Most firms, like those above, will have risk management, ethics, anti-fraud and corruption policies. An important lesson to be learnt from these scandals is that an effective corporate governance strategy must include a workable safety net.
Recognising that staff are often the first to know about wrongdoing in their workplace, the new combined code reflects the role that whistleblowing plays in underpinning all other governance initiatives. Just as safety equipment needs to be tested, the code states that: ‘The audit committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.’
This is good news. With more regulation than ever, whistleblowing, as a means to ensure accountability and improve compliance, is of utmost importance. The effect of the new code is that businesses can no longer ignore whistleblowing. The challenge is to make it work.
Staff need to know they can raise concerns through line management or other channels and, ultimately, with the audit committee. This approach provides board oversight without undermining management.
But having a whistleblowing policy is not enough. Staff need to trust that it is safe to raise concerns. As the code favours open and confidential whistleblowing – rather than the anonymous reporting featured in the US Sarbanes-Oxley law – it promotes accountability in the workplace. Open communication means auditors and accountants can rely on the information provided and properly investigate concerns. Crucially, wrongdoing will be deterred, as well as detected.
Whistleblowing demonstrates self-regulation and will inspire much-needed client, industry and investor confidence.
- Kirsten Trott is legal adviser at Public Concern at Work.
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