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Is your corporate culture a risk to your business?

By Andrew Tobin and Simon Clayer / 05 October 2021

The importance of whistleblowers surfaced recently with the US audit regulator fining KPMG Australia $US450,000 ($AUD615,000) for widespread cheating throughout the organisation on mandatory audit tests.

The US-based Public Company Accounting Oversight Board (PCAOB) determined that more than 1,130 partners and staff from KPMG’s 6,700 strong Australian workforce were involved in improperly sharing or receiving exam answers, from at least 2016 to early 2020. 

PCAOB was alerted to the irregularities by KPMG itself, after a whistleblower initially reported the unethical practices.

The behaviours of senior leaders have significant impact on the corporate culture, as they model the behaviour it takes to be successful in the organisation. Usually this is positive behaviour as it reflects the values of the organisation, however employees may perceive and interpret the behaviours of leaders in both positive and negative ways, even if the intentions are good. 

Undoubtedly the cultural health of an organisation is the responsibility of the organisation’s leadership. Consequently, as culture is formed and reformed by everything that is done within the organisation, it will be shaped by the worst behaviour the leader is willing to tolerate. 

The impact of a shadow culture?

All companies should strive to develop and maintain a culture of ethical conduct, and ensure this culture is spread throughout their organisation.

Despite these intentions, corporate culture is often developed from the messages employees receive from what they see others do or say, and how the business is set up to get things done. This behaviour is collectively known as the shadow culture and put simply is the informal way of doing things.

Not all behaviour in the shadow culture is negative. The impact is measured by the extent to which the shadow culture detracts or enhances overall business outcomes.
However, a shadow culture where the hidden attitudes and unsanctioned behaviour and decision making of employees and managers undermine the shared values, standards and beliefs of the organisation is typically found at the heart of most corporate scandals

Significantly, the behaviours management and employees turn a blind eye to are just as powerful as the behaviours that are actively encouraged and discouraged. 

This is best demonstrated by any one of the numerous examples that were uncovered by the 2019 Hayne Royal Commission report. For example, the Royal Commission heard that NAB employees in greater western Sydney were accepting bribes in order to facilitate loans they knew were based on false documentation in order to reach lending targets and to collect personal bonuses. Up to 15% of all home loans approved did not meet NAB's standard criteria for valuation, serviceability and document verification.

While this may be a dramatic example, it highlights how unethical or unlawful behaviour is tolerated within organisations.

The role of whistleblowers

It is therefore important for companies to create a positive and open environment where employees feel they can come forward to make a disclosure about actual or perceived misconduct.

Whistleblowers play an important role in identifying and calling out misconduct within an organisation and harm to consumers and the community.

Under section 1317AA of the Corporations Act 2001 (Cth) (the Act) whistleblowers can make a disclosure where they have reasonable grounds to suspect:

  • misconduct (meaning fraud, negligence, default, breach of trust and breach of duty) or some other "improper state of affairs or circumstances.";
  • a violation of the Act, the Australian Securities and Investments Commission Act, or other insurance statutes; 
  • conduct that violates any law that is punishable by imprisonment for 12 months; and
  • a danger to the public or the financial system, including insider trading, fraud, bribery, failure to comply with statutory accounting and reporting requirements, money laundering, and using legal loopholes to harm the administration of government programs. 

However, the Act does not generally apply to information about work-related grievances or interpersonal conflicts (s. 1317AADA).

By making a report, whistleblowers can find themselves in difficult and stressful circumstances, and may risk their careers or even their personal safety. Accordingly, it is important for employers to create a positive, safe, and open environment where employees feel they can come forward to make a disclosure under the company’s whistleblower policy, without fear of retribution or detriment.

Sections 1317AB to 1317AD of the Act provide strong protections for whistleblowers to encourage them to come forward with their concerns and protect them when they do. 

Any person who meets the definition of an ‘eligible whistleblower’ can access these legal rights and protections, including the right to confidentiality and protection from reprisals.

In fact, s.1317AC of the Act makes it illegal for someone to cause or threaten detriment to a person because they believe or suspect they have made, may have made, or could make a whistleblower disclosure. Doing so may result in a criminal offence, civil penalty and liability to pay compensation for unlawful “detrimental conduct”.

Employers can demonstrate their support to whistleblowers by:

  • ensuring disclosures are taken seriously; 
  • act immediately when a disclosure is received;
  • address any wrongdoing promptly; 
  • provide whistleblowers with adequate protections and support; and
  • intervene early to protect whistleblowers from detriment.

There may be circumstances where an employee does not feel comfortable disclosing their complaint to management. To overcome this barrier to reporting, the company may engage the services of an independent third party to receive a whistleblower’s disclosure. 

Key takeaways 

  • The behaviours management and employees turn a blind eye to are just as powerful as the behaviours that are actively encouraged and discouraged.
  • The shadow culture of an organisation may be placing it at risk of hefty fines and damaging its reputation.
  • Whistleblowers play an important role in identifying and calling out misconduct within an organisation and harm to consumers and the community.
  • Employers should create a positive, safe, and open environment where employees feel they can come forward to make a disclosure under the company’s whistleblower policy.

Do you need help with your whistleblower reporting? 

We provide companies with a confidential whistleblowing reporting service. The service provides a 24/7 dedicated telephone service that whistleblowers can contact to discuss and report their complaint or issue under their company’s whistleblower policy.

The Corporations Act requires public companies, large proprietary companies and proprietary companies that are trustees of registrable superannuation entities to adopt and publish a whistleblower policy.   HopgoodGanim has assisted many clients in developing tailored whistleblower policies which address both the requirements of the Corporations Act and guidance issued by the Australian Securities and Investments Commission. 

If you would like assistance in preparing a whistleblower policy for your business or reviewing an existing policy for compliance, please contact us. 

Authors
Andrew Tobin
Partner
Andrew is a Partner and the head of HopgoodGanim Lawyers’ Workplace and Employment practice.
Simon Clayer
Senior Associate
Simon Clayer is a senior practitioner in our Workplace and Employment practice. 

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