Whistleblowing Trend Watch Whistleblowing Trend Watch

Whistleblowing Trend Watch

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Businesses everywhere are braced for an increase in whistleblowing activity.

In a recent Baker McKenzie global survey, 87% of senior lawyers expressed concern about facing an internal investigation in 2023 – a 22% increase from last year. At the same time, data privacy concerns, new regulations – including the EU Whistleblowing Directive – and a rising focus on ESG considerations are further compounding the challenges for organizations in this space. Explore the drivers for whistleblowing and investigations activity, key regional trends and steps to overcome common compliance pitfalls.

Organizations identified increased investigations risk in 2023.

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What does economic volatility mean for investigations activity?

Difficult economic conditions have historically been linked to increases — or perceived increases — in misconduct. Following the Great Recession of 2008, the Association of Certified Fraud Examiners (ACFE) found that intense financial pressure during the crisis drove an increase in fraudulent behavior.

In addition to being a potential catalyst for misconduct, economic turbulence can also shine a brighter spotlight on wrongdoing, with more intense scrutiny from enforcement authorities, shareholders and other stakeholders. As concerns over inflation, rising costs of living and layoffs permeate the workforce, the impacts of a volatile economic environment can manifest in other ways. For example, former or disgruntled employees may take retaliatory measures, using whistleblowing to gain leverage against employers. But whatever the motivations of the whistleblower, organizations must take allegations seriously and initiate appropriate actions to investigate potential misconduct.

Robust whistleblowing and investigations processes are key elements of an effective compliance program and are essential to detect misconduct,

underscoring the importance of the compliance and investigations functions' role in defending business resilience and calibrating risk.

What whistleblowing trends are organizations encountering across the globe?

REGIONAL TRENDS

READ MORE ABOUT THE RISE OF ACTIVISM

Europe Speak-up culture and integrity cases gain momentum

A focus on fostering a speak-up culture, more effective whistleblowing procedures that protect whistleblowers and increased investigations capacity has led to a significant increase in whistleblower reports. Market leaders have largely welcomed this development to help stamp out bad behavior. While the number of integrity-related cases has risen significantly, other cases remain centered on more traditional risk areas such as bribery and corruption. Now organizations must wrestle with how best to implement the new requirements of the numerous national laws to implement the EU Whistleblowing Directive in each Member State – without jeopardizing the overall effectiveness of the implemented programs.

READ MORE ABOUT NAVIGATING THE EU WHISTLEBLOWING DIRECTIVE

*Integrity cases are whistleblowing reports related to ESG, ID&E and harassment/bullying.

Asia Pacific Fair employment practices and ESG are front of mind

EXPLORE ASIA PACIFIC WHISTLEBLOWING TRENDS, BENCHMARKING AND BEST PRACTICES

Latin America Reporting channels: an emerging tool for compliance programs

In recent years, many Latin American governments have enacted regulations focused on the fight against corruption and the promotion of an overall compliance culture. Some governments now require private entities to implement effective compliance programs that include surveillance and reporting mechanisms. Although the number of whistleblower complaints is low compared to other regions, Latin American countries are trying to shift employees' mindsets by implementing internal policies to protect whistleblowers and sanction wrongdoers. While private parties are implementing reporting tools, governments have not been active in applying incentives or reward programs for whistleblowers.

Localization requirements under local legislation to implement the EU Whistleblowing Directive will raise new compliance challenges for organizations looking to streamline reporting processes.

Read more about navigating the EU Whistleblowing Directive

Dampening speak-up culture

Companies might limit the scope of what type of complaints will be handled by the whistleblowing procedure out of fear of opening themselves up to a wave of complaints, for example integrity cases, in addition to complaints regarding the traditional risk areas of corruption, fraud and antitrust.

Conflicts of interest

Companies are wrestling with how to handle investigations internally — in some situations internal teams are conflicted out. When senior leaders are involved in complaints, external support is required to avoid conflicts of interests.

As more countries have implemented data privacy regimes and often localization requirements, multinationals with central investigation teams often struggle to comply with requirements to handle data locally. But observing these regulatory boundaries is key. Otherwise, evidence collected in the context of the internal investigation might not be used or the company itself could become the subject of a complaint to the data privacy regulators, with potentially severe consequences.

Data privacy and confidentiality

What steps can organizations take to strengthen whistleblowing processes?

OVERCOMING CHALLENGES

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Embed effective policies and procedures

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Ensuring the workforce feels confident to speak up is key to fostering a culture of compliance, where good behavior is the norm.

Create a culture of integrity and compliance

“The first step has to be ensuring the workforce feels confident to speak up. The question of whether it’s a genuine complaint is for phase two, but first and foremost, employees must feel comfortable to speak up because they know that their complaints will be taken seriously and appropriate actions will be taken."

Nicolai Behr Partner, Munich

Companies in today's environment need to have a robust whistleblower program that takes the complex international regulatory requirements for whistleblowing and subsequent internal investigations into account and also encourages anonymous reporting in order to not discourage the legitimate raising of issues.

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When responding to whistleblowing accusations, take care to paint a clear picture of the complainant. Where permissible in light of applicable data protection laws, this may include a review of computer usage to identify sensitive information that might be compromised or potential witnesses for the investigation. A thorough review can help to differentiate a complaint made in good faith vs. an agenda. Regardless of intention, the whistleblowing report can still be valid and should be taken seriously.

Information gathering

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Whistleblower complaints are an essential component of an effective compliance program and one of the main sources for companies to learn about misconduct in their organizations. Substantiated complaints should be thoroughly reviewed and investigated, but companies are also expected to integrate the results and learnings from an internal investigation into their compliance program. Existing gaps must be closed, processes and controls must be improved and the organization should be made aware (in an appropriately anonymized way) of the detected issues and that they were investigated and stopped.

Learn from previous issues

KEY CONTACTS

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Celeste Ang

Partner, Singapore

Nicolai Behr

Partner, Munich

Brad Newman

Partner, Palo Alto

Julia Wilson

Partner, London

"I don't think this will affect how people manage internal investigations in the US, for example. But it will raise questions when cross-border issues inevitably happen. For example, how do you grapple with a whistleblower in the US and the EU both raising the same complaint, whilst complying with the Directive requirements (which sometimes include criminal sanctions)?" Julia Wilson (Partner, London) "I don't expect to see a blanket whistleblowing rule that covers the entire Asia Pacific region. Based on what happened with the GDPR, it is likely local authorities will take guidance from the EU Whistleblowing Directive and seek to implement similar provisions with the appropriate localization. In China, for example, we're already seeing the tendency to establish and promote local channels and only share limited information as appropriate with global teams. It follows from the introduction of national data security and personal information protection laws: most data that originates in China, stays in China." Celeste Ang (Partner, Singapore)

Navigating the EU Whistleblowing Directive

While deployed with the intention of harmonizing whistleblower protections in Europe, the EU Whistleblowing Directive is fraught with frustration for multinationals who need to navigate the different requirements of the implementation laws by the Member States, in particular around localization requirements. This may mean that companies may not only rely on a central team to review complaints but that they need to find ways to allow local reporting and review of the complaints where required by law. The strict data privacy requirements of the GDPR and local data privacy laws and confidentiality provisions based on the EU Whistleblowing Directive will impact how companies operate whistleblowing channels and conduct internal investigations. It remains to be seen how enforcement action in this space will play out, but in the meantime, companies should conduct a thorough audit of their current whistleblowing program to ensure that it complies with the changing EU landscape.

How will the EU Whistleblowing Directive impact investigations in the rest of the world?

The rise of the non-whistleblower: Employee activism in the US

In the last five years, the US has seen a rise in employee activism, whereby the goal is to impact corporate behavior through means of exerting public pressure (e.g. via social or traditional media, through lawsuits or by lobbying Congress). To gain credibility, employee activists often access and share in unauthorized fashion confidential information or financials. These campaigns can circumvent formal whistleblowing channels and are routinely driven by personal agendas rather than the intent to unveil genuine corporate illegal misconduct.

Unravelling the line between whistleblower and activist

Brad Newman (Partner, Palo Alto)

New rules and approaches will be required to unblur the line between employee activist and whistleblower. As always, genuine whistleblower reports alleging illegal activity require adequate protections. While activism (whether by employees, shareholders or NGOs) is on the rise globally, spurred on by a rising focus on ESG considerations, whistleblower issues and corporate misconduct remain a constant concern for companies.

The rise of activism globally

While individual employee activism is most prevalent in the US, elsewhere in the world we are seeing an increase of environmental, social and governance complaints assisted by NGOs, trade unions or other employee representative bodies.

Typical HR response protocols are no longer effective when it comes to responding to employee activists and companies will need to work with their legal advisors to evolve their approach. In addition, the considerations arising from employee activism, and activism more broadly, will inevitably extend beyond the question of legality given the significant reputational stakes at play. Whether or not any unlawful behavior has occurred, organizations need to respond carefully, understand what information is legally protected and consider all of their stakeholders, including shareholders, the board of directors, suppliers and others.

Responding to employee activism

FOR FURTHER PRACTICAL INSIGHTS, READ OUR WHITE PAPER.

87%

65%

Source: The Year Ahead Global Disputes Forecast 2023

Complex reporting channels and procedures

Dampening speak-up culture

Conflicts of interest

Data privacy and confidentiality

Overly complex whistleblowing policies and procedures can deter employees from reporting and make it difficult to effectively respond to complaints. Channels with multiple reporting points are also difficult to manage from a confidentiality perspective. Localization requirements under local legislation to implement the EU Whistleblowing Directive will raise new compliance challenges for organizations looking to streamline reporting processes.

% of respondents who expressed concern about an internal investigation in the next 12 months

Read more about navigating the EU Whistleblowing Directive

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