Why every company should have a whistleblowing office!

Since 2 July 2023, all companies with more than 249 employees must operate a so-called internal reporting office in their company, through which whistleblowers have the possibility to report wrongdoings. From 17 December 2023, this will also apply to companies with 50 or more employees.

While many companies are now or will be legally obliged to set up internal whistleblowing units, more and more companies below the threshold of 50 employees are also recognising the strategic advantages of such a system. But what makes an internal whistleblowing unit so valuable, even if there is no legal obligation? This article looks at the benefits that internal whistleblowing systems offer and why every company, regardless of its size and area of activity, can benefit from them.

Whistleblowing and the Whistleblower Protection Act

The Whistleblower Protection Act serves to protect whistleblowers and promotes the establishment of reporting offices within companies. The protection of whistleblowers applies regardless of whether a company is obliged to implement a whistleblower system. The Whistleblower Protection Act regulates the protection of natural persons who have obtained information about violations in connection with their professional activities or in the run-up to professional activities and report or disclose such information to the reporting bodies provided for under this Act (whistleblowers) (HinSchG §1 para. 1).

Thus, according to the HinSchG, potential whistleblowers have the possibility at any time to also contact external reporting offices with their facts to be disclosed.

This is another reason why the Whistleblower Protection Act has far-reaching implications, not only for companies with 50 or more employees, which are legally obliged to set up an internal reporting office, but also for smaller companies. This is because employees always have the option to file reports. For smaller companies that do not operate their own reporting office, this means that in case of doubt, grievances end up directly with the public authorities.

Internal vs. external reporting offices

It is true that the Whistleblower Protection Act stipulates that internal reporting offices are to be used by employees on a prioritised basis, which distinguishes the current law from many drafts from the past. However, if no internal hotline is available, this prioritisation is obsolete. In other words, whistleblowers are now to give preference to internal hotlines over external reports, i.e. reports to official hotlines, if violations can be dealt with effectively internally, which underlines the need to establish an internal complaints procedure.

Internal hotlines

Internal hotlines serve as a safe channel for employees to raise concerns within the organisation. Internal hotlines are facilities within an organisation where employees can report grievances. They are confidential and the identity of the whistleblower is protected.

Advantages of an internal hotline

• Confidentiality: information remains within the company, protecting privacy.
• Faster response: The company can respond directly and efficiently to reported issues.
• Improved corporate culture: the existence of a hotline promotes a culture of openness and honesty.

External hotlines

In contrast, external hotlines are independent channels established with government agencies where whistleblowers can also report wrongdoing.

This can lead to negative public attention. Moreover, if the whistleblower does not find an internal reporting office or otherwise hear or the whistleblower experiences discrimination, he or she may feel encouraged to turn to external reporting offices. The purpose of the Whistleblower Protection Act is to protect whistleblowers from any form of reprisals or professional discrimination!

Advantages of an internal whistleblowing unit

Early warning system

An internal whistleblowing system serves as an early warning system that can identify problems before they escalate. It provides a platform for employees to report concerns or misconduct without fear of reprisal. This allows companies to intervene in time and avoid potential crises.

More control

By setting up an internal reporting centre, companies retain control over sensitive information. It allows for the internal handling of tips. This not only protects privacy, but also enables more efficient and targeted problem solving.

More freedom of action

Internal whistleblowers give companies the ability to solve problems themselves. They provide more freedom of action by enabling appropriate action to be taken in a timely manner. This can not only save time and money, but also protect the company's reputation.

Positive corporate culture and image building.

A well-designed whistleblowing unit promotes a culture of openness and trust. Employees feel valued and heard and management can count on an engaged workforce. This not only boosts morale, but also contributes to talent retention.

Why even non-committed companies benefit

Danger of external reporting

Without an internal reporting office, whistleblowers could turn to external agencies, resulting in public attention, legal risks, loss of trust and reputation.

That is why it is recommended to establish internal reporting channels and Implement an effective whistleblowing unit, which should be designed to be as attractive as possible. This includes:

• Intuitive design: By making it user-friendly and appealing, the whistleblowing office can encourage more employees to raise their concerns. This leads to more information and better decision-making.
• Accessibility and reachability: A hotline that is accessible at all times promotes trust and shows that the company cares about its employees' concerns. This not only makes it easier to report concerns, but can also improve employee satisfaction.
• Communicate and publicise: This reporting office must be publicised within the company and explained through training or other ways.
• Avoiding escalation to external bodies: If there is no internal reporting point, employees may turn to external authorities, which can lead to escalation. By creating an internal system, the company can prevent this and solve problems itself.

