Whistleblowing is a crucial tool for ensuring ethics, transparency and accountability within every organization, be it a government, large organisation or a small company. However, not all whistleblowing is the same. The way whistleblowers report misconduct has an impact on the organisation itself, as well as the outcomes for them.
There are 2 types of whistleblowing:
- internal whistleblowing
- external whistleblowing
In this article, you will learn about their differences, as well as the advantages and disadvantages they each have for your organisation.
Internal whistleblowing occurs when an individual (whistleblower) chooses to report misconduct, unethical behaviour, or any form of wrongdoing internally to someone within their own company. Internal reporting may involve bringing the issue to the attention of a supervisor, manager, HR department, or an internal whistleblowing system. The emphasis here is on resolving the matter within the organization itself.
Example of Internal whistleblowing:
Employee at a financial firm notices suspicious activities in the accounting department that could indicate fraud. Concerned about the company's integrity, they decide to be a proactive force for positive change and report it. As per their company's whistleblowing policy, they gather the evidence and fill in a report through the company’s internal whistleblowing software.
Pros of Internal Whistleblowing
- Avoiding Escalation of Misconduct - If concerns are addressed swiftly and handled professionally, the company’s whistleblowing solution acts as a risk management tool and prevents wrongdoings from getting even worse in the future.
- Protecting Company’s Reputation - By handling the issue internally, organizations have the opportunity to address and rectify the problem discreetly, minimizing damage to their public image
- Saving Money - If implemented effectively organisations can avoid the costs related to lawsuits, restaffing, bad press and reputation, which arise when whistleblowers report misconduct publicly (Read more about the cost of workplace misconduct here)
- Fast Resolutions - As the matter is dealt with directly by people within the organization, internal reports can lead to quicker resolutions.
- Building a Culture of Trust - Openly encouraging employees to report wrongdoings and making it easy for them to do so shows that the organisation takes employees' wellbeing, as well as possible whistleblowing reports very seriously.
More about internal whistleblowing benefits here.
Cons of Internal Whistleblowing
- Potential Conflict of Interest & Cover-ups - Reporting internally might be challenging if the whistleblower believes that internal channels lack impartiality or that the implicated parties have influence over the investigation. However, this barrier can be overcome by including more caseworkers handling internal reports, from which the whistleblower can choose while reporting workplace misconduct
- Fear of Retaliation - Whistleblowers may fear retaliation or reprisals from colleagues or superiors, leading to underreporting of issues. This is especially true for whistleblowing solutions which do not offer the option of anonymous whistleblowing.*
- Limited Scope of Impact - The impact of internal reporting is limited to the organization itself, and systemic issues may persist if internal controls are inadequate.
*Note: In 2019, the European Union adopted a new Whistleblowing Directive, which enhances the rights of both internal and external whistleblowers within the EU. According to this directive, internal whistleblowers are entitled to legal protections against retaliation, including dismissal, demotion, and other forms of workplace harassment. Additionally, people who decide on internal whistleblowing have the right to remain confidential (or report anonymously).
External whistleblowing refers to reporting wrongdoing or workplace misconduct about an organization to someone outside the organization. Instead of addressing the issue internally through supervisors or internal hotlines, the whistleblower opts to share information with external parties like government agencies, regulatory bodies, law enforcement, or the media. External reporting is often done when the whistleblower believes that internal channels are ineffective or when the severity of the misconduct warrants external intervention.
Pros of External Whistleblowing
- Independent Investigation - External organisations may conduct independent investigations, providing an unbiased assessment of the reported misconduct.
- Legal Protections - In some jurisdictions, whistleblowers may benefit from legal protections when reporting externally, shielding them from retaliation by their employers.
- Increased Accountability - External whistleblowing can hold organizations publicly accountable, particularly in cases of severe misconduct.
Cons of External Whistleblowing:
- Potentially Delayed Resolutions - Compared to internal investigations, resolving external reports may take longer. The time it takes for external authorities to gather evidence, conduct inquiries, and reach conclusions can be extended, delaying the resolution of the reported issues.
- Loss of Privacy - Whistleblowers who report externally may experience a loss of privacy. The details of the reported misconduct, as well as the whistleblower's identity, may become public, impacting their personal and professional life.
- Professional Repercussions - Going public may strain professional relationships and impact career prospects within the industry.
- Public Reputation Damage for the Company - External whistleblowing can lead to public exposure of the reported misconduct, potentially causing reputational damage. Negative publicity may impact customer trust and stakeholder confidence
- Legal and Financial Consequences for the Organization: External reporting may trigger legal and financial consequences for the organization, including legal battles and regulatory fines.
Which is Better for Whistleblowers?
Internal whistleblowing seems to produce better outcomes for whistleblowers, as well as organisations. This is because those who report externally are exposed to higher rates of unofficial bullying and retaliation.
Despite the protections afforded under the 2019 EU Directive, it can be difficult to avoid reputational damage such as industry blacklisting or workplace hostility. This is likely a side-effect of the negative connotations still associated with whistleblowing. To mitigate these risks, whistleblowers should make use of anonymous reporting mechanisms, consult legal counsel and ensure they are informed on the protections available to them.
Which is Better for Organisations?
It is important to note that organisations should strive to encourage internal whistleblowing, as the consequences of external reports can be grave. If concerns are addressed swiftly and handled professionally, the company’s whistleblowing solution acts as a risk management tool.
Consequently, organisations can avoid the costs related to lawsuits, restaffing, bad press and reputation, to name a few. If whistleblowers bypass these internal mechanisms, what could have been a small problem can turn into a massive one. This is also why organisations should encourage and take internal anonymous reports seriously.
To sum up, both internal and external reporting mechanisms are valid options for reporting misconduct. At the same time, it is in the best interest of both organisations and whistleblowers to encourage and make use of internal reporting channels. By doing so, companies can often resolve problems swiftly and prevent their escalation to (sometimes) public crises. For those reporting misconduct, it is still important to carefully consider reporting externally, as negative consequences are sometimes unavoidable. The 2019 EU Directive goes a long way in mitigating these, but as with any newly emergent legislation, it is not yet foolproof.