Whistleblowing platforms or services are at the heart of many compliance efforts, though no one wants to see them heavily in use. Or do they?
George Washington University assistant professor of accountancy Kyle Welch just completed a study of 1.2 million whistleblowing reports filed through compliance and incident management system provider Navex Global Inc. His findings will change what you thought you knew about whistleblowers and employee retention and engagement.
Editor's note: This interview has been lightly edited for brevity and clarity.
Can you explain why an active whistleblower hotline is a good thing?
Kyle Welch: Let me start off by presenting to you a hypothetical, and I think this is a good way to frame how to think about this. If you were considering two job offers, and, everything else being equal, ... except you know that at one firm they have more internal whistleblowing reports, and at the other, they have less. Most people would say the firm that has more problems reported internally probably is the worse firm to work for. This research suggests the opposite is true for internal reporting.
There's this view that we have where a lot of the external whistleblowing to regulators, and to other people, usually it's a tip of the iceberg type of situation, with ... more lawsuits, negative stories and other things going on in the business. The nature of internal reporting, and internal whistleblowing reports, is actually the opposite. It says that by nature of having more reports, it means that employees want to change things at a firm. [They] are sticking around and are actually giving the reports to managers instead of just saying nothing or leaving the firm or going external with these reports. It's a very counterintuitive finding.
What's happening is their HR department, their management and their leaders are realizing that these [whistleblower hotline] systems are a way to get ahead of problems. They are getting ahead of problems while they're still small, before they go public and before they turn into a material lawsuit. This enables them to stop the problem or limit the damage.
What role does the technology behind the whistleblower hotline play, and does it allow for different kinds of whistleblowing?
Welch: External whistleblowing is obviously when you go to a reporter or to a regulator and say, 'There's problems at this firm. Go check it out.' It happens all the time.
Internal reporting -- internal whistleblowing or silent whistleblowing -- essentially comes in two forms. One is setting up a hotline system, which is what Navex Global does. They take in calls for companies as a third-party [service provider]. There [are] a couple of advantages to that. If you see something or if you have a problem at a firm, if you were to call someone else at the firm, the chances of it getting back to you and for you to be able to report anonymously are hard. [A hotline] allows an opportunity for an employee to report something to someone who is not going to recognize [his or her] voice. It is just going to be an anonymous report to enable managers and directors of the firm to look at it and to evaluate the problems and to take corrective action.
You [can also] have a web portal. And the web portal allows you to go online, and so if you prefer to go through a web portal and type up a complaint of some sort, or a description of what's going on, you can do it that way. Those are the two ways that it can happen.
The younger generation is more likely to access online. The older generation is still willing to call, and most people are making calls. Calls are still an active way to make this kind of report, because if you think about it, those who are savvy online know that if they go online to make a report, there are a lot of concerns [about recognizing an IP address].
Do HR departments understand the importance of a whistleblower hotline or are there things they should be doing differently?
Welch: I don't think managers truly realize how valuable this resource is just yet. The most common feedback that I hear is that managers manage this metric in weird ways. They know that having zero reports is obviously bad. The way you get zero reports is you don't tell anybody about the [whistleblower hotline] system, you don't make it easy to access and nobody knows about it. So you have no reports. Does that mean there are no problems? Obviously not.
So managers realize that there should be a general number of reports, but they don't want it to be too high. So they'll use these benchmarking studies or a quarterly benchmarking report. And from that benchmarking report what they'll do is they'll say, 'This is our level. This is the level for the industry. So we're about even with the benchmark or we might be too high. We might be above benchmark.'
The wrong way to manage it is to say, 'We have too many reports. That must mean we have more problems.' The key insight here, and I think every HR person will agree with this, is the idea that if you're managing humans, you're going to have problems. So the important thing for HR to take away from this is that the level of communication is an indication of probably good management in this situation.
What should companies be doing to promote access to their whistleblower hotline?
Welch: There are a couple things companies should do. One, you can put posters up. You can put materials up in the office that say, 'If you see a problem, there's an anonymous place that you can go report this.'
The second is for management to walk the walk by putting it in the footnote of their emails to their employees on their weekly or monthly announcements. They can solicit this kind of feedback. It's really hard for direct managers to create that kind of environment. It has to start with the top. It's hard for mid- and lower-level managers, particularly lower-level managers. You have to have a confident lower-level manager to encourage whistleblowing, because they're basically reporting on that manager and the environment [that manager has created]. So if there's a problem, that manager is the one who is on the hook.
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