a study on whistleblowing policies of the Dutch AEX listed companies

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Master Thesis: Organizational & Management Control

The design of formal whistleblowing policies

a study on whistleblowing policies of the Dutch AEX listed companies

Name

:

Joost Nijhof

Address

:

Colignystraat 20

7315JE Apeldoorn

Student number

:

s1552406

Telephone number

:

0629543455

E-mail address (private) :

nijhofjoost@hotmail.com

Internship

:

KPMG

University of Groningen

Faculty of Economics and Business

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The design of formal whistleblowing policies Page

2 Preface

Whistleblowing is a very interesting phenomenon that got my attention during one of the lectures in the Field Course of my Master study’s specialization: Organizational & Management Control. A topic in which

organizations are generally considered as the ‘bad guys’ and whistleblowers as the ‘heroes’. Stereotypes that, as often, contain some truth but not the entire. Not every organization in which wrongdoing occurs is wrong itself. The same goes for the whistleblower, who is not always serving the society needs and is even sometimes an accomplice in the crime. Besides, a whistleblower’s observation of suspected misconduct cannot always be found justified. Finally, organizations should not be seen solely as the accused but also as an important participant in solving the misconduct.

I found it interesting to develop this more thorough understanding of whistleblowing. Yet, whistleblowing remains a complex phenomenon and a lot of research is needed to find ways to manage whistleblowing effectively.

The master thesis was the final hurdle in the completion of my Master in Business Administration. Although it was a challenge, I think I successfully managed to cope with the difficulties that had to be faced while having a good time. I will now gratefully use the opportunity to acknowledge the support that has been given to me throughout my university years.

First of all, I would like to thank my parents. There are no words that can describe my gratitude to their unconditional support on every level throughout my whole life. I also would like to thank my brother. We both got busy lives but I know he is always there for me if needed. Further, I would like to thank all my friends in Groningen that made my university years the best years of my life so far.

With regard to the thesis, I would like to thank my supervisor, Dirk Swagerman, for his advices that guided me in the process of writing. I am also grateful for the support that I received from Babette Meier, employee of KPMG Forensic. Due to her own experience in writing a thesis on whistleblowing she could provide me relevant literature and tips. Finally, I want to thank all the employees of KPMG de Meern for their help and the

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3 Management summary

Organizational whistleblowing policies were introduced as a result of corporate governance codes and

regulations between 2003 and 2005. Although these codes and regulations advised organizations to introduce formal whistleblowing policies, the design of such policies were left to a large extent at an organization’s own discretion. The design is important since it influences the effectiveness of the policy. Therefore, this study examines how formal whistleblowing policies of the AEX listed companies are designed, and how they should be designed to encourage internal whistleblowing in a way that benefits an organization.

In this study, a qualitative content analysis was conducted to examine the presence of content provisions in the formal whistleblowing policies of the AEX listed companies. It was found that the general recommendations for a formal whistleblowing policy that are given by codes and regulations are present in nearly every policy. In addition, the analysis has also shown a large amount of additional provisions which vary in their presence. After the contents were examined, a closer look was given to the appropriateness of the found provisions. In doing so, this study identified 12 content provisions that are deemed critical for the establishment of a comprehensive formal whistleblowing policy that encourages whistleblowing in way that benefits an

organization. While using these 12 critical provisions as a standard, it was found that the AEX listed company’s policies of 2011 are on average more comprehensive than the policies of 2005. This gives reason to argue that the content of formal whistleblowing policies has improved since their introduction. However, an average presence of 6,6 out of 12 critical content provisions shows that the current policies still do not effectively encourage whistleblowing. Furthermore, this study had hypothesized that companies are benefited by the use of a more comprehensive whistleblowing policy design. For this reason, the study tested the correlation between a company’s reporting on the use of whistleblowing policies and the comprehensiveness of their formal whistleblowing policy. The correlation was found positive at a 10% significance level.

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4.2.1 Dutch Corporate Governance Code ... 23

4.2.2. Sarbanes-Oxley act ... 23

4.2.3. Listings ... 23

4.2.4. Other Codes ... 24

4.3. Conclusion ... 24

5. Whistleblowing content analysis ... 25

5.1. Whistleblowing qualitative content analysis ... 25

5.1.1. Methodology ... 25

5.1.2. Definition of content ... 25

5.1.3. Data ... 26

5.2. Empirical results ... 26

5.2.1. General policy information ... 26

5.2.2. Whistleblowing policy content ... 27

6. Designing a comprehensive formal whistleblowing policy ... 33

6.1. Guidelines on designing an internal whistleblowing policy ... 33

6.2. Whistleblowing best practice recommendations ... 34

6.3. Presence of critical content provisions in the policies of the AEX listed companies ... 35

7. The effect of having a more comprehensive whistleblowing policy ... 37

7.1. Hypothesis ... 37

7.1.1. Transparence towards the use of whistleblowing policies as a measure of effectiveness ... 37

7.1.2. Methodology ... 38

7.1.3. Findings ... 38

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8. Conclusions and recommendations ... 40

8.2. Limitations ... 41

8.3. Considerations ... 42

8.4. Recommendations for future research ... 44

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7 1. Introduction

1.1. Background

On February 1976, three engineers quit General Electric’s nuclear division and allege their former employer and the entire nuclear industry of inadequate nuclear designs and testing in the U.S. Even though simulations had shown that 19 General Electric plants might not survive a serious accident, a manager refused to take measures since he was afraid that the cost would lead to the closure of the nuclear division. The three

engineers left General Electric unheard and decided to disclose the information to the press (Fitzgerald 1990). Despite their effort, the disclosure did not immediately lead to actual measures in the nuclear industry. An actual accident in a nuclear power plant in 1979, was needed to create extensive changes in the nuclear industry. The accident resulted in a 14-year clean up with costs estimated at $1 billion (New York Times 1993). The General Electric case was one of the first times that whistleblowing lead to large public attention.

Whistleblowing can be defined as the disclosure of misconduct by employees, to persons or organizations that may be able to affect action (Near and Miceli 1985). The accident provided legitimacy to the whistleblowing act. Whistleblowers could no longer be seen only as troublemakers. Instead, they should be listened to. Nowadays, corporate misconduct frequently makes the news. Examples of this exposure in the Netherlands include: Philips (real estate fraud), KPN (price fixing) and Shell (accounting fraud). Although whistleblowing does not always precede the disclosure of corporate misconduct, studies found employees to be a critical source in the detection of wrongdoing (Kaptein 2011). For example, an analysis of 360 instances of corporate fraud in organizations in Europe, the Middle East, and Africa shows that 25% were brought forward by employees (KPMG 2007).

