By Antonino Vaccaro, Associate Professor of Business Ethics at IESE Business School
Corporate malfeasance may not be at the top of everyone's mind as they enter the thick of the holidays. But as Facebook and other tech giants (and more than a few governments) continue to reel from various scandals over everything from data protection to gender equity, it’s clear that managerial oversight, if not outright corruption, is a topic that seldom leaves the business news cycle.
Indeed, the costs of corruption are staggering throughout the year and across the globe. The European Commission in 2014 estimated the precise losses stemming from corruption to total €120 billion per year, or roughly the E.U.'s annual budget. Fraud taints nearly two-thirds of American companies each year, chipping an average 1.2% off of profits. And a recent KPMG report found that about two-thirds of employees had witnessed misconduct in the 12 months leading up to being surveyed.
This all persists despite a cultural valorization of the whistleblowers who expose corruption. Time magazine in 2002 made an unorthodox choice for its annual Person of the Year, putting three people who'd exposed corruption at Enron, WorldCom and the FBI on a much-discussed cover. More recent, and divisive, whistleblowers including Julian Assange and Edward Snowden have used technology to spotlight what they consider government wrongdoing and opacity.
Despite the almost rock star aura surrounding certain high-profile whistleblowers, however, there remain several imposing hurdles to exposing corruption within one's workplace. These include the clear risks to your own employment of reporting on superiors and possibly undercutting profits, however ill gained, the lack of information delineating the whistleblowing process and the reliability of protective measures, should they even exist, following the exposure.
How can companies encourage more ethical practices by making their employees feels comfortable reporting misconduct? Ideally, a company would be so proactive about instilling a culture of open honesty that whistleblowing would be unnecessary. But corruption is sadly all too common.
Here are some measures that can be taken to minimize it, and which must be effectively publicized to make a difference:
- Open a phone hotline. It's one simple way to make a value on workplace transparency abundantly clear to employees. It also encourages those who´d fear being labeled disloyal by publicly coming forward to speak up through a more private channel. This could be of particular comfort to those workers unsure if what they have witnessed is a violation. Such confusion is understandable given that whistleblowing policies now apply to not just financial matters, but also to health, safety and sexual harassment issues.
- Train morally. This is not meant in any sort of invasive sense, but rather in introducing moral and ethical awareness to expose corruption or abuse when employees witness it. Emphasizing the importance of the collective good, individual and organizational values is an especially convincing way to develop an ethical workforce.
- Separate anonymity and confidentiality. Then apply them both. Anonymity, and the ability to opt for it, is critical to encouraging whistleblowing and a transparent company culture. While this may seem like commonsense, a mere 14% of fraud reported internationally has an anonymous source. Certain jurisdictions actually prohibit anonymous reporting. But if applicable, anonymous channels will substantially boost the odds of transparency and effective, honest communication. Confidentiality comes into play after an anonymous report has been made. And protecting present day whistleblowers is crucial to encourage others in the future.
- Leverage financial incentives to boost ethical change. A company-wide sense of ethics and moral responsibilities is the backbone of transparency. Still, it would be naïve to discount the appeal of financial rewards for whistleblowing. The 2010 Dodd-Frank regulations in the United States, for instance, famously instructed the Security and Exchange Commission to reward whistleblowers 10% to 30% of the funds their tips helped recover for collections over $1 million.
- Look inside. Focus outside. Internal (i.e., hotline) and external channels for reporting corruption can, and should, work in tandem. Still, external platforms are better at motivating potential whistle-blowers to come forward and address wrongdoing. Such channels supply a stronger coat of protective anonymity. They can also contribute to sheltering strategies, in which a third party constructs whistleblowing systems available to multiple companies in a specific industry. In that example, the external agents cultivate contacts with private investigators, police departments and even local judiciary branches, all of which eases the burden on, and risk to, whistleblowers.
