illegal or unethical happening within the organization intentionally or unintentionally. And, such acts are not in the public interest or undermine the interest of the shareholders.

Most company whistleblower policies do not require the employee who reports the unethical activities to investigate the matter and determine the fault. Appropriate members of the staff are awarded the responsibility to investigate the matter in a manner that is deemed fit by the management. The reporting of such activities flows through the hierarchical structure of the company.

Whistleblower Policy Meaning

A whistleblower policy establishes rules and guidelines for all stakeholders of a company, including employees, contractors, shareholders, vendors, or any other person, to follow when they witness or become aware of illegal or unethical activities within the organization that are not in the public interest or undermine shareholders' interests.
The purposes of a whistleblower policy include encouraging employees to report misconduct, creating awareness about the policy, and promoting corporate governance.
The advantages of a whistleblower policy include raising awareness among stakeholders about misconduct, enabling prompt reporting and resolution of issues, and fostering a culture of accountability and transparency.

Whistleblower Policy Explained

A whistleblower policy are a framework of rules and policies for all stakeholders of a company to report any illegal or unethical activities being carried out by anyone within the organization intentionally or unintentionally.

The reporting of such activities is supposed to be through the hierarchical structure of the company. This means that the employee is supposed to report to their immediate manager and report the issue. However, if their immediate manager is the perpetrator, they can bypass the hierarchy and report a higher official about the happenings.

The whistleblowing policy is a must in all organizations, whether big or small, to prevent misconduct and uphold the interests of all stakeholders, internally or externally. It needs to maintain anonymity to encourage the whistleblowers to act when they see wrongdoing.

However, in practicality, whistleblowing is not free from danger as the whistleblower may face challenges such as being laid off, not getting a new job, or even threats to their lives. Therefore, the proper implementation of the policy is highly important.

The above policies make the stakeholders aware of what falls within the purview of illegal or unethical practices that one must report through whistleblowing. Furthermore, it gives them a complete set of actions they need to take in various situations and tells them how to protect themselves in case of facing the wrath of the people involved in illegal or unethical actions.

These activities might be simple acts of corruption or even serious offenses such as money laundering. Therefore, the stakeholders need to be very alert and aware of such activities and report them immediately.

Explanation of Whistle Blower in Video

Examples

Let us understand the concept of a company whistleblower policy with the help of a couple of examples. These examples would help us understand the concept in detail.

Example #1

ABC Corporations have a whistleblower policy in place and they brief every employee and members of board about it in detail during their induction. Aaron who joined the company a year or so back. While working late one evening, he realized that the accountant was raising invoices falsely for goods that were never sold.

He clocked photographs of the fake bills and reported the same to his manager about the same first thing the following morning. Aaron was rewarded for his honestly and an internal enquiry team was formed for investigation where the accountant was held for fraudulent activities for personal gain.

The accountant was handed over to the authorities for the actions.

Example #2

The Securities and Exchange Commission (SEC) awarded a record $279 million to the whistleblower relating to the case against the Swedish telecommunication giant Ericsson.

The whistleblower reported to the SEC that top management from Ericsson was involved in a $1.1 billion settlement to gain from business in five countries.

In 2019, Ericsson also agreed to pay over $1 billion to resolve probes into multiple levels of fraudulent activities including one count of bribing government officials.

Imperatives

Let us understand the imperatives of a company using a whistleblower policy template to ensure all interested parties are notified about this clause of employment. This discussion shall help us understand the concept in detail.

An anonymity clause is one of the most vital aspects of a whistleblower policy. A whistleblower must be convinced that the act of whistleblowing will not put him in danger, be it that of losing his job or the faith of his colleagues, even at times when there is a threat to his life or facing any legal consequence of his actions. If the whistleblower feels safe, he will report an incident. Otherwise, he will not, which can defeat the policy’s purpose.

Further, it needs to make the whistleblower aware of under which circumstances he should take internal and external actions. At times, taking an internal action might lead to tipping off the person performing misconduct, and then he might become alert and lay low for a while to prevent getting caught.

Importance

It is vital to understand that a company that grows as a team can be brutally hit in terms of morality due to infamous actions of one or two amongst them. To revive the morale of the team could take a long time for the management to manage.

Therefore, it is pivotal for any company to ensure the ground rules on this front are crystal clear. Let us understand the importance of drafting a company whistleblower policy through the discussion below.