Despite the fact that the disclosure of employees is an important source for the detection of wrongdoing, many organizational leaders do not welcome whistleblowing (Miceli, Near and Dworkin 2008). While the benefits of whistleblowing for society might be clear, the benefits for organizations are not always evident. To make the reporting of misconduct also beneficial to organizations, academics recommended organizations to install internal whistleblowing policies.

Organizations benefit when employees use internal whistleblowing over external whistleblowing. “Internal reporting facilitates early detection of misconduct and creates opportunity for timely investigation and corrective action. Internal reporting also positions organizations to proactively manage, or even avoid public embarrassment, government scrutiny, costly fines, and litigation” (Berry 2004, p.1). In this way, misconduct can be corrected while minimizing the costs for both society as organizations.

The importance of having internal reporting structures was acknowledged by the Sarbanes-Oxley act in 2002. It required, in contrary to prior regulations, U.S. listed companies to establish avenues for employees to report wrongdoing (Moberly 2006). The SOX regulations were a direct reason to set up an formal internal

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became effective in 2005 (Vries, Bollen, and Hassink 2007). Although these codes and regulations led

organizations to install formal whistleblowing policies, the question how to design these policies remained, for a large part, at the discretion of the companies.

This study focuses on the design of formal whistleblowing policies. A case study on the design of formal whistleblowing policies of the Dutch AEX listed companies is performed to identify formal policy contents. The AEX encompasses 25 of the leading companies in the Dutch private sector and their whistleblowing policies could therefore reasonable be expected to be an example for other Dutch private sector organizations.

1.2. Aim of the study

This study tries to explore how formal whistleblowing policies of the AEX listed companies are designed, and how they should be designed to encourage internal whistleblowing in a way that benefits an organization. For this aim, the study will first identify to what extent codes and regulation recommend content provisions for designing a whistleblowing policy. Thereafter, a whistleblowing content analysis will be performed to provide for an oversight of the content of formal whistleblowing policies of the AEX listed companies. In addition to the recommendations given by codes and regulation, this study tries to identify the content provisions that are deemed critical for the establishment of a comprehensive whistleblowing policy. Furthermore, the study aims to provide legitimacy for the design of comprehensive formal whistleblowing policies by testing the correlation between the use of a whistleblowing policy and the comprehensiveness of a whistleblowing policy.

1.3. Relevance of the study

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9 1.4. Research question

The main research question in the analysis will be:

In which manner are formal whistleblowing policies of the AEX listed companies currently designed and how should these policies be designed to encourage whistleblowing in a way that benefits an organization?

The following sub questions will be asked to answer the main question and to increase our understanding about the phenomenon whistleblowing:

1) What is whistleblowing?

2) How should organizations cope with whistleblowing?

3) Which codes and regulation apply to the AEX listed companies? And which whistleblowing provisions do

these prescribe?

4) Which content can be found in the formal whistleblowing policies of the AEX listed companies? 5) Which formal policy design is recommended to encourage whistleblowing?

6) What is the effect of having a comprehensive formal whistleblowing policy?

1.5 General outline of the study

To start the search for an answer to the main question, literature will first be used to explain the working of the phenomenon whistleblowing. The next chapter is divided in two sections of which each part answers one sub question. The first section will define whistleblowing and describes it’s working. The second section will give an organizational perspective on whistleblowing. It will describe how organization should cope with

whistleblowing. Furthermore, it shall specify the role of the formal whistleblowing policy in the whistleblowing process. The chapter will form the basis on which the research will be conducted.

The literature review will lead to the research design in which the content of the research chapters will be outlined and the study’s relation with prior research will be described. The research design also includes the establishment of a hypothesis, which is necessary to give answer to the last sub question.

After the research design, the last four sub questions will be answered. In each chapter will be described how the research is conducted and what methodology is used. In addition, each chapter will conclude on the findings from the analyses that are performed.

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10 2. Literature review

This chapter is divided into two sections. In the first section, all the relevant aspects of the phenomenon whistleblowing will be described. Subsequently, an organizational perspective on whistleblowing will be given in the second section. The chapter will explain whistleblowing and the way in which it affects organizations.

2.1. The phenomenon of whistleblowing

In this section whistleblowing will first be defined. Following, the channels that can be used to blow the whistle will be identified. Finally, the decision steps that an employee goes through before blowing the whistle are described and shown in a model. This will allow us to gain an understanding about whistleblowing and its process.

2.1.1. Definition of whistleblowing

There is some disagreement in defining whistleblowing. Several authors, including (Jubb 1999), argue that whistleblowing is an act of disclosure that includes making the wrongdoing public. However, (Hassink, Vries, and Bollen 2007) indicate that an increasing number of companies have adopted whistleblowing policies to solve wrongdoing internally. Therefore, this research uses the definition on whistleblowing given by (Near and Miceli 1985, p. 4) which includes both internal as external (to the public) reporting.

“ The disclosure by organization members (former or current) of illegal, immoral or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action.”

The definition of (Near and Miceli 1985) is the most commonly accepted and widely used definition of whistleblowing (Tavakoli, Keenan, and Crnjak-Karanovic 2003). Whistleblowing is distinguishable from other types of informing because the disclosure is an indictment (Jubb 1999). It contains identifying perceived wrongdoing, typically a bad news message about misconduct, incompetence or fraud which the accused has ignored and/or covered up. Either way, some person or organization is accused and challenged.

2.1.2. Channels of whistleblowing

An employee observing wrongdoing faces two decisions: whether to blow the whistle and to whom to report the suspected wrongdoing (Dworkin and Baucus 1998). With regard to the latter, wrongdoing can be reported both internally as externally. With internal whistleblowing is meant disclosure of wrongdoing inside the company, without the wrongdoing made public. Possible recipients for internal disclosures include supervisors/managers, specialized departments and confidential advisors (Brown 2008). External

whistleblowing in contrast includes reporting wrongdoing outside the organization to persons who may be able to stop or correct the wrongdoing. Recipients of the disclosure in this case can be the media, a government agency, a non-governmental organization, or a professional organization (Kaptein 2011).

In most cases external whistleblowers first blow the whistle internally. External whistleblowing is only done in situations in which employees: believe that internal channels are closed to them, believe that organizations are acting immorally, and in situations in which senior management is inert or involved in the wrongdoing

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Empirical studies found only few substantial differences in outcomes of whistleblowing resulting from the type

of channel used (Miceli, Near and Dworking 2008). This gives reason to argue that the success of

whistleblowing does not depend on the channel used. Moreover, characteristics of internal and external whistleblowers were found to be generally similar (Dworkin and Baucus 1998). There were no personal characteristics that could separate the external from the internal whistleblower. Therefore, when referring to whistleblowers no distinction is made between the internal and external whistleblowers in this research.

