Whistleblowing is a cornerstone of corporate governance. It allows employees to anonymously disclose questionable financial matters about their companies to help prevent fraud, which is a pressing issue in Canada. It’s also incredibly effective, with 42 per cent of occupational fraud being reported through tips.
But whistleblowing is not just an essential organizational tool — it’s also codified into law. In Canada, whistleblowing procedures are outlined in a national regulation called National Instrument 52-110. This regulation has been in place since 2004 and applies to all companies listed on stock exchanges throughout Canada.
It states that the board of directors, through its audit committee, must establish a set of procedures that provide anonymity and confidentiality to any employee that wants to disclose a questionable financial matter.
Despite this regulation, recent research by us suggests that boards of directors, in fact, are not the ones who establish the whistleblowing procedures. Instead, board members depend on management to implement the procedures, which requires a high level of trust between the board of directors and their management team.
For our study, we interviewed members of the board of directors of some of Canada’s largest public companies, along with some auditors. We asked the board members about their involvement in whistleblowing procedures to help prevent fraud.
The board members we interviewed did not believe they...
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