Encourage employees: A whistleblower policy encourages employees to report in good faith if they see any misconduct because they are made aware they must report such instances. But, of course, one will take care of their anonymity.
Create awareness: Employees are aware of the possible issues under this category and for educational purposes. Otherwise, such acts might go unnoticed.
Guide for stakeholders: The policy contains a step-by-step guide of what the employee or other shareholder needs to do when he sees misconduct and whom to report such instances. Therefore, they achieve the resolution quickly and efficiently. Without such a policy, the stakeholder might not know what to report an incident.
Corporate Governance: Corporate governance is the process in which the interests of staggered shareholders and external stakeholders are protected because they cannot be a part of the company’s day-to-day activities. Therefore, they are vulnerable to misconduct.

Advantages

The advantages of using whistleblower policy templates and laying out the rules and regulations around this sensitive topic are second to none. Let us understand them through the discussion below.

Keeps a Check on Misconduct: Having a policy makes all stakeholders aware of the misconduct. Further, they fear getting exposed if they perform an act of wrongdoing because they know that person telling would not face any threats due to anonymity. So, reporting misconduct would be efficient.
Quick Reporting and Resolution: In bigger organizations, monitoring all the departments and offices around the globe is not always possible. Therefore, acts of misconduct might go unreported if the supervisor only must observe them. The policy helps share such responsibility, and whoever finds out about such transgression can report it as soon as it comes to their notice. Therefore, one can resolve it quickly.

Disadvantages

Despite the advantages mentioned above, there are a few factors that prove to be a hassle for stakeholders and the top management as well. Let us understand the disadvantages of a company whistleblower policy through the explanation below.

Anonymity Not Maintained: When the policy is inefficient, the stakeholders might hesitate to report an incident because they have seen that the anonymity is not maintained properly. It is a practical concern. Therefore, a person who considers misconduct fears going on the wrong side of those performing such misconduct.
Disrepute: If the misconduct is huge, then the press comes into the picture and takes a toll on the company's overall reputation. Therefore, at times, there is no action taken.
Challenges Faced by Whistleblowers: Even though there are legal protections for whistleblowing, some whistleblowers face actions such as being shifted to another office or a department or may have to quit their jobs altogether. Further, their whistleblowing history makes it harder to be employed elsewhere.

Whistleblower Policy vs. Ethics Policy

Both whistleblower policy template and an ethics policy draft do similar jobs for the company, there are differences in their fundamentals and implications. Let us understand them through the comparison below.

Code of ethics of any company or general is a much broader term. It deals with many other aspects of proper behavior or company stakeholders apart from just those the whistleblowing policy sells. Therefore, this policy is a subset of the larger ethics policy.

For example, in investment banking, the clients sometimes give gifts to portfolio managers for their good performance. One cannot accept such facilities if they exceed the value of the acceptable gifting policy of the investment bank. Even if such gifts are within acceptable limits, they must disclose if they have a significant value. That is to preserve the objectivity of the portfolio managers and prevent them from taking excessive risks.

The act of gifting is not illegal in itself. It is just a company policy not to accept them. That does not require an action from the whistleblower.

However, if the portfolio manager passes insider information to his relatives, they profit from it, then, the portfolio manager receives a share in the same, such acts require whistleblowing action.

Frequently Asked Questions (FAQs)

1. What is a whistleblower policy for nonprofits?

A whistleblower policy for nonprofits is a set of guidelines and procedures designed to protect individuals who report suspected wrongdoing or misconduct within the nonprofit organization. In addition, it establishes a mechanism for employees, volunteers, and other stakeholders to report concerns or unethical behavior without fear of retaliation.

2. Does the Sarbanes-Oxley Act of 2002 indeed include provisions specifically addressing whistleblower policy?

Yes, the Sarbanes-Oxley Act of 2002 includes provisions specifically addressing whistleblower policy. The act established protections for employees who report fraudulent activities or violations of federal securities laws, ensuring they are protected from retaliation.

3. What is the difference between a vigil mechanism and a whistleblower policy?

A vigil mechanism is a broader term encompassing the entire framework of systems, processes, and practices established by an organization to prevent and detect wrongdoing proactively. A whistleblower policy, on the other hand, is a specific component of the vigil mechanism. The whistleblower policy provides a structured framework for individuals to report specific incidents or issues within the organization and ensures a fair and confidential process for addressing those concerns.