2.1.3. The decision to blow the whistle

In the previous paragraph was shown that the whistleblower has a preference for blowing the whistle internally. However, before that decision comes to pass an employee first has to decide if he or she will become a whistleblower. When explaining whistleblowing behavior, academics often refer to the bystander effect theory of (Latané and Darley 1970). In the bystander effect theory is explained why witnesses to an event, for example a crime, do not act in the same universal way. Instead of a standard reaction to a crime, observers ask themselves a couple of questions before acting. With regard to whistleblowing these questions include: “Do I believe wrongdoing is occurring? Is action warranted? Am I responsible for acting? Is there something I could do to stop the wrongdoing? Will the benefits of a considered action outweigh the costs?” (Miceli, Near, and Dworkin 2008, p. 36). Answers to these questions will influence the decision to blow the whistle. This acknowledges that blowing the whistle is not a simple process. Rather, it is a complex

phenomenon resulting from the interplay of different variables (Sims and Keenan 1998).

In figure 1, the steps in the whistleblower decision process are shown. An employee that confirms all three questions will become a whistleblower. If any of the questions is answered with ‘no’, the employee will not disclose the wrongdoing. Furthermore, the questions in the three steps are influenced by personal

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Whistleblower process.

The employee’s behavior in this model is intended to promote the welfare of the individual, group, or

organizations that are affected by the misconduct and is based on the Prosocial Organizational Behavior (POB) model by (Micelli, Near, and Dworkin 2008). The authors describe a process in which an employee makes its decision to blow the whistle. At first, an employee becomes aware of an activity and labels it wrongful or, in contrary, does not recognize a wrongful activity. After that, it assesses if anyone has a responsible to act on it. A belief of non-responsibility could be if the wrongdoing is already in the process of being corrected by the organization or is already reported by others. Following, the observer decides if it is his or her responsibility to blow the whistle. An important aspect in this phase is the employees believe that the whistleblowing can actually be stopped by the disclosure of the wrongdoing. The process will eventually lead to a cost-benefit analysis of blowing the whistle. This cost-benefit analysis is also found in the whistleblowing model of (Gundlach, Douglas, and Martinko 2003). In their article, the authors argue that the decision of blowing the whistle is based on a mixture of cognitive and emotional processes which outcome will determine if an employee becomes a whistleblower or inacts on the wrongdoing.

Whistleblowing process influences

As mentioned before, the whistleblower process has diffusing outcomes. There is no universal way of acting on wrongdoing because of decision process influences. (Mesmer-Magnus and Viswesvaran 2005) reviewed whistleblowing literature and categorized three types of variables/characteristics that influence the decision steps in the whistleblower process. These are:

Personal characteristics: such as demographics , personality variables and morality. For example, woman tend

to report more than men (ERC, 2010).

Characteristics of the wrongdoing: such as evidence of wrongdoing, perceived severity of the wrongdoing and

type of wrongdoing. For example, employees are more likely to blow the whistle when they have convincing evidence and when the wrongdoing affects them personally (Miceli and Near 1985).

Contextual variables: such as organizational policies, threat of retaliation and regulations. For example, the

degree of protection against retaliation that an organization offers whistleblowers influences potential whistleblowers in their decision to blow the whistle (Near and Miceli 1986).

This research will focus mainly on the contextual variables that influence whistleblowing behavior. Especially the organizational policies that facilitate internal whistleblowing will be given attention. Empirical research found that contextual variables seem to affect the decision to blow the whistle more than personal

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2.1.4. Conclusion

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14 2.2. Whistleblowing in organizations

This section will show the importance of having internal whistleblowing policies for an organization and the role that a formal whistleblowing policy can play in encouraging whistleblowing behavior in a manner that is desirable for organizations. This section will start with the evolution of organizational whistleblowing in the Netherlands. Thereafter, the desirability of whistleblowing for an organization will be described followed by the advantages of internal whistleblowing. Finally, organizational policies for whistleblowing will be specified.

2.2.1. Organizational whistleblowing in the Netherlands

The Netherlands has the longest history on treatment of the topic of whistleblowing in Europe. In 1993, the Minister of Internal Affairs mentioned the topic in a debate on integrity in the public sector. However, the topic of whistleblowing really started gaining momentum after Paul van Buitenen, member of the European

Parliament, started blowing the whistle on the European Commission in 1998. Shortly after, in 1999, the ministry stipulated a whistleblowing policy for the Dutch public sector. In 2001, Attention towards the phenomenon of whistleblowing in the private sector rose after Dutch media gave attention to the shadow accounts of one of Holland’s biggest construction firms Koop Tjuchem (Vandekerckhove 2009). Ex-director of Koop Tjuchem, Ad Bos, disclosed handwritten records of the construction firm. Due to these records it became evident that Koop Tjuchem and other big construction firms had made setoffs relating to market shares, price fixing and mutual compensation. Furthermore, proof could be found for other criminal offences such as bribery, tax fraud and social insurance fraud. Bribes, for example, were hidden in the accounts as costs of materials or acquisition. The construction sector deemed the fraud to be normal which led to several millions of Euro’s spend this way annually (Heuvel 2005).

Not only the construction fraud came to light by the disclosure of Bos, the case of Koop Tjuchem also gave whistleblowing an important place in the public debate (ECORYS 2006). Directly after the whistleblowing, a debate started in the Dutch House of Representatives on rules that could guide whistleblowing. This led to a proposition of regulation that ensures protection of whistleblowers in both the public as the private sector. The law on public officials (Ambtenarenwet) was eventually stipulated in 2003 which required Dutch public service organization to install a whistleblower procedure (Vandekerckhove 2009). This obligation was not extended to the private sector which concerning whistleblowing remained self-regulated. However, attention was also given to whistleblowing in the private sector. As a result of the above debate, the minister of Social Affairs and Employment started a research on whistleblowing and whistleblower protection in the private sector (IVA Tilburg 2002). Both employers as employees were asked to give their opinion on formal written codes of whistleblowing that could guide a potential whistleblower in blowing the whistle on wrongdoing. Both parties agreed that a formal written code on whistleblowing would be helpful to cope with the phenomenon of whistleblowing. Due to the findings of the research, the minister of Social Affairs and Employment asked the Dutch consultative body of employers and employees, the Labour Foundation (Stichting van de Arbeid), to provide the wanted guidance on whistleblowing in the private sector (ECOCRYS 2006).

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employers to correct the wrongdoing (Stichting van de Arbeid 2003) . The Labour Foundation specifically

addressed the need for formal reporting procedures (Stichting van de Arbeid 2003, p.2): “the Labour

Foundation merely wishes to comment that some degree of formality is unavoidable. Employees, for example, must know to whom they should report suspected malpractices and what the procedures entails (what happens after they make their report, how will they be informed about the progress of the procedure). Having clearly defined guidelines is in the interests of both the employer and the employee.”

