The importance of internal reporting channels: legal obligations and benefits for the organization.
In today’s business world, companies face many challenges, including regulatory compliance, risk management, and maintaining ethical standards. One of the ways in which companies can address these challenges is through the implementation of an internal reporting channel. This article will discuss why companies need to have an internal reporting channel, the legal obligations that come with it, and the benefits it provides.
What is an internal reporting channel?
An internal reporting channel is a mechanism that allows collaborators, customers, and other stakeholders who have a professional relationship with an entity to report any misconduct, fraud, or illegal activity within the organization. It provides a safe and confidential environment for people to report any concerns they may have without fear of retaliation.
Legal obligations for companies
Companies operating in Portugal (and, as of today, in 20 of the 27 EU member states) are required to have an internal reporting channel in place, as per Law No. 93/2021. This law requires all companies with 50 or more collaborators to establish a channel for whistleblowers to report practices of infractions or crimes. Failure to comply with this law can result in heavy fines and reputational damage for the organization.
In addition, companies can face legal repercussions if they fail to investigate reported concerns or retaliate against whistleblowers. The EU Whistleblower Protection Directive, which came into force in December 2019, sets minimum standards to protect whistleblowers in all EU member states, including Portugal (although, to date, 7 of which are still behind in the process of transposing and adopting the law). This directive requires companies to establish clear procedures for reporting, investigating and responding to whistleblower complaints.
Benefits for organizations
Having an internal whistleblower channel can provide many benefits to organizations, including:
Early detection of misconduct
By having a well-functioning whistleblower channel, companies can identify and address issues before they become bigger problems. This can help avoid reputational damage, legal problems, and heavy financial losses.
Increased accountability
An internal reporting channel can encourage employees to behave in an ethical and responsible manner, knowing that misconduct will not be tolerated. It can also increase transparency within the organization and promote a culture of accountability.
In addition, an internal whistleblowing channel can also help improve corporate governance, as it allows companies to monitor and correct internal problems. This can lead to greater trust from investors and customers, which can lead to an increase in revenue.
Another advantage of having an internal whistleblowing channel is that it can help companies identify areas where additional training needs to be provided to their employees. For example, if there are reports related to a certain misbehavior in the workplace, the company can and should provide training on that topic to prevent future incidents.
For an internal reporting channel to be effective, it is important that the organization establishes a culture of trust and transparency. Collaborators should feel comfortable reporting concerns without fear of reprisal. In addition, the entity must ensure that reports are handled fairly, impartially, and that necessary steps are taken to mitigate any issues identified.
In conclusion, an internal whistleblowing channel can be a valuable tool for organizations (public or private) as they make a commitment to society, customers, suppliers and partners, to strengthen the protection of whistleblowers and to contribute to the prevention and deterrence of wrongdoing.
It prevents legal, property, reputational and financial problems, increases accountability and improves corporate governance, presenting itself in the market as an “example to follow” in line with the best international practices.
Moreover, by creating a culture of transparency and trust, organizations can improve employee satisfaction, investor and customer confidence by creating a sense of security for collaborators to report wrongdoing internally and pride in being part of an organization that is responsible and active in preventing wrongdoing or crime.
Published at: 04/04/2023