Why every business needs a whistleblower policy

Assuming they started the year on the front foot, large proprietary companies and other qualifying organisations across Australia would have introduced or uplifted current whistleblower policies to meet a January 1 deadline as mandated by legislation passed in July 2019.  

The enhancements to the whistleblower provisions laid out in the Australian Corporations Act include a wider range of reportable misconduct, protections for more people and allowance for anonymous disclosures. They also involve much higher penalties for those in breach of the regulations, including individual fines of up to $1 million, jail sentences of up to two years and corporate fines of up to $525 million. 

So what does this mean for SMEs and startups who don’t fit ASIC’s definition of a large proprietary company? While it may not yet be mandatory for them to implement a dedicated whistleblower policy, they are obliged to comply with the expanded protections. With that said, there are a number of very compelling reasons why they should proactively develop and implement the policy too. 

The risks to businesses of not having a policy

A report of misconduct poorly handled can have disastrous repercussions for a business. Where it leads to negative commercial or media exposure, it can result in decreased demand, reduced morale, put prospective funding and capital investments at risk, and potentially create long-term reputational harm.

Regardless of whether having a policy in place is mandatory for your company or not, mishandling a whistleblower report will not be taken lightly by ASIC regulators.

If you’re not seen to be taking measures commensurate to your business to install appropriate processes and systems so that employees and other stakeholders are aware of their responsibilities under the new legislation, you could be putting these people at risk.

The penalties for not handling whistleblower reports properly include substantial fines for companies as well as individuals. 

Small businesses and startups should, therefore, think of a whistleblower policy as both cultivating a ‘speak-up’ culture and defending against reputational damage, large fines and litigation. 

Protecting both employees and the company

The Australian Human Rights Commission published troubling findings in its 2018 national survey on sexual harassment in Australian workplaces. — It revealed that, in the last five years, 39% of women and 26% of men have experienced sexual harassment at work and 40% of incidents were witnessed by at least one other person. 

Although a whistleblowing program may not be the appropriate reporting pathway for all types of issues, these figures should act as a wake-up call for business owners who don’t think misconduct could occur in their workplace and therefore don’t perceive a need for a speak-up program.

Also, when employees know that there is a robust whistleblower policy and supporting processes in place, they feel safer and more empowered to report misconduct and confident necessary due process will take place. This acts to strengthen employee trust, satisfaction and loyalty.

Changing culture for the better 

All smart companies are invested in building a great culture — they know it’s good for business and understand the value of culture in attracting and retaining good people.

Having best practice systems in place, including a whistleblower policy, sends a strong message that you’re a company built on sound values and zero tolerance for misconduct.  

A whistleblower policy can also help to embed a speak-up culture in your company.

This isn’t just about reporting wrongdoing — a speak-up culture means employees feel safe to contribute ideas for improvements and efficiencies that can make the workplace safer and more productive, and in turn, positively impact the bottom line. 

Tip-offs the number one way to detect fraud

Small businesses and startups that develop and implement whistleblower policies will be pleased to know their efforts could work to lessen their exposure to financial loss as a result of occupational fraud.   

A 2018 report released by the Association of Certified Fraud Examiners revealed that, worldwide, occupational fraud resulted in more than $7 billion in total losses, and small companies lost almost twice as much as larger companies through asset misappropriation and financial statement fraud. 

The report also found that tip-offs are by far the most common initial detection method for fraudulent activity in businesses — more so than audits. It also shows organisations with a hotline for reporting misconduct detected fraud by tip-offs more often than those without one — a strong case for including an external independent hotline in your whistleblowing program.

How to start right for growth

Fast-growth startups can rapidly develop from small firms into large proprietary companies, with all the legal obligations this transition entails. And their debut as a large company will see them need a whistleblower policy that is robust enough to stand up to the auditing powers of ASIC.

When preparing for an IPO or funding round, fast-growing startups should be establishing structures that can be embedded now and operate at scale. Governance and dealing with misconduct and establishing a speak-up culture is no different to other structures you’ll want in place, so the earlier you can establish a whistleblower policy, the better for your growing business.

Perhaps not surprisingly, startups are as susceptible to misconduct as any other type of company.

In a 2017 survey of venture-backed startup founders, half of the respondents reported having a personal experience of sexual harassment. And alarmingly, 70% of venture-backed female founders said that sexual harassment is still underreported. 

The benefits of having a whistleblower policy and embedding a speak-up culture should not be underestimated — from the protection it provides against compliance breaches and large fines, to the positive influence it wields over workplace culture. Whichever way you look at it, it’s a smart investment and a distinguishing achievement for those small businesses who proactively implement it. 

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