In the provision of content requirements, the Labour Foundation primarily based its advices on whistleblowing guidance that is included in the British Public Interest Disclosure Act. (Van Steenbergen 2006) found journals to be generally positive concerning the statement of the Labour foundation. Further, the author notices that the implementation of the statement should be stimulated since it is supported by the central employees and employers organizations.

In 2005, guidance on formal whistleblowing codes in the Netherlands for listed companies was extended by the Dutch Corporate Governance Code (CGC 2003) and is described in more detail later. The Code recommends companies in its whistleblowing provision to install a formal whistleblowing policy. However, compared to the statement of the Labour Foundation, the Code barely specifies the necessary content aspects for a good whistleblower procedure (ECOCRYS 2006). Nevertheless, it is claimed to be stimulating the establishment of formal procedures since most of the listed companies comply with the whistleblower provision in the Dutch Corporate Governance Code (MCCGC 2005).

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2.2.2. Desirability of whistleblowing for an organization

Whistleblowing clearly benefits society as a whole. For example, the disclosure of the price fixing deals in the Dutch building industry enabled victims to reclaim wealth and it restored prices to a level that reflects a truer market value for the customer. However, whether whistleblowing can benefit the organization in which wrongdoing occurs may seem less clear (Miceli, Near, and Dworkin 2009). Managers may for example worry that acts of whistleblowing will reduce share prices or damage the reputation of their company.

Desirable or not, whistleblowing is an inevitable phenomenon. “Wrongdoing, or at least the perception of wrongdoing is almost sure to occur. When it does, there are often employees who will desire to stop it” (Barnett 1992, p.39). Prohibiting disclosures or even threatening employees with reprisals if they blow the whistle will not stop whistleblowers as indicated by several studies (Barnett, Cochran, and Taylor 1993). Instead, attempting to silence or suppress employees may make the problem even worse. Even when

potential whistleblowers do worry about retaliation, laws increasingly protect whistleblowers from retaliation which decreases the barrier to blow the whistle. Therefore, employers are suggested to find ways in which whistleblowing is done more effective and ethical. Furthermore, (Barnett et al. 1993) note that

encouragement of internal disclosures of suspected wrongdoing is a widespread recommended way for managers to cope with whistleblowing. The advantages of these organizational whistleblowing procedures will be mentioned in the next paragraph.

2.2.3. Advantages of internal whistleblowing for an organization.

Academics claim effective use of internal disclosure policies and procedures has several advantages: First of all, (Lewis 2006) argues that workers who first contact managers about wrongdoing give their

employers the opportunity to correct the matter before it escalates. Internal whistleblowing can therefore be seen as a control mechanism which purpose is to maintain and improve quality.

Second, (Miceli, Near, and Dworkin 2009) point to the benefit of not having to notify outsiders if firms self-correct their wrongdoing. This saves a firm’s reputation and spares potential legal costs which could results from the whistleblowing. (Barnett, Cochran, and Taylor 1993) found a significant decrease of external disclosures after implementation of internal whistleblowing procedures.

Third, it can maintain a firm’s reputation by providing accountability for wrongdoing (Lewis 2002). By making itself accountable to wrongdoing, companies can show that they are acting ethical.

Fourth, (Lewis 2002) mentions the establishment of whistleblowing procedures as a good practice which does not cost much to implement. A single, well founded act of wrongdoing over a period of several years, can more than justify the modest expense that whistleblower arrangements incur (BSI 2008).

Fifth, whistleblowing affects the ethical climate of an organization. If employers do nothing to encourage internal whistleblowing existent wrongdoing may go uncorrected which could result in the ethical climate being harmed (Barnett, Cochran, and Taylor 1993). On the other side, (Miceli, Near, and Dworkin 2009) if wrongdoing is battled correctly this may lead to more satisfied and committed employees and the ethical climate will be enhanced.

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whistleblowing disregarding its external or internal occurrence (Miceli, Near, and Dworkin 2009). Organizations

that deliberately engage in wrongdoing to boost profits or that routinely flout the law will not want to welcome whistleblowing (BSI 2008).

Nevertheless, academics seem consistent on the fact that facilitating internal whistleblowing is beneficial for organizations. For this reason, this research recognizes internal whistleblowing as a control mechanism that aids every company and therefore needs to be encouraged.

2.2.4. Organizational policies of whistleblowing

In the previous paragraph the advantages of having internal whistleblowing policies were described. However, the question is how to achieve these advantages. While coping with whistleblowing practices, organizations face a challenge according to (Kaptein 2011, p. 515):

“On the one hand, the challenge for organizations is to encourage employees who detect wrongdoing to take action and to discourage inaction so that the wrongdoing and the wrongdoer can be corrected. On the other hand, the challenge is to ensure that employees take action internally rather than blow the whistle externally so that the organization can draw on its self-correcting capacity rather than being confronted with external repercussions”.

Furthermore, (Kaptein 2011) advices organizations to deal with this challenge by establishing an ethical climate in which internal whistleblowing is supported. Academics suggest several methods for managers to promote ethical behavior and the internal reporting of misconduct. These include: recruitment of employees with attributes that are associated with recognizing and reporting misconduct, providing training about what the organizations considers wrongful and what to do if wrongdoing is observed. Also, a manager’s commitment to formal codes of whistleblowing is mentioned to be encouraging employees to report misconduct (Berry 2004); (Miceli, Near, and Dworkin 2009).

2.2.5 Formal organizational policies of whistleblowing

This research focuses on the encouragement of internal reporting by the use of formal codes of

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code of whistleblowing reported a significantly higher level of internal disclosures compared to companies

without having such a code. These findings give reason to argue that organizations benefit from the installment of formal whistleblowing procedures.

Although the research above provides evidence for the usefulness of having an formal whistleblowing policy, the influence of the different content provisions in the policies on the effectiveness of these policies is not addressed. However, the design of whistleblowing codes should be taken into account when measuring the effectiveness of whistleblowing policies. (Kaptein and Schwartz 2008) did research on the effectiveness of business codes (which include whistleblowing codes) and found mixed results. They argued that part of the reason for this is that most studies simply focus on companies having a code or not. The content is thereby neglected. The content, however, determines it effectiveness (Weaver 1995). This statement is supported by the work of (Brown 2008). In a study of whistleblowing in the Australian public sector, public organization’s formal whistleblowing policies were compared on its content based on 13 content aspects. The study showed that more comprehensive (including more content aspects) internal whistleblowing policies were associated with a number of positive outcomes, including: higher awareness of procedures, higher support for

whistleblowing and a higher frequency of reporting misconduct. (Brown 2008) remarked on the findings that it was unlikely that the comprehensiveness of whistleblowing policies were the sole or direct determinant of whether an employee would blew the whistle. Nevertheless, the author concluded that the result indicated that comprehensive procedures are encouraging the internal reporting of misconduct.

