What do whistleblowers have to do with sustainability?
At first glance, whistleblowing and sustainability have little to do with each other. However, anyone who questions and examines the origins of whistleblowing as an instrument and the prerequisites for sustainability can certainly recognize a relationship.
A whistleblower is a person who publishes secret or confidential information that is important to the public. What this has to do with sustainability only becomes clear on closer inspection.
An article by our Senior Expert Steven Bechhofer
Whistleblowers take risks to expose wrongdoing
Historically, whistleblowing has been a tool for exposing government wrongdoing. 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 organizational body.1
Whistleblowers usually accept personal risks when they point out wrongdoing, especially if they are in a dependent position. The continuation of their career and their position are often jeopardized. They usually act out of an overriding sense of justice in order to expose corruption, abuse of power and illegal actions. In principle, government agencies and companies have a great interest in quickly uncovering and stopping unlawful and damaging actions.
U.S.A: Leading the way in whistleblower protection
Nevertheless, the importance and protection of whistleblowers was not universally recognized for a long time. The U.S. played a pioneering role with its legislation - e.g., the Civil Rights Act of 1871 , 42 U.S.C. §1983 (protecting the constitutional rights of state and municipal employees). This pioneering role has since been solidified by the passage of numerous laws and regulations. The regulations are designed to protect whistleblowers from retaliation (character assassination campaigns, termination, blacklisting) e.g. from their employers, to secure their legal status, and in some cases to reward them for their whistleblowing. Apart from state malfeasance, the regulations now also cover the activities of companies and other economic actors. Of the more than 50 state-federal whistleblower laws in the U.S., the vast majority (44) also protect whistleblowers who work in corporations.2 The Government Accountability Project (GAP) was already formed in 1977. The goal of the GAP is to support whistleblowers in raising their concerns about illegal and corrupt behavior and to ensure that possible negative consequences and retaliations are counteracted through legal advice and counseling. For some years now, the GAP's advice has also extended to whistleblowers at companies.
Most white collar crimes are uncovered by whistleblowers
The significance whistleblowers can have and the resulting importance of their protection by the state is shown by a study on the global extent of corruption, fraud, and other economic crimes by the Association of Certified Fraud Examiners (ACFE) from 2020.3 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. These tips thus uncovered more crimes than management review (12%), internal audit (15%) external auditors (4%) or government agencies (2%) combined.
A 2020 study by the Association of Certified Fraud Examiners (ACFE) showed that most crimes in business are uncovered by whistleblowers. Consequently, their protection by the state is of great importance.
The need to protect whistleblowers from retaliation by means of legal regulations only really became clear after the financial crisis of 2001/2002, despite many years of experience in the area of labor law (Occupational Health & Safety Act of 1970) or in the area of environmental law (Toxic Control Act of 1976, Clean Air Act of 1977). Triggered by the knowing falsification of financial reports by two companies that were partly responsible for the financial crisis at the time - Enron and Worldcom - it was recognized that greater importance should be attached to whistleblowers and that they should be given greater protection. In both cases, employees of the companies in question collected and passed on substantial information about criminal acts. Because their information was deliberately concealed or not sufficiently acknowledged by management, investors and shareholders alike lost confidence in the companies concerned, which then immediately went bankrupt or found themselves in financial difficulties. To make matters worse, auditors from Arthur Andersen were not entirely uninvolved in the Enron debacle. Thus, many investors lost their confidence in the mechanisms of the capital market. The result was a financial crisis that was already apparent before the attacks of September 11, 2001, and is still having a negative impact today on confidence in the "self-healing powers of the economy."
New laws give whistleblowers stronger rights
The passage of the Sarbanes-Oxley Act (2002) and later the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), have given the issue new contours in the U.S. by granting whistleblowers stronger rights. Especially when it comes to the possibilities of taking action against discrimination below the threshold of dismissal: new authorities with their own investigative powers were created and jurisdiction expanded. New ordinary courts were given the power to review disputes between employers and employees, including in cases where the use of arbitration was mandatory in employment contracts.
Based on these experiences, the European Union has started to create rules in some laws that strengthen the position of whistleblowers, e.g. in the Capital Requirements Directive of 2013, the Market Abuse Regulation of 2014, the Financial Markets Directive of 2014, the Money Laundering Directive of 2015, or even the Insurance Distribution Directive of 2016. As of December 19, 2019, a general directive for the protection of whistleblowers has now come into force in the EU.4 On the one hand, this law is initially intended to cover violations of EU law, e.g. in the areas of environmental and consumer protection (Art.2); on the other hand, it is intended to be transposed into national law for the member states by December 17, 2021. The implementation of this directive in national law is intended above all to relieve knowledge holders - so-called insiders - of the fear of reprisals or other professional or private consequences if they point out abuses that indicate a suspected violation of legal rights, e.g. through fraud and breach of trust.
