There has been increasing public scrutiny on corporate governance and transparency in Canada. Well-thought-out governance strategies ensure smooth running of organizations, benefiting the public and economy as a whole. However, when good corporate governance and transparency are absent, an employee or other insider may be forced to go public to shed light on poor organizational practices, causing scandal and eroding public trust in corporations.
This article briefly considers the benefits of having an organizational whistleblower policy that allows a business to handle issues internally before they are made public, and why charities and not-for-profit organizations may want to consider implementing one.
Why whistleblower policies are worth considering
A whistleblower is a person who reports (or, "blows the whistle") on improper conduct within an organization. A whistleblower policy sets up procedures for these individuals to report unethical conduct, ranging from suspected criminal behaviour to violations of internal policies and mismanagement of corporate and charity resources. These policies protect and encourage whistleblowers by giving them a clear avenue to make reports and guarantee that there will be no reprisal against them for making a good faith report.
Whistleblower policies also protect organizations. They provide organizations with processes for receiving and investigating reports of wrongdoing. In the event that your organization ever has a whistleblower, having a whistleblower policy will make a significant difference in encouraging reports to be made internally (instead of to the public), mitigating potential damage, and defending against claims of improper handling of whistleblower complaints. Having a whistleblower policy in place may also demonstrate your organization's commitment to identifying and remedying misconduct and even help deter malfeasance in the first place.
Whistleblower protections in Canadian law
Whistleblower protections exist under statute in many areas of Canadian law. For example, some jurisdictions have whistleblower protections built into their employment standards legislation1.
Further, securities regulators throughout Canada have whistleblower programs in place. For instance, the Ontario Securities Commission's ("OSC") whistleblower program not only protects whistleblowers who come forward about securities offences but also incentivizes them by providing financial compensation. The OSC is also empowered to take enforcement action against employers who take reprisals against whistleblowers2.
The OSC requires that issuers of regulated securities disclose certain corporate governance practices to the public including disclosing any steps the board of directors takes to encourage and promote a culture of ethical business conduct. Such steps can include whether the corporation has a whistleblower policy in place and how the policy has been implemented.3 The OSC also recommends that a board of directors should adopt a written code of business conduct and ethics, including written standards on how to handle the reporting of any illegal or unethical behaviour.4
Furthermore, federally under the Competition Act (Canada), any person who has reasonable grounds to believe a person has or may commit an offence under that statute can make a confidential disclosure. Employees who blow the whistle to the Competition Bureau are additionally protected from retribution from their employer.5 The Criminal Code (Canada) makes it an offence for an employer to threaten, or actually affect the employment of, an employee in retaliation for an employee providing information regarding an offence under any federal or provincial act to a person whose duties include the enforcement of federal or provincial law.6
This would include the above examples of making a report to the Competition Bureau or the OSC, as well as reporting any illegal behaviour to police. In the public service sector, it is mandatory to have internal procedures to manage disclosures by public servants. Public servants' ability to blow the whistle to their supervisor is legislated, along with a prohibition against reprisal being taken against them.7
All this is to say, whistleblower protections and policies are important and effectively used in many areas of Canadian law to the benefit of many Canadians and Canadian businesses. Although not required for Canadian registered charities, there is value in Canadian charities and not-for-profits considering and implementing such policies. These types of policies could be an important tool for any organization or company to manage their risk and get ahead of any improper behaviour. This is especially important for a charity, given the public interest in ensuring that their charitable purposes remain their central purpose.
Why charities should consider a whistleblower policy
Charities and not-for-profit organizations are uniquely situated in the Canadian economic landscape. There is public interest in all organizations having good corporate governance. This public interest is arguably even stronger for charities, given their charitable purposes, role in the community, and tax-exempt status. While not quite in the same position as publicly listed exchange corporations or public services, charities and not-for-profits can be seen as analogous to public institutions due to the role they play in our communities. Good governance of all Canadian registered charities and not-for-profits is essential for mandate fulfillment and retaining public trust.
Having a whistleblower policy can also help directors and officers of charities and not-for-profits meet their standard of care. Directors and officers of charities and not-for-profit organizations that are also corporations are obligated to act honestly and in good faith with a view to the best interests of the corporation, as well as to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.8 Having a practical and thorough whistleblower policy in place can help directors and officers demonstrate their diligence in meeting these duties.
It is undoubtedly in the best interests of the corporation to ensure that conduct that is illegal, unethical, or contrary to organizational policies, be appropriately reported and investigated. Directors may be a level removed from the actual operations of a charity or not-for-profit, and so policies protecting and encouraging on-the-ground volunteers and employees to come forward with any reports will assist directors in making sure the best interests of the corporation are met, and that they have the tools and mechanisms in place to handle any reported wrongdoing.
Internal policies will give you more control over investigations into wrongdoing
As quoted by the Supreme Court of Canada, "reports from insiders allow for early detection and reduction of harm, reduce the necessity for and expense of public oversight and investigation, and may ultimately deter malfeasance."9 Corporations should work to encourage such internal reports, as they ultimately benefit the organization and the public at large. In addition, internal policies may facilitate employees reporting improper conduct before such conduct affects the organization at large, and will help employees meet their own duties to their employer.
Employees generally have a duty of loyalty to their employer. When an employee discovers wrongdoing in an organization, the courts generally expect them to at least try to resolve the matter internally before going to the public or external authorities with their report. Except in exceptional circumstances, failure to attempt an internal resolution is frowned upon by courts, and may even be a breach of an employee's duty of fidelity towards their employer.10
Organizations can facilitate this internal resolution by having a whistleblower policy in place that contemplates these situations. Such a policy will both encourage employees to come forward with any report of misconduct, and will give an organization more control over the handling and investigation of such complaints.
Footnotes
1 See e.g. The Saskatchewan Employment Act, SS 2013, c S-15.1, s 2-42; Nova Scotia Labour Standards Code, RS 1989, c 246, s 30.
2 Ontario Securities Commission, "Whistleblower protections", online: (https://www.osc.ca/en/enforcement/osc-whistleblower-program/whistleblower-protections).
3 Disclosure of Corporate Governance Practices, OSC NI 58-101, (2005) 28 OSCB 5379
4 Effective Corporate Governance, OSC NP 58-201, (2005) 28 OSCB 5383.
5 Competition Act, RSC 1985, c C-34, ss 66.1(1) & 66.2(1).
6 Criminal Code, RSC 1985, c C-46, s 425.1(1).
7 Public Servants Disclosure Protection Act, SC 2005, c 46, ss 12 & 19.
8 Not-for-Profit Corporations Act, SO 2010, c15, s 43(1); Canada Not-for-Profit Corporations Act, SC 2009, c 23, s 148(1).
9 Merk v International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70 at para 14.
10 Merk v International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70 at paras 23-26.
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