Although it seems likely that the content of whistleblowing policies will affect the effectiveness of a policy, corporate governance codes and regulations do not prescribe in detail how such internal whistleblowing policies ought to be designed (Vandekerckhove and Lewis 2011). This study will take a closer look into the content of whistleblowing policies of the Dutch AEX listed companies and the appropriateness of the found content provisions. This will allow us to gain a better understanding in which way formal whistleblowing policies are designed and in which way whistleblowing policies can be designed to effectively facilitate whistleblowing in a way that benefits an organization.

2.2.5. Conclusion

An organizational perspective on whistleblowing was presented in this section. Whistleblowing is self-regulated in the private sector in the Netherlands which means that organizations can decide on their own discretion how to cope with whistleblowing. It became clear that whistleblowing is an inevitable phenomenon that has to be dealt with by an organization. Not facilitating or even discouraging whistleblowing will harm an

organization. Therefore, organizations are suggested to introduce an internal whistleblowing policy to cope with whistleblowing. If properly working, such a policy can lead to several advantages such as early detection of misconduct, enhancement of the ethical climate and prevention of external whistleblowing which is generally considered as harmful to an organization. Research has shown that introducing a formal whistleblowing policy is helpful in achieving these advantages. However, introduction of a formal

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19 3. Research design

In this chapter the study’s relation to prior research will be described. Furthermore, a hypothesis will be established which will be tested in chapter seven. Finally, an overview of the research chapters is presented.

3.1. Relation to prior research

This study is interested in the encouragement of blowing the whistle internally by the use of organizational whistleblowing policies in the private sector. Specifically, the content of organizational whistleblowing policies that guide a potential whistleblower in reporting suspected misconduct. There are only three studies known to have a similar small focus.

(Hassink, Vries, and Bollen 2007) were the first to perform an extensive content analysis on organizational whistleblowing policies. Their research focused on the FTSE Eurotop 100 which features the largest European listed companies. In 2005, the organizations were requested by email to provide a formal whistleblowing policy. To add the sample size, the research also included Dutch AEX index and SWX Swiss Exchange listed companies of which formal whistleblowing policies could be found on corporate websites. After collection of the data, the contents of 56 organizational policies were described by classifying the provisions found in the policies into different content categories. In addition, the frequency of occurrence of the specific content provisions was also measured to show which provisions were the most prevalent. Next to the European research, the same authors also provided an article that focused solely on content of the Dutch AEX listed companies in 2005 (Vries, Bollen, and Hassink 2007).

(Moberly and Wylie 2011) performed a similar research on companies listed on the United States stock exchanges. The research included a randomly selected sample of 30 companies from each of the three largest stock exchanges, the NYSE, the NASDAQ, and the AmEx. Data was collected from SEC filings for the year 2007. In the analysis, content provisions were largely defined by the use of the classification and categorization of (Hassink, Vries, and Bollen 2007). Furthermore, where possible, the study included literature to address the appropriateness of the content found.

(Lewis and Kender 2010) studied organizational whistleblowing policies in the United Kingdom. The authors sent questionnaires to companies listed on the U.K. FTSE 250, which contains the 101st to the 350th largest companies listed in the U.K.. The authors researched the U.K. FTSE in 2007 and 2010. The response rate was respectively 32% and 26%. In the questionnaire, companies were asked to describe their formal policy, the way in which whistleblowing arrangements were implemented, and the employee’s use of whistleblowing

procedures.

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study is able to examine to what extent the whistleblowing policies of the AEX listed companies are

comprehensive and if the design of the policies has improved in 2011 compared to 2005. Finally, this study will examine to what extent a AEX listed company’s reporting on the use of their whistleblowing policy is positively correlated to having a more comprehensive policy.

3.2. Hypothesis

The literature review has shown that organizations are benefited from the installment of formal whistleblowing procedures. This study argues that the installment of a formal whistleblowing policy is not sufficient, the content of the policy does also matter. In a study of whistleblowing policies in the Australian public sector, (Brown 2008) found a relation between differences in the effectiveness of formal whistleblowing policies and the presence of certain content provisions in whistleblowing policies. The study showed that having a

comprehensive whistleblowing policy was associated with a number of positive outcomes such as: higher awareness of procedures, higher support for whistleblowing and a higher frequency of reporting misconduct. In this study, we define a company’s reporting of the use of the whistleblowing policy as a positive outcome. Companies can signal the working of their whistleblowing policy by reporting the use of the whistleblowing policy in their annual reports. In line with the findings of the study of (Brown 2008), we suspect AEX listed companies who report the use of their whistleblowing policy in their annual reports to have more

comprehensive whistleblowing policies compared to companies that do not report the use.

There is a higher presence of critical content provisions in formal whistleblowing policies of the AEX listed companies that are reporting the use of the whistleblowing policy (transparent companies) compared to companies that do not report the use (non-transparent companies).

3.3. Overview of research chapters

The research is divided into four chapters as shown in table 1. Table 1: overview of research chapters

Ch. Goal

4 Identify which whistleblowing provisions are recommended/required for the AEX listed companies by corporate governance codes and regulations.

5 Examine the content of whistleblowing policies of the AEX listed companies.

6 Identify critical content provisions for the design of a comprehensive whistleblowing policy. Examine the presence of these provisions in the policies of the AEX listed companies.

7 Test the correlation between a AEX listed company’s reporting on the use of the whistleblowing policy and the comprehensiveness of the whistleblowing policy

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21 4. Whistleblowing codes and regulations

Codes and regulations were a direct reason for organizations to install an internal whistleblowing policy. Therefore, it is important to address the influence of these laws and recommendations on the content of whistleblowing policies. In this chapter will be described which codes and regulations do apply to the Dutch AEX listed companies and to which extent. Subsequently, the specific whistleblowing recommendations and obligations that can be derived from the codes and regulations will be mentioned.

4.1. Compliance with codes/regulations for the Dutch AEX listed companies

The extent to which the Dutch AEX listed companies comply with codes and regulations is examined by looking into their annual reports of 2010. Reference to compliance is looked upon in the corporate governance section of the annual reports.

Table 1 displays the extent in which AEX listed companies comply with codes and regulations. Furthermore, it also shows delistings resulting in non-compliance. Although delisted, current whistleblowing policies might still be influenced by prior compliance and therefore delistings are also mentioned.

As seen in table 1, compliance with the Dutch Corporate Governance Code (CGC 2008) is most referred to in the annual reports. 18 of the 22 companies (82%) subjected to this research comply with the Dutch Corporate Governance Code. Dutch listed companies are also affected by the United States Sarbanes-Oxley act (SOX 2002) which apply to publicly traded companies in the U.S.. As noted in Table 1, 8 companies (36%) are listed in the U.S.. In addition to SOX, the NASDAQ and the NYSE provide their own regulations with regard to

whistleblowing and are therefore also included in the analysis. Finally, codes of corporate governance issued by other countries than the Netherlands are complied with in 27% of the companies.

