Why every company should have a Whistleblower reporting office

Since July 2, 2023, all companies with more than 249 employees must operate an internal reporting office in their company, which whistleblowers can use to report grievances. From December 17, 2023, this will also apply to companies with 50 or more employees. However, while many companies are now or will be legally obliged to set up internal reporting offices, more and more companies below the 50-employee threshold are also recognizing the strategic advantages of such a system. But what makes an internal whistleblower reporting office so valuable, even if there is no legal obligation? This article looks at the benefits of internal whistleblowing systems and why every company, regardless of its size and area of activity, can benefit from them.

1. Whistleblowing and the Whistleblower Protection Act

The Whistleblower Protection Act serves to protect whistleblowers and promotes the establishment of whistleblowing 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 advance of a professional activity and report or disclose these to the reporting offices provided for under this Act (whistleblowers) (HinSchG Section 1 (1)). Under the HinSchG, potential whistleblowers also have the option of contacting external reporting offices at any time with the facts they wish to disclose. 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 of submitting 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.

2. Internal vs. external reporting offices

The Whistleblower Protection Act stipulates that internal reporting offices are to be prioritized by employees, which distinguishes the current law from many drafts from the past. However, if no internal reporting office is available, this prioritization is obsolete. In other words, whistleblowers should now prioritize internal reporting offices over external reports, i.e. reports to external reporting authorities, if effective action can be taken internally against violations, which underlines the need to set up an internal complaints procedure.

Internal reporting offices

Internal reporting points serve as a safe channel for employees to raise concerns within the organization. Internal reporting points are facilities within an organization where employees can report grievances. They are confidential and the identity of the whistleblower is protected. The advantages of an internal reporting office are

• Confidentiality: Information remains within the company, protecting privacy.

• Faster response: The company can respond directly and efficiently to reported problems.

• Improvement of the corporate culture: The existence of a whistleblowing office promotes a culture of openness and honesty.

• Promote transparency, documentation and accountability requirements

External reporting authorities

In contrast, external reporting offices are independent channels set up by state authorities where whistleblowers can also report grievances. This can lead to negative public attention. In addition, if the whistleblower does not find an internal reporting office or is ot otherwise listened to or experiences discrimination, they may feel compelled to turn to external reporting offices. This is because the Whistleblower Protection Act aims to protect whistleblowers from any form of reprisal or professional discrimination!

3. Advantages of an internal whistleblower office

Early warning system

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

More control

By setting up an internal reporting office, companies retain control over sensitive information. It enables the internal processing of reports. This not only protects privacy, but also enables more efficient and targeted problem solving.

More freedom of action

Internal whistleblowing offices give companies the opportunity to solve problems themselves. They offer more freedom of action by enabling appropriate measures to be taken in good time. 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 office promotes a culture of openness and trust. Employees feel valued and listened to and management can count on a committed workforce. This not only boosts morale, but also contributes to talent retention.

4. Why non-committed companies also benefit

Risk of external reporting

Without an internal reporting office, whistleblowers could turn to external bodies, which could result in public attention, legal risks, loss of trust and reputational damage.

It is therefore advisable to set up internal reporting channels and implement an effective whistleblowing office, which should be as attractive as possible. This includes:

• Intuitive design: By having a user-friendly and appealing design, the whistleblowing office can encourage more employees to raise their concerns. This leads to more information and better decision making.

• Reachability and accessibility: A reporting center that can be reached at any time promotes trust and shows that the company cares about the concerns of its employees. This not only makes it easier to report concerns, but can also improve employee satisfaction.

• Communication and publicity: This reporting point needs to be publicized within the company and explained through training or other means.

• Avoid escalation to external bodies: If there is no internal reporting point, employees might turn to external authorities, which can lead to escalation. By creating an internal system, the company can prevent this and resolve issues 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: Employees must be trained to ensure that they handle reports competently and confidentially and classify incidents correctly.

5. Case studies

There are numerous examples of companies that have successfully implemented internal whistleblowing offices. These companies report an improved corporate culture, faster problem resolution and increased employee confidence. Here are some hypothetical case studies that could be particularly applicable to small companies with less than 50 employees.

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

Company: A small manufactory that produces handmade products. Situation: An employee notices that waste materials may not be disposed of properly when planning a new product, which would violate local environmental regulations. Intervention: The employee reports the problem through the internal whistleblowing office and the company can resolve the matter internally without having to involve the 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 reporting office 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: Regulatory offense in a small service company

Company: A small service company in the domestic cleaning sector. Situation: An employee discovers that the company has ordered cleaning products containing banned chemicals that could also harm employees. Intervention: The employee uses the internal whistleblowing service 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 minimization:

Early detection of irregularities helps to avoid potential reputational damage or financial losses.

Avoidance of legal problems:

Legal challenges can be avoided through early intervention. Protecting the company's image: rectifying problems in good time 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 being stored insecurely, which violates the General Data Protection Regulation (GDPR). Intervention: The employee reports the problem through the internal whistleblowing office and the company changes its practices to ensure compliance. Result: The company avoids potential penalties and strengthens customer trust in its services.

Competitive advantage through ethics and transparency:

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

Attracting investors:

Ethically responsible companies can be more attractive to investors. Customer loyalty: Customers appreciate 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 recognizes that hygiene practices do not meet legal standards. Intervention: By using the internal whistleblowing service, 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.

Avoidance of escalation:

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

Meeting customer and stakeholder expectations:

The establishment of a reporting office shows that the company takes the expectations of customers and stakeholders seriously. Building trust with customers: Customers see the company's commitment to ethical behavior.

Strengthening relationships with stakeholders:

Stakeholders see the company's commitment to responsibility and transparency.

Case study 5: Violation 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 potential 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: Failure to comply 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 the hotline and whistleblowers.

Case studies of anonymous reporting

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

Company: A small fitness studio. Situation: An employee witnesses discrimination against customers based on their origin, but wishes to remain anonymous. Intervention: The internal whistleblowing office enables anonymous reporting 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 3: 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 anonymous reporting and the company corrects its practices. Result: Anonymity encourages the reporting of a violation that could have caused significant environmental damage.

Case study 4: Anonymous reporting of fraud in a small travel agency

Company: A small travel agency. Situation: An employee recognizes 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. Outcome: 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 reprisals 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.

6. 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. It is the explicit intention of the legislator that companies first deal with their own grievances before the 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 considerable advantages that go beyond mere compliance with legal requirements. It enables companies to respond quickly and effectively to problems without having to involve external authorities. This not only protects the company's reputation, but can also avoid financial and legal consequences. It promotes risk minimization, employee confidence, competitive advantage and much more. An internal whistleblowing system becomes an indispensable tool for small businesses to identify and address a variety of legal and ethical violations. They promote 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 field 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 reasons for implementing such a system are compelling. It is time for every company, regardless of size or industry, to consider the possibilities of an internal whistleblowing unit and implement it as part of their ethical and business practices.

7. Conclusion: An investment in the future

Establishing an internal whistleblowing hotline 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 behavior and transparency are becoming increasingly important, establishing 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 potential problems at an early stage and resolve them 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 whistleblowing office is therefore not just a question of compliance, 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.