With the exception perhaps of Barclays Bank Chief Executive Jes Staley, organisations generally recognise that whistleblower hotlines are only going to work if the companies sponsoring them actually believe in them, support them, and accept that those people who come forward need to be protected.

Staley committed the cardinal sin of trying to unmask a whistleblower who had the gall to question whether the appointment of one of his close friends to a senior management position was quite in keeping with the bank’s recruitment policy. The United Kingdom’s financial regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), have since told Staley that he can expect a substantial fine, while the bank has already warned that he faces losing a chunk from his bonus, too.

In the past few years, whistleblowers have been responsible for bringing some of the world’s biggest corporate governance and compliance catastrophes to light—all at considerable personal risk to their careers and health. According to the “2016 Global Business Ethics Survey” by the Ethics & Compliance Initiative, an organisation that promotes best practices, one in three workers who report misconduct suffer some form of retaliation.

Recent scandals, such as car giant Volkswagen manipulating diesel emissions tests, the Panama Papers, and the Luxleaks disclosures on tax avoidance schemes, as well as the ongoing Cambridge Analytica revelations, show that whistleblowers can play an important role in uncovering unlawful activities. They also show how necessary whistleblower protection is: In the Luxleaks case, for example, two of the whistleblowers were fined and given suspended prison sentences, while prosecutors also tried to fine one of the journalists who broke the story.

Europe’s attitude toward whistleblowers is patchy at best. For example, only 10 EU member states currently ensure that whistleblowers are fully protected. In the remaining 18 countries, any protection granted is partial and only applies to specific sectors or categories of employee. In 2014, the EU’s leading human rights organisation, the Council of Europe, issued a recommendation that member states should formalise proper whistleblowing protection procedures.

Some four years later, on 23 April, the European Commission came up with its proposal. It wants a new law to strengthen whistleblower protection across the EU that establishes safe channels for reporting both internally and to public authorities. Importantly, the new law would also protect whistleblowers against dismissal, demotion, and other forms of retaliation, require national authorities to inform citizens of the procedures and protections afforded to people who come forward with concerns, and provide training for public authorities on how to deal with whistleblowers.

“When you start listing all the protections that you’re giving them, you start raising their awareness of the risks and dangers. It serves to raise their level of anxiety and has the opposite of its intended effect. All the protections are really a list of the things that can go wrong.”
James Wainberg, Professor of Accounting, College of Business, FAU

Under the proposals, all companies with more than 50 employees or with an annual turnover of over €10 million (U.S. $12 million)—as well as all state, regional administrations and municipalities with over 10,000 inhabitants—would have to set up an internal procedure to handle whistleblowers’ reports.

The protection mechanisms that organisations would need to set up include having:

Effective safeguards;

Clear reporting channels (both within and outside of the organisation) that ensure confidentiality;

A three-tier reporting system of: internal reporting channels; reporting to competent authorities; and public/media reporting.

Obligations for organisations to respond and follow up on whistleblowers’ reports made internally within three months;

Prevention of retaliation and effective protection, including exemption from liability in any judicial proceedings.

Protection would also be afforded to a wide range of activities—from breaches of legislation in public procurement, financial services, money laundering, and terrorist financing, to data protection, IT systems, and anti-trust violations.

Ve?ra Jourova´, European commissioner for justice, consumers, and gender Equality, calls the rules a “game changer.”

The proposals are certainly a welcome step, but even if the law is enacted—and that could be a long way off—it is unlikely that the 18 EU countries that currently do not have sufficient whistleblower protections in place would suddenly wake up and realise what a marvel it all is.

At least one third of reporters experience retaliation in most GBES countries

This is due partly to cultural and historical reasons. In southern Europe, and particularly in the former eastern bloc countries, any scheme that encourages people to inform on others is frowned upon and often shunned. Another problem is that whistleblowing hotlines are often used for reporting HR grievances rather than cases of corporate malfeasance or bribery and corruption, which makes companies question their effectiveness—especially since people who report concerns do not necessarily have evidence, only suspicions.

Highlighting the kind of protection that whistleblowers need may also be counterproductive and actually deter people from coming forward. A 2016 study by researchers at Florida Atlantic University and Providence College in the United States found that the more clearly organizations spell out how they will protect whistleblowers from retaliation, the more likely employees will think twice about reporting misconduct.

The researchers surveyed a group of students in a university graduate auditing course and found that explicitly raising awareness of possible retaliation (even to reassure potential whistleblowers that they will be protected from it) made people on average 25 percent more nervous about speaking up. 

James Wainberg, a professor of accounting at FAU’s College of Business and co-author of the study, said: “When you start listing all the protections that you’re giving them, you start raising their awareness of the risks and dangers. It serves to raise their level of anxiety and has the opposite of its intended effect. All the protections are really a list of the things that can go wrong.”

Bringing an EU-wide law into effect will no doubt raise awareness about the benefits of embracing reporting hotlines and will hopefully serve those who come forward with much greater protection. But Europe also needs to undergo a much broader cultural shift to properly encourage whistleblowing, and that may take longer than the process of enacting legislation.