Noteworthy, The AEX stock exchange market is part of the NYSE Euronext and is therefore subjected to

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Table 2: Compliance to codes/regulations for the Dutch AEX listed companies in 2010.

Company Netherlands U.S. Listings Other codes

Aegon Dutch Code SOX NYSE

Ahold Dutch Code

Air France-KLM ** French

Akzo Nobel Dutch Code ***

ArcelorMittal/Aperam SOX NYSE Luxembourg

ASML Dutch Code SOX NASDAQ

Corio Dutch Code

DSM Dutch Code

Fugro Dutch Code

Heineken Dutch Code

ING Dutch Code* SOX NYSE

KPN Dutch Code **

Philips Dutch Code SOX NYSE

PostNL/TNT Dutch Code **

Randstad Dutch Code

Reed Elsevier Dutch Code SOX NYSE UK

SBM Offshore Dutch Code

Shell SOX NYSE UK

TomTom Dutch Code

Unibail-Rodamco French

Unilever Dutch Code SOX NYSE UK

WoltersKluwer Dutch Code

Frequency 18 8 6

Percentage 82% 36% 27%

Dutch Code: Dutch Corporate Governance Code SOX: Sarbanes-Oxley Act

UK: United Kingdom Combined Code

French: French Corporate Governance Code: AFEP-MEDEV

Luxembourg: The Ten Principles of Corporate Governance of the Luxembourg Stock Exchange NYSE: New York Stock Exchange

* ING refers to the Banking Code which contains principles which are based on the Dutch Code and does not differ with respect to whistleblowing recommendations.

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23 4.2. Whistleblowing content derived from codes and regulations

4.2.1 Dutch Corporate Governance Code

The Dutch Corporate Governance Code was drafted in 2003 and became effective on January 1, 2005. It does not explicitly mandate regulations. Instead, it provides listed companies best practice

recommendations. The code works according to the ‘comply or explain’ principle in which firms are required to comply with the recommendations or specify reasons for non-compliance. Concerning whistleblowing the Code (CGC 2003, p. 9) specifies:

“The management board shall ensure that employees have the possibility of reporting alleged irregularities of a general, operational and financial nature within the company to the chairman of the management board or to an official designated by him, without jeopardizing their legal position. Alleged irregularities concerning the functioning of management board members shall be reported to the chairman of the supervisory board. The arrangements for whistleblowers shall be posted on the company’s website.”

Recommendations with regard to whistleblowing have not changed in the revision of the Code in 2008.

4.2.2. Sarbanes-Oxley act

Where the Dutch Corporate Governance Code provides recommendations, SOX regulations goes a step further and actually requires internal whistleblowing procedures. Section 301 (SOX 2002) states:

“Each audit committee shall establish procedures for the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and the

confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.”

Furthermore, companies can also use these procedures to other kinds of violations covered by codes of conducts or ethic codes and also additional regulations regarding possible retaliation can be found in the SOX regulations (Hassink, Vries, and Bollen 2007). A recent extension to SOX is the Dodd-Frank act which was implemented on July 21, 2010. The Dodd-frank act expands whistleblower protections and adds a monetary incentive to blow the whistle externally (Ebersole 2011). Whistleblowers can receive a 10 to 30% bounty for all tips resulting in law enforcements greater than 1 million dollar.

4.2.3. Listings

In addition to regulation followed from the Sarbanes-Oxley Act, the New York Stock Exchange and the NASDAQ provide their own regulations. With regard to whistleblowing, the NYSE states in section 303A.10 of their regulation manual (NYSE Listing Manual, s. 303A10):

“The listed company should proactively promote ethical behavior. The listed company should encourage

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The NASDAQ makes similar requirements as NYSE (Moberly and Wylie 2011). However, regulations are

sometimes less specific. For example, it does not mention good faith reporting and it does not give a detailed definition of types of misconduct that can be reported.

4.2.4. Other Codes

The United Kingdom’s Combined Code on Corporate Governance was originally introduced in 1998 and did not account for whistleblower arrangements. The revision of the Code in 2003, however, did include the topic of whistleblowing by describing the role of the audit committee in establishing internal whistleblower procedures (CCCG 2003, p.56)

“ The audit committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The audit committee’s objective should be to ensure that arrangements are in place for the proportionate and independent

investigation of such matters and for appropriate follow-up action.”

Furthermore, protection from retaliation for both internal as external disclosures is given in the Public

Disclosure Act of 1998 (Hassink, Vries, and Bollen 2007). The Combined Code, like the Dutch Code, applies the comply or explain principle. Companies listed on the UK stock market are to comply with the principles of the Combined Code or should explain reasons for non-compliance. The most recent edition of the Combined Code in 2008 did not include amendments with regard to whistleblower arrangements.

In contrary to the Combined Code in the UK, The French Code does not mention whistleblower procedures. The French law of 2007, however, does provide protection against many forms of retaliation for employees when they report cases of corruption (Vandekerckhove 2009). The French law does not specify other types of misconduct that can be reported.

Like the French Code, the governance principles of Luxembourg also do not mention whistleblowing procedures. In Luxembourg, whistleblowing is covered through law obliging the reporting of corruption (Vandekerckhove 2009).

4.3. Conclusion

Whistleblowing codes and regulations were a direct reason for companies to implement a whistleblowing policy. Therefore, the influence of these codes and regulations on the content of formal whistleblowing policies was examined in this chapter. It was shown that AEX listed companies comply with several codes and

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25 5. Whistleblowing content analysis

In this chapter the content of the Dutch AEX listed company’s whistleblowing policies is examined with the use of a qualitative content analysis. The qualitative content analysis will provide for an overview of the content of the formal whistleblowing policies. Furthermore, a comparative analysis with prior research will enable us to explore in which way formal whistleblowing policies have evolved since their introduction.

5.1. Whistleblowing qualitative content analysis

5.1.1. Methodology

In this study we use qualitative content analysis techniques to analyze the textual data of the Dutch AEX listed company’s formal whistleblowing policies. A qualitative content analysis is performed to provide knowledge and understanding of the phenomenon under study (Hsieh and Shannon 2005). A qualitative content analysis can be defined as: “a research method for the subjective interpretation of the content of text data through the systematic classification process of coding and identifying themes or patterns” (Hsieh and Shannon 2005, p. 1278). A qualitative content analysis goes beyond simply counting words to examine language intensively for the purpose of classifying textual content into efficient categories that represent similar meanings. These categories can contain both explicit mentioning of the examined text as inferred communication. With the use of a qualitative content analysis the specific provisions in the formal whistleblowing policies can be described and measured by their occurrence. Furthermore, the categorization of content is able to show towards which whistleblowing issues the provisions are directed.