„You cannot always count on the law to help you get away with committing the truth”
In theory, the new laws are an important step for the state, for employees of state and municipal authorities, for employees of companies, for the companies themselves, and above all for all stakeholders. The laws are intended to promote compliant and ethical behavior and, most importantly, to expose illegal acts, wrongdoing, corruption and abuse of power. This discussion immediately brings to mind current scandals and economic crimes, such as those involving the company Wirecard: Would the case have proceeded more quickly and with less damage to creditors and shareholders if a German whistleblowing law had come into force earlier?
But the success or failure of the implementation of these laws will largely depend on how potential whistleblowers are convinced that their tips are valuable and meaningful, and whether they have the courage to act - despite all the criticism, accusations and reproaches for the possible violation of trust and confidentiality obligations. Reports from the GAP, which has now helped over 8,000 whistleblowers with professional advice,5 indicate that the law alone is not enough to effectively protect whistleblowers: "You cannot always count on the law to help you get away with committing the truth".6
On the contrary, beyond the risks mentioned above, many whistleblowers also experience humiliation, alienation among friends and family, a loss of career prospects, and also often have to wait years for legal validation of their cases. And when they "win" with their employer after years of struggle, they will find that their career has passed them by.
The state and the economy must support whistleblowers - and can profit from it themselves!
This is where the work of the state and companies begins. Only if they focus on supporting whistleblowers by recognizing and actively promoting them as an integral part of good governance will their work be seen as something positive. This sounds banal, but it is extremely important. After all, experience from the U.S. shows that whistleblower systems are not used properly if potential whistleblowers only see the negative impact on their careers and social environment from the outset.
The question is therefore: Does the state (or the company) have the necessary maturity to recognize that, beyond the practical benefits of whistleblowing, whistleblowing systems help to bring truths to light? That these truths provide long-term benefits to the company, its employees and its shareholders? How is this realization used to influence or change the strategic direction of the state/company?
Achieving such a level of maturity naturally presupposes that one can foresee the consequences of one's own actions - with the resulting opportunities and risks. Short-term economic disadvantages, disruptions and troublesome investigations can, of course, be the consequence of unpleasant truths. The longer a grievance persists, the more expensive it usually becomes to repair the damage (if still possible). Thus, the realization should almost naturally lead to promoting whistleblowing and whistleblower systems as integral parts of an organizational culture. The value of this cannot necessarily be expressed directly and immediately in financial terms. Rather, it is a well-known fact 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.7
A corporate culture that gives employees freedom and responsibility and in which values such as truth, transparency, openness and fairness are not only spoken about, but also brought to life, leads to companies that are more efficient in taking on new challenges. Employees identify with the company's goals and are more motivated and satisfied.
In a sustainably designed corporate culture, employees are more motivated, more satisfied and work more efficiently.
Now back to the initial question: what does all this have to do with sustainability?
In general: a lot! If sustainability is understood to be a "principle of action for the use of resources", "in which a lasting satisfaction of needs is to be ensured by preserving the natural regenerative capacity of the systems involved (above all of living beings and ecosystems)"8, then the word "whistleblowing" obviously does not appear in this definition. However, the previously mentioned discussion on the topic of "truth" and "organizational culture" gives cause to reflect on whether sustainability is not, as it were, shaped by it.
Sustainability is often associated with the following three pillars:
- Economic viability
- Environmental protection
- Social equity
When implementing a sustainability strategy, it is hard to avoid creating guidelines and processes that influence these areas and help to ensure and maintain a company's regenerative capacity in the long term. They relate above all to the topics
- Governance
- Risk and Opportunity Management
- Compliance
referred to as "GRC" for short. In both whistleblowing and GRC topics, there is an overarching challenge that I only briefly touched on earlier: the understanding that the behaviors, processes and procedures that take place in a company must be embedded in an ethically defensible framework. This includes the understanding that failures can be absorbed by the organizational culture. GRC issues include, 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, continuously reviewing one's own strategy and adjusting it if necessary, and having one's self-set goals (and the respective goal achievement) independently reviewed. Whistleblowing is also about implementing an ethically acceptable system for protecting whistleblowers and creating an environment in which whistleblowers can report misconduct free of fear or retaliation and where they are treated fairly and with the necessary seriousness. In both cases, then, it is a matter of creating a corporate and organizational culture that is dependent on the implementation of an ethical self-image. Which comes first - the organizational culture or the ethical self-image - is up to each individual to decide. But the decisive factor is the realization: whistleblowing and sustainability are not ends in themselves, but they need both elements to contribute effectively to the long-term success of a company.
1 Dr. Simon Gerdemann, LL.M., „Von Washington über Brüssel nach Berlin – die Geschichte des Whistleblowing-Rechts“, published in „Der Wirtschaftsführer 2020, p. 12ff.
2 Tom Devine and Tarek F. Maassarani :„The Corporate Whistleblower’s Survival Guide“, published in 2011 in cooperation with the Government Accountability Project
3 ACFE Report to the Nations 2020
4 Directive (EU) 2019/1937 for the Protection of Whistleblowers (WB-RL)
5 Government Accountability Project
6 Tom Devine and Tarek F. Maassarani, “The Corporate Whistleblower’s Survival Guide - A Handbook for Committing the Truth”, Chapter 7
7 Jim Collins, „Good to Great“, p. 125, 2001 published by HarperCollins