A successful whistleblowing system requires careful planning and implementation. This includes:

• Requirements and best practices: Compliance with legal requirements and the application of best practices are critical to the effectiveness of the whistleblowing system.
• Training of whistleblowers: Whistleblowers must be trained to ensure that they handle reports competently and confidentially and classify incidents correctly.

Case studies

There are numerous examples of companies that have successfully implemented internal whistleblowing units. These companies report improved corporate culture, faster problem resolution and increased employee confidence.

Here are some hypothetical case studies that might be particularly applicable to small companies with fewer than 50 employees.

Case study 1: Potential breach of environmental regulations in a small manufacturing company.

• Company: A small manufactory producing handmade products.
• Situation: An employee notices that waste materials could not be properly disposed of when planning a new product, which would violate local environmental regulations.
• Intervention: Through the internal whistleblowing system, the employee reports the problem and the company can resolve the matter internally without having to involve authorities.
• Result: The planned use of the materials is changed to comply with environmental regulations and the company avoids potential fines and reputational damage.

Prevention of scandals

The hotline can help prevent scandals by providing a platform where potential violations can be identified and dealt with at an early stage.

• Avoiding media attention: Scandals can trigger negative media coverage and public outrage.
• Protecting corporate reputation: Scandals can cause long-term damage, both financially and reputationally.

Case study 2: Misdemeanour in a small service company.

• Company: A small service company in the field of domestic cleaning.
• Situation: An employee discovers that the company has ordered cleaning products containing prohibited chemicals that could also harm employees.
• Intervention: The employee uses the internal whistleblowing system to report the problem. Management responds quickly and replaces the banned products.
• Result: The company avoids potential fines and ensures that it complies with the law and protects employee safety.

Risk minimisation

Early detection of wrongdoing helps avoid potential reputational damage or financial loss.

Avoiding legal problems: Early intervention can avoid legal challenges.

• Protecting corporate image: Addressing issues in a timely manner can protect the company's image.

Case study 3: Data breach in a small IT company.

• Company: A small software developer.
• Situation: An employee discovers that customer data is stored insecurely, which violates the General Data Protection Regulation (GDPR).
• Intervention: Through the internal whistleblowing unit, the employee reports the problem and the company changes its practices to ensure compliance.
• Result: The company avoids potential penalties and increases customer confidence in its services.

Competitive advantage through ethics and transparency

An ethical company that promotes transparency can have a competitive advantage in the market.

• Attraction of investors: Ethically responsible companies can be more attractive to investors.
• Customer loyalty: Customers value companies that adhere to ethical standards and operate transparently.

Case study 4: Breach of health and safety regulations in a small bakery.

• Company: A small bakery.
• Situation: An employee recognises that hygiene practices do not meet legal standards.
• Intervention: By using the internal whistleblowing system, the problem is reported and the company takes immediate action.
• Result: The bakery avoids potential fines and protects the health of customers.

Proactive problem solving and better decision making.

By identifying problems early, the company can take proactive measures.

• Avoiding escalations: Early intervention can prevent major crises.
• Data-based decision-making: The information gathered by the hotline can help management make informed decisions.

Meeting customer and stakeholder expectations.

Establishing a hotline shows that the company takes customer and stakeholder expectations seriously.

• Building trust with customers: Customers see the company's commitment to ethical behaviour.
• Strengthening relationships with stakeholders: Stakeholders see the company's commitment to responsibility and transparency.

Case study 5: Breach of building regulations in a small construction company.

• Company: A small construction company.
• Situation: An employee notices that some construction work does not comply with local building regulations.
• Intervention: The problem is reported through the internal whistleblowing unit and the company corrects the construction work.
• Result: The company avoids possible fines and ensures that all construction work is carried out safely and legally.

**Compliance with the Whistleblower Protection Act and other relevant regulations is essential for many companies.

• Compliance with international standards: For global companies, compliance with various laws is key.
• Avoiding penalties: Non-compliance with the law can lead to significant penalties.

Increasing efficiency through technology

Integrating modern technology into the reporting office can increase efficiency.###

• Automated reporting: Modern whistleblower software can automate and simplify the reporting process.
• Improved communication: Modern whistleblower software can facilitate communication between MROS and whistleblowers.

Case study 6: Reporting neglect through a whistleblower channel in a small charitable care facility.