5.1.2. Definition of content

As described above, for the use of a qualitative content analysis it is essential to code and classify the content provisions found in the formal whistleblowing policies. (Hassink, Vries, and Bollen 2007) were the first to establish such a code book for internal whistleblowing policies in their research on internal whistleblowing policies of the European leading companies. We duplicate their approach for two reasons. First, the code book can be seen as an appropriate standard that encompasses a broad collection of possible provisions. It can be seen as appropriate since it is also used by other academics in a 2011 study on internal whistleblowing policies in the U.S. (Moberly and Wylie 2011). Furthermore, after some testing it was shown that almost all the

elements in the AEX listed whistleblowing policies of 2011 could be measured by the code book. Only minor additional elements were deemed necessary to include in this study. Second, the research on AEX listed companies was previously performed by (Vries, Bollen, and Hassink 2007) in 2005. A duplication will allow for a reliable comparison since content aspects are measured using the same approach.

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companies. This study tries to address the full-scale content of whistleblowing and it is therefore essential to

include all the categories as defined in the 2005 study on European leading companies.

5.1.3. Data

The whistleblowing polices of the 25 AEX listed companies were collected on their company websites in December 2011. 22 different whistleblowing policies were found. In two cases two companies shared one whistleblowing policy because these companies had been split up recently. For these companies only one policy was taken into account. One company did not provide a whistleblowing policy on their website and could not provide a policy by email. Therefore, a sample of 22 policies was used in the analysis. The policies that were collected had three different formats. 17 policies (77%) described their whistleblower arrangements in a separate document. Further, 3 policies (14%) described the arrangements on their website under a separate whistleblowing heading. The other 2 policies (9%) could be found as part of a code of ethics. An overview of the findings will now be provided. Details of the analysis are included in appendix 1.

5.2. Empirical results

5.2.1. General policy information Name of policy

The AEX listed companies used several names for their whistleblowing policy. The title ‘Whistleblowing policies/procedures’ was found in 50% of the companies. Furthermore, references to reporting irregularities (14%), reporting misconduct (9%) or a general reporting policy (14%) were also made. Interestingly, a special hotline was found as name of the policies in 14% of the instances. Global Ethics Line (Aegon) & Confidential Ethics Hotline (Unilever) are examples. In addition to the above names that were found, companies used

creative names such as: ‘Speak up! Manual’ (Akzo Nobel), ‘Open Ears Policy’ (TomTom) and Tell Shell (Shell).

Date of effect

In 21 of the 22 policies a date of effect could be found for a company’s most recent whistleblowing procedure and is shown in Table 2. Whistleblowing arrangements did not change since their introduction for 24% of the companies. In contrary, 76% of the companies changed their whistleblowing arrangements in the last 6 years, the period between this research and the research of 2005.

Table 3: date of effect of the whistleblowing policies of the AEX listed companies

Purpose of the policy

Most of the companies (82%) specified in their policy the reason for having an internal whistleblowing policy. Promoting key values such as honesty, integrity, acting ethically, promoting transparency/openness, having high standards of business conduct and being responsible/accountable are found as reasons in 61% of the AEX listed companies. An explicit reference to maintaining a company’s reputation is given in 33% of the

2004 2005 2006 2007 2008 2009 2010 2011

Frequency 3 2 0 1 0 8 3 4

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argumentations for having a whistleblowing policy. Furthermore, compliance to legislation is mentioned as

reason in 28% of the instances and in 17% offering safe procedures for reporting to employees 17%. Other reasons mentioned were: avoiding legal exposure, supporting the risk management system and identifying concerns at the earliest possible moment.

5.2.2. Whistleblowing policy content

Findings from the qualitative content analysis of AEX listed companies whistleblowing policies of 2011, and a comparative analyze with 2005 are described per category in this paragraph. Furthermore, an overview of the findings is presented in Table 4.

1. General contents, scope and tone

The primary target group for the whistleblowing policies are the employees as they were mentioned in every whistleblowing policy as the group where whistleblower arrangements are aimed at. In addition, contractors and third parties are also able to report misconduct at 8 companies (36%). Separate policies for senior and executive management and for financial reporting matters are only found in 3 companies (14%). With regard to the tone, in most companies (64%) employees were encouraged to report (suspected) wrongdoing. For

example, Philips stated the “Whistleblower Procedure encourages all its employees to report”. A more stricter tone was found was found in 8 (36%) policies. In these cases employees ‘must’, ‘should’ or ‘are expected’ to report and thereby reporting could be seen as a requirement or duty.

No consensus is yet reached on the decision how to present the ability to report to employees. The tone of the procedures did change from a duty to report suspected wrongdoing to an encouragement for a majority of the AEX listed companies. In 2005, reporting was a requirement or duty for 14 companies (61%) and the other 9 companies (39%) explicitly encouraged reporting. At the current situation, this is nearly the opposite with 8 companies (36%) requiring employees to report and 14 companies (64%) encouraging a report.

2. Nature of Violations to be reported.

For the AEX listed companies, the most frequently mentioned violation in the whistleblower arrangements was a breach of internal policies (100%). Violations of law or other regulations were mentioned in 16 policies (73%). Violations relating to financial reporting matters such as ‘fraud’ and ‘accounting irregularities’ were named in 13 instances (59%). Other violations that were found in the policies are criminal offences (41%), corruption, mismanagement or abuse of authority (27%) and misinforming of authorities or public bodies (27%). It is important to mention that the above findings are the violations that are made explicit in the policies. Often, reporting about violations that are not explicitly mentioned is also possible. For example, Heineken “will act on any form of serious suspected wrongdoing” or PostNL “encourages all employees to promptly report any breach or suspected breach of any law, regulation, the PostNL Business Principles or other company policies and procedures or any other alleged irregularities”.

