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What do whistleblowers have to do with sustainability?
Executive Education / 7 September 2022
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Steven Bechhofer ist ein in U.S.A. geborener deutscher Rechtsanwalt mit über 35 Jahren Erfahrung im Bereich Risikomanagement in deutsche Großunternehmen (u.a. Siemens AG, Infineon AG, MAN Diesel & Turbo SE, Deutsche Post DHL Group) in unterschiedlichen Führungspositionen in den GRC-Bereichen ("Governance, Risk and Compliance") tätig, speziell auch als Compliance Officer und für weitere operative Risikomanagement-Aufgaben.

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At first glance, whistleblowing and sustainability have little to do with one another. The former is a tool to enhance corporate governance and the latter is a set of practices with the goal of preserving and enhancing the value of a company for stakeholders and society. Although there is no general definition across all areas of law, whistleblowing is understood to include all situations in which a person reports or forwards a suspected legal or regulatory violation to an internal or external organisational body. [1]

The significance of whistleblowers in the uncovering of corruption and wrongdoing is well documented by a study on the global extent of corruption, fraud and other economic crimes by the Association of Certified Fraud Examiners (ACFE) (2020).[2] Of the 2,504 economic crimes from 125 countries that served as the basis for the study, 43% were uncovered through tips, half of which came from the staff of the companies concerned. One would think that the protection of whistleblowers by the state is of great importance to any economy and that such protection would have been provided on a larger scale decades ago. It was, however, only with the passage of the Sarbanes-Oxley Act (2002) and later the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) that this issue started to gain ground in the U.S.A.

The EU commenced with the creation of its own rules that strengthen the position of whistleblowers beginning in 2013, culminating with a general directive for the protection of whistleblowers in December 2019.[3] Although progress on the transformation into national law has been slow, laws like the new German “Hinweisgeberschutzgesetz” (“HinSchG”) are now coming online.

Long-term benefits for corporations

The success or failure of the implementation of these laws will largely depend upon how potential whistleblowers are convinced that their tips are valuable and meaningful and whether they have the courage to act. Decades of experience in the U.S. shows that whistleblower systems cannot be properly deployed if potential whistleblowers only see the negative impact on their careers and their social environment. Do corporations then have the necessary maturity to recognise that whistleblowing systems help to bring truths to light that provide long-term benefits? While the maturity of an organisation cannot necessarily be expressed in financial terms, there are indications that a strong ethical, value-based orientation can actively support an organisation’s long-term goals. It is, for example, a well-established observation that employees in companies that have a strong ethical orientation are more disciplined and more successful in the long term than those in other companies. A corporate culture that gives employees freedom and responsibility, in which values such as truth, transparency, openness and fairness are well-established, leads to companies that are more efficient in taking on new challenges.[4]

Sustainability and whistleblowing?

So what does all this have to do with sustainability? A great deal! The term sustainability is often used synonymously to describe the processes associated with the Environmental, Social, and Governance (ESG) activities of Corporations and the UN’s Sustainable Development Goals [5] (SDGs). There is a general consensus that sustainable development can and should be viewed as a transformative journey to be taken in steps and as an iterative process that will all, in some shape or form, relate to the evolution of corporate strategies and the Governance, Risk and Opportunity Management and Compliance systems (“GRC”) of an organisation.

This journey can only be successful if there is a focus on stakeholder concerns. A future perspective on the viability of this transformation process requires the incorporation of an ethically defensible framework. This includes, for example, taking a critical look at one’s own judgments and biases, and transparently and openly communicating one’s own uncertainties (opportunities and risks). It also involves staying truthful when it comes to presenting results to stakeholders, ensuring fair dealings with employees, customers, service providers and competitors and continuously reviewing one’s own strategy. And this is where the commonality with whistleblowing sets in. Whistleblowing is also about implementing an ethically acceptable system for protecting the rights of whistleblowers to speak up and creating an environment where whistleblowers can report misconduct free of fear or retaliation and where they are treated fairly and with the necessary respect and seriousness. In both cases, then, it is a matter of creating a corporate and organisational culture that is dependent on the implementation of an ethical self-image that supports the short- and long-term goals of an organisation. Whichever comes first – the organisational culture or the ethical self-image – is up to each corporation to decide.


References:

[1] Tom Devine and Tarek F. Maassarani, “The Corporate Whistleblower’s Survival Guide”, Published in Association with the Government Accounting Project, 2011.

[2] ACFE Report to the Nations 2020.

[3] Directive (EU) 2019/1937 for the Protection of Whistleblowers.

[4] Jim Collins, “Good to Great”, published by HarperCollins, 2001.

[5] Sustainable Development Goals.

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