Corporate governance should be a robust framework that integrates several elements, including practices, policies, and procedures, and guides how an organisation is directed and controlled. When tended to diligently and effectively, an organisation’s corporate governance framework plays a critical role in ensuring that all the ‘moving parts’ within the organisation are operating in a transparent, accountable, and ethical manner.
Corporate governance has come to the fore in recent years as an ‘area of interest’ largely due to numerous failures that have impacted not just the organisation but a wider stakeholder community. In response, governments and regulatory bodies have taken significant steps to promote and enhance corporate governance, giving it due credence and recognising its importance in deterring and preventing corporate misconduct and maintaining public trust. One such significant step, aimed at strengthening corporate governance practices by protecting whistleblowers, is the Protected Disclosure (Amendment) Act (the “Amendment”).
This legislation came into force on the 1st of January 2023 implements the EU Whistleblowing Directive and applies to organisations with 250 or more employees. As of the 17th of December, the legislation extends to organisations with 50 or more employees.
The Importance of Whistleblower Protection:
Whistleblowers expose wrongdoings, misconduct, and/or unethical practices within an organisation, oftentimes at the peril of their careers and personal safety. To encourage and promote a culture of compliance, transparency and accountability, measures need to be implemented to provide protections for whistleblowers – these measures should aim to safeguard the interests of the individual making the report and any stakeholders who are/ may be impacted.
The Protected Disclosure (Amendment) Act extends the protections set out in the original Protected Disclosures Act 2014 to include a broader range of individuals and ensure that anyone with any knowledge of corporate misconduct can report it without fear of retaliation. The Amendment also facilitates anonymous reporting, enabling individuals to submit anonymous reports. The aim is to encourage those with knowledge of corporate misconduct to report it without the fear of exposure, although organisations are not obliged to accept or follow-up on any such anonymous report.
Key Provisions of the Protected Disclosure (Amendment) Act:
- The Amendment introduced broader implications in different areas affecting a wider category of organisations as employers. The amendment specifically calls out any employers subject to EU law, as listed in Schedule II of the Amendment, public sector employers; employers with at least 250 employees; and, from the 17th of December 2023, employers with between 50 and 249
- The Amendment adjusted existing definitions to extend responsibilities, increase the scope of wrongdoing and protection, and expand what actions would result in penalisation. For example, the following definitions have been revised and expanded, as indicated:
‘Worker’ now includes:
^ Members of boards of directors;
^ Shareholders of relevant firms;
^ Unpaid interns and trainees.
Individuals may even disclose any relevant wrongdoing during a recruitment process or even pre-contractual negotiations.
‘Relevant Wrongdoing’ now includes any breaches of financial service legislation, for example:
^Undertakings for Collective Investment in Transferable Securities Directive;
^ Alternative Investment Fund Managers Regulations;
^ Markets in Financial Instruments Directive (MiFID);
^ Packaged Retail and Insurance-Based Investment Products Regulation; and
^ Market Abuse Regulation and the Benchmarks Regulation.
‘Penalisation’ increases protections for those making disclosures through its broadened definition. The following actions may now attract a penalty:
^ Withholding a promotion from a worker;
^ Negative performance reviews or employment references;
^ Failure to make permanent a temporary employment contract; and
^ Harming a worker’s reputation or blacklisting within an industry or sector.
- The Amendment incorporates mandates whereby organisations must:
^ Have avenues in place through which Workers can make either verbal or written protected disclosures by establishing a confidential and secure reporting channel;
^ Ensure that Workers are aware of these avenues for communicating protected disclosures; and
^ Designate a competent and impartial party responsible for communicating with the Worker who makes a protected disclosure.
- The Amendment added new offences that may attract sanctions, including fines of between €75,000 – €250,000 and/or imprisonment of up to 2 years. Any Body Corporate convicted of any offences under the Amendment could result in the imprisonment of individuals for up to 2 years, e.g., an offending director, manager, secretary or other officer. These new offences include:
^ Failure to establish, maintain and operate reporting channels and procedures for making protected disclosures;
^ Hindering a Worker in making a report; and
^ Breaching confidentiality regarding the identity of a person making a protected disclosure.
It is also an offence under the Amendment for Workers to make protected disclosures containing information that they know to be false.
- The Amendment expanded on what constitutes Relevant Wrongdoing and the types of concerns that qualify as Protected Disclosures.
- The Impact of the Amendment on Corporate Governance Practices
The Amendment aims to reinforce and advance corporate governance practices within organisations by empowering individuals to report corporate misconduct without fear of retaliation, and promoting a culture of transparency, accountability, and ethical behaviour. Corporate conduct is under public scrutiny, more so than ever before. The Amendment provides organisations with vital tools for safeguarding their reputation by showing a strong commitment to upholding the highest standards of corporate governance.
The Amendment creates a legal framework to protect individuals when reporting corporate misconