The King IV Code on Corporate Governance identifies four good governance outcomes, one of which is an Ethical culture. Principle 2 in particular states that:
The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.
One of the recommended practices to assist in achieving an ethical culture is the use of a protected disclosure or whistleblowing mechanism to detect breaches of ethical standards. However, a whistleblowing hotline on its own is not sufficient to create an ethical culture.
If one thinks of culture as ‘the way things are done around here’, then creating an ethical culture is really about shaping ethical behaviour in an organisation. Conversely, a lack of an ethical culture could lead to unethical behaviour in an organisation.
Having a strong ethical culture reduces the risk of ethical breaches and the wide range of associated costs thereof. Ethical breaches can result in financial costs in the forms of fraud losses and legal settlements, reputational damage, and the creation of an unhealthy work environment.
Moreover, a strong ethical culture promotes ethical conduct which results in higher levels of compliance, it gives an organisation the opportunity to attract and retain top staff members, boosts investor and market confidence, and improves corporate reputation. Most importantly though, an ethical culture creates a trustworthy work environment and establishes trust in the leadership – being one of the most important elements of an organisation’s success.
The success of an organisation’s whistleblowing hotline also depends on whether or not the organisation cultivates an ethical culture. If the message that employees receive is that wrongdoing and unethical behaviour is the norm of the day and tolerated, they will never report such behaviour, for fear of retaliation. Therefore, even if an organisation has a whistleblowing hotline, employees and stakeholders will not make use of it, if they perceive the organisation to have a culture of silent complacency.
It is to be expected that an organisation that focuses on cultivating an ethical culture will experience an increase in the number of disclosures logged. This should definitely be seen as a step in the right direction, instead of a failure. If employees are reporting the bad behaviour that they observe, it means that they believe that such behaviour is unacceptable, and they trust the system to deal with it accordingly.
Accordingly, cultivating an ethical culture is crucial to the effectiveness of an organisation’s whistleblowing hotline as well as the organisation’s overall success.