Originally published on June 8, 2018.
Organizations with a culture of integrity and respect attract the best people, lose fewer people to undesired turnover and maintain strong reputational brands across commercial and social networks. In addition, research shows that those organizations where employees feel free to report concerns and wrongdoing, and where management is quick to respond to incident reports in a non-retaliatory way, outperform their peers.
Research shows that when employees are empowered through trainings and policies to report misconduct, and when they feel confident there will be no retaliation, incidents are identified much more quickly allowing organizations to resolve issues faster with less damage and expense.
For example, firms that rank among the World’s Most Ethical Companies have outperformed the S&P 500 by 3.3%. Ethical firms don’t have to spend time or money cleaning up the financial and reputational damage caused by misconduct as opposed to those firms where a culture of ethics is less established. This is the ROI of compliance.
Incidents of misconduct destroy culture, particularly if the organization has been negligent in driving a top-down culture of integrity. These incidents can harm employees, partners, corporate reputation and, as a result, the bottom line. Unfortunately, at many organizations there is no focus on identifying incidents and putting corrective actions in place. Senior managers may look at trainings, policies and the like as unnecessary expenses; they don’t understand the ROI of compliance. But research shows that when employees are empowered through trainings and policies to report misconduct, and when they feel confident there will be no retaliation, incidents are identified much more quickly allowing organizations to resolve issues faster with less damage and expense.
Invest in Active Compliance
An eye-opening report by the Association of Certified Fraud Examiners (ACFE) shows just how financially prudent it is to maintain active compliance mechanisms such as employee whistleblower hotlines and training programs that encourage their use. The ACFE report focuses on financial fraud, but the lessons can be applied to any area of compliance.
In organizations that provided formal tools for reporting such as a whistleblower hotline, 46% of cases were detected by tip.
The study shows that internal audit and management’s own investigation skills are not sufficient to detect and deter the majority of fraud. The two methods together accounted for only 28% of incidents uncovered in U.S. companies. On the other hand, incident reports (what the ACFE study calls “Tips”) were the most common source of fraud reports. In organizations that provided formal tools for reporting such as a whistleblower hotline, 46% of cases were detected by tip.
Hotlines increase the rate of detection as well as correlate with reduced overall cost to the organization. Fraud losses were 50% smaller at organizations with hotlines and related incident management systems than those without, according to the ACFE report. Finally, the report indicates that fraud schemes are uncovered more quickly when reported through a whistleblower hotline than those discovered through external audits or a number of other means.
I encourage you to read the report, its findings about internal reporting and the overall threat of financial fraud are compelling.
Protecting & Supporting Whistleblowers Enhances Your Bottom Line
The message is simple: a comprehensive E&C program that includes incident reporting channels (for whistleblowers), along with active support for those who report, makes good business sense. But it only works if company leadership is fully behind the program and creates a workplace culture that supports transparency and speaking up when something is not right. As I’ve said in this space before, don’t encourage employees to speak up if you’re not ready to listen. The ROI of compliance is only fully realized when automated systems work in concert with a strong culture of ethics and respect. That’s how you protect your people, your reputation and your bottom line.