In 2005, a report possibility with regard to a violation of law or other regulations was more referred to (83%) than in the current situation (73%). Care must be taken by interpreting this result. Statements are often made in which any potential breach can be reported, making it unlikely that reporting on a certain type of

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Table 4: content AEX listed policies

NL ADD 1 General contents, Scope and tone

2005 2011

Frequency Percentage Frequency Percentage

1 Stated that the policy or code applies to all employees 23 100% 22 100%

2 Stated that reporting is a requirement or duty 14 61% 8 36%

3 Stated that employees are explicitly encouraged to report 9 39% 14 64%

4 Stated that contractors may also report wrongdoing 8 35% 8 36%

5 Included a seperate policy for senior and executive management 3 13% 3 14%

6 Included a seperate policy for financial reporting matters 2 9% 3 14%

7 Stated that former employees can also report wrondoing 2 9% 0 0%

NL ADD 2. Nature of violations to be reported

1 Violations of code of internal policies 23 100% 22 100%

2 Violations of law or other regulations 19 83% 16 73%

3 Finanical reporting matters 13 57% 13 59%

4 Criminal offences 7 30% 9 41%

5 Health and safety threats 6 26% 2 9%

6 Environmental issues 4 17% 2 9%

7 Corruption, mismanagement or abuse of authority 4 22% 6 27%

9 Misinforming of authorities or public bodies 6 26% 6 27%

11 Conflicts of interest ‐ ‐ 2 9%

12 Hide, destroy or manipulation of information ‐ ‐ 4 18%

NL ADD 3. Officials or bodies to whom wrondoing should be reported

1 Direct or indirect supervisor 21 91% 20 91%

2 Compliance or Ethics officer 12 52% 12 55%

3 Special hotline 6 26% 14 64%

4 (Chairman of) Supervisory Board or Board of Directors 14 61% 12 55%

5 Human Resource Department 3 13% 6 27%

6 Legal department 5 22% 4 18%

7 (Chairman of) Audit committee 4 17% 6 27%

8 Internal Audit department 4 17% 4 18%

9 (Chairman of) Board of Management or Executive Board 4 17% 3 14%

10 Confidential Advisor or Trusted Representative 3 13% 8 36%

11 Reporting application on website ‐ ‐ 8 36%

12 Reporting telephone line ‐ ‐ 12 55%

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2005 2011

Frequency Percentage Frequency Percentage NL ADD 4. Reporting guidelines and formalities

1 Stated that violations should be reported in sufficient detail in report to allow an investigation 7 30% 6 27% 2 Stated that violations may be reported in a native language or that the reporting system is multilingual 4 17% 9 41%

3 Included a special reporting form 4 17% 8 36%

4 Requirement to explain suspicion without requiring evidence 3 13% 3 14%

5 Graphical representation of reporting system 2 9% 2 9%

6 Ban on employees starting investigations themselves 2 9% 3 14%

NL ADD 5. Confidentiality and anonymity

1 Reported violations are treated confidentially 23 100% 22 100%

2 Violations can be reported anonymously 15 65% 19 86%

3 Anonymous reporting is discouraged or clearly not preferred 10 43% 12 55%

4 Circumstances given where confidentiality cannot be guaranteed 7 30% 12 55%

5 Publicity is allowed under clear conditions. ("going public is not allowed, unless") 13 57% 7 32%

6 Identity of the whistleblower will be protected 13 57% 11 50%

NL ADD 6. Protection from retaliation

1 General statement ("there will be no retaliation") 22 96% 21 95%

2 Requirement of good faith 15 65% 17 77%

3 Retaliation is prohibited or not tolerated 5 22% 8 36%

4 Knowingly making false or malicious reports in punishable 11 48% 10 45%

5 Retaliation will be punished 8 35% 6 27%

6 Requirement of reasonable grounds or beliefs 12 52% 9 41%

7 No retaliation, even if complaint is unfounded 5 22% 3 14%

8 No immunity against punishment if complainant is involved 2 9% 3 14%

9 Liability towards subjects of malicious complaint 5 22% 4 18%

10

Protection even if involved provided person acted in good faith ‐ ‐ 1 5%

NL ADD 7. Investigation Details

1

Guarantee of investigation or serious treatment of complaint ‐ ‐ 16 73%

2

Obligation to cooperate in investigation for other employees ‐ ‐ 7 32%

3

Decision process of whether or not to investigate is described ‐ ‐ 6 27%

4

Employees will be kept informed/feedback is provided ‐ ‐ 13 59%

5

Term for providing feedback to employee is given ‐ ‐ 10 45%

6

Stated how the potential wrongdoer is handled in the reporting process ‐ ‐ 9 41%

7

Explicitly Gives room for wrongdoer to object accusation ‐ ‐ 8 36%

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3. Officials or bodies to whom wrongdoing should be reported.

The regular chain of command is in 20 policies (91%) mentioned as a possible recipient of a report. Moreover, supervisors or management are in these cases often referred to as the first persons to speak to when dealing with suspected wrongdoing. Wolters Kluwer describes the sequence of reporting by the use of different reporting ‘levels’. At the first level, whistleblowers have to report to the management. If this however is not satisfactory, whistleblowers can report to the compliance committee. Finally, if these options still not fulfill the whistleblowers needs the last reporting level, the chairman of the supervisory board, can be subscribed to address wrongdoing. Both compliance officers and supervisory boards are mentioned in 12 policies (55%). Wrongdoing can be reported by the use of a special hotline in 64% of the policies. This special hotline contains a reporting application on a website and/or a special telephone line that can be used to report suspected wrongdoing. Other officials or bodies to which wrongdoing can be reported that are frequently mentioned are the confidential advisor (36%) , the audit committee (27%) and the human resource department (27%). When looking at bodies to whom should be reported, it appears that the special hotline won popularity. In 2005 only 6 instances (26%) were mentioned. In 2011, 14 companies (64%) have used this tool to facilitate reporting. Furthermore, trusted representatives/confidential advisors were increasingly (from 13% to 36%) referred to as recipients of questions and reports in case of suspected misconduct.

4. Reporting guidelines and formalities

Reporting guidelines are given to make it easier for potential whistleblowers to report and also to enable the investigation of a complaint. Sufficient detail must be given in a report to allow for an investigation in 6 policies (27%). ASML mentions it will not investigate a report if “there is insufficient information available” and Fugro states “reports will be investigated, provided they contain sufficient detail”. Other guidelines are the

requirement to explain suspicion without requiring evidence (14%) and a prohibition for employees to

investigate wrongdoing by themselves (14%). The possibility to report suspected wrongdoing in the employees own language is explicitly stated in 9 policies (41%). Next to providing guidelines also specific reporting forms are given by some companies to direct reporting (36%). To give more insight in the reporting process, Heineken and Akzo Nobel included graphical representations of the whistleblowing organizational process in their policy. In 2011, there is an increase in statements describing the possibility that violations may be reported in a native language (from 17 to 41%) and also the inclusion of a special reporting form has increased compared to 2005 (17 to 36%). These increases are closely linked to the increased provision of special hotlines. By referring to a special telephone line often the possibility to report in a person’s native language is mentioned. Moreover, when a company provides the possibility to use a web application it automatically provides a reporting form. No additional reporting forms were found in the arrangements which make the amount of forms available equal to the companies that use a reporting web application.

5. Confidentiality and anonymity

Violations are treated confidentially. This guarantee is found in every policy that is looked upon. However, in 12 policies (55%) circumstances are given in which this confidentially cannot be guaranteed. Frequently

a study on whistleblowing policies of the Dutch AEX listed companies

Master Thesis: Organizational & Management Control

The design of formal whistleblowing policies