• Facility: A small charitable care facility providing care for older people and people with disabilities.
• Situation: A staff member notices that some residents are being neglected, resulting in a decrease in their quality of life. Although the report is not anonymous, the staff member does not want to discuss the problem directly with the management as he is unsure how they will react.
• Intervention: The employee uses the facility's whistleblower channel to report the problem. This channel was set up to provide a platform for employees to raise concerns without having to contact management directly.
• Result: The report is investigated by a team responsible for it, operating independently of management. They confirm the allegations and take action to end the neglect. The whistleblower is commended for their sense of responsibility and the identity of the staff member remains known only to the investigation team. The quality of care in the facility is improved and trust in the whistleblower channel is strengthened.

Ensuring quality of service.

This case study demonstrates the benefits of a whistleblower channel in an environment such as a nursing facility. It provides a way for staff to raise concerns without having to speak directly to management, which can be particularly useful when there are concerns about management's response.

• Promoting transparency, documentation and accountability.
• Promoting a culture of trust: a whistleblower channel provides a clear and structured way to raise concerns and ensure they are addressed appropriately. This helps to maintain quality of care and ensures that staff know their voice is heard without fear of having to deal directly with management.

Case studies of anonymous reporting

Case study 1: Anonymous reporting of discrimination in a small gym.

• Company: A small gym.
• Situation: An employee witnesses discrimination against customers because of their origin, but wishes to remain anonymous.
• Intervention: The internal whistleblowing unit facilitates the anonymous report and the company intervenes to stop the discrimination. Result: Thanks to the possibility of anonymous reporting, the company becomes aware of a serious ethical problem and can act accordingly.

Case study 2: Anonymous reporting of environmental pollution in a small construction company.

• Company: A small construction company.
• Situation: An employee discovers that the company is violating environmental regulations, but does not want to reveal his identity.
• Intervention: The internal whistleblowing unit facilitates an anonymous report and the company corrects its practices.
• Result: Anonymity encourages the reporting of a violation that could have caused significant environmental damage.

Case study 3: Anonymous reporting of fraud in a small travel agency.

• Company: A small travel agency.
• Situation: An employee recognises that the company is using misleading advertising to deceive customers, but wishes to remain anonymous.
• Intervention: The internal whistleblowing unit facilitates an anonymous report and the company changes its advertising practices.
• Result: By being able to report the problem anonymously, the company is made aware of a serious violation and can stop the practice.

These case studies highlight the important role that anonymity plays in an internal whistleblowing system. It allows employees to raise serious concerns without fear of reprisal or other negative consequences. In small companies, where confidentiality is often more difficult to maintain, the anonymous reporting option can be particularly important. It promotes a culture of openness and trust and allows the company to respond to potential breaches that might otherwise have gone undetected.

Summary

These case studies illustrate how an internal whistleblowing unit can serve as a valuable tool for identifying and resolving ethical and legal violations, even in small companies with fewer than 50 employees.

The intention of the legislator is explicitly that companies first deal with their own grievances before public authorities and the public are involved.

The establishment of an internal complaints procedure in the form of an internal whistleblowing office is not only a legal obligation for some companies, but also a strategic decision that can offer significant benefits beyond mere compliance with legal requirements. It allows companies to respond quickly and effectively to issues without the need to involve external authorities. This not only protects the company's reputation, but can also avoid financial and legal consequences. It promotes risk mitigation, workforce trust, competitive advantage and more.

An internal whistleblowing system becomes an indispensable tool for small businesses to identify and address a wide range of legal and ethical violations. They foster a culture of integrity and transparency and enable companies to act in a timely manner to avoid potential legal, financial and reputational risks. Regardless of the industry or area of activity, the establishment of an internal whistleblowing unit offers clear added value for any company.

From early identification of problems to strengthening corporate culture, the case for implementing such a system is compelling. It is time for every company, regardless of size or industry, to consider the possibilities of an internal whistleblowing system and implement it as part of their ethical and business practices.

Conclusion: An investment in the future

Establishing an internal whistleblower office under the Whistleblower Protection Act is much more than a bureaucratic hurdle or a legal requirement. It is a strategic decision and an investment in the long-term health and growth of the company.

At a time when ethical behaviour and transparency are becoming increasingly important, setting up a whistleblowing office sends a clear signal to employees, customers, investors and the general public that the company takes these values seriously.

It also enables the company to identify and address potential problems early on, before they escalate into serious crises. It strengthens employee trust, promotes a culture of openness and integrity, and it can even help protect the company from financial losses and legal problems.

Setting up a hotline is therefore not only a compliance issue, but also a question of corporate culture, risk management strategy and market positioning. It is an investment that can pay off in many ways, both in the short and long term.