By Betina Vaz Boni, Analyst, Governance Issues, PRI and Elena Espinoza (@EleEspinoza), Acting Head, Social Issues, PRI
Whistleblowing is a key feature of good governance. It is one of the best indicators of implementation of anti-corruption systems and codes of ethics, as well as being reflective of a healthy corporate culture.
Whistleblowing mechanisms should not be seen by investors as a box-ticking exercise. Whistleblowers are a valuable resource for companies to mitigate risks, and the way an organisation deals with reports can provide a good sense of the effectiveness of different policies and processes, covering issues from financial performance to environmental and social protections – all of which is vital for investors.
Despite this, companies often dismiss the crucial function that whistleblowers play, instead of seeing their role in raising the alarm and protecting value. This is evidenced by recent scandals, such as at Wells Fargo and Amazon.
COVID-19 and whistleblowing
COVID-19 has further highlighted the importance of whistleblowers’ reports to identifying and addressing malpractice such as fraud in furlough schemes, forced labour and safe working conditions.
The pandemic demanded rapid responses from companies and, in many cases, a complete restructuring of internal procedures to comply with international health standards. As a result, companies that failed to protect their employees have faced increased scrutiny.
The relationship between corporate social responsibility and human rights has become even more interlinked during the pandemic, bringing to the fore discussions regarding companies’ responsibility to guarantee adequate health and safety conditions in the workplace. This also highlights the importance of having proper whistleblowing channels and processes that allow companies to have oversight of the successful implementation of policies and workers’ protections.
Whistleblowing in the supply chain
The recent case of online fashion retailer Boohoo’s supply chain in the UK demonstrates the importance of having the appropriate polices and whistleblowing mechanisms to ensure good practice among business partners too. The fast-fashion outlet found itself at the centre of negative press coverage after it was exposed that workers in garment factories were being paid below the minimum wage by a supplier, as well as being exposed to working practices that did not adhere to safety measures.
The business has now committed to review practices and relationships with suppliers that do not comply with national law and frameworks around ethical business practices, as defined by the retailer.
This shows how a well-established whistleblowing mechanism within the right corporate culture could have prevented the financial implications of the situation, as well as the continued violation of labour rights of the factory workers. Even though the retailer saw its sales increase during the outbreak, following the negative headlines, its shares lost more than one fifth of their value.
Investors’ assessment of the company’s public reporting could have indicated if an acceptable structure was in place, while the absence of minimum arrangements, as mentioned above, should have been considered a red flag and triggered further engagement with the company where investors could proactively raise concerns.
How investors should engage
It is not enough for companies to implement “speak-up” arrangements without the development of the right culture to support this. Investors have an important role to play in enabling corporate environments that protect and value whistleblowers as indispensable, while avoiding financial, legal and reputational risks, as well as human rights violations.
They should be proactively encouraging their portfolio companies to implement adequate “speak-up” arrangements and to disclose data on this. Further engagement should be considered necessary when public disclosure does not provide enough evidence to suggest whistleblowing arrangements have been implemented, and when other concerns are identified, such as controversies related to whistleblowers. More details on good practice and red flags, as well as disclosure expectations and questions for engagement, are available in the PRI’s recently launched report, Whistleblowing: why and how to engage with your investee companies.
Effective protection of whistleblowers and quick remedial actions are crucial to fostering a culture of inclusivity in which people will be encouraged to speak up for their collective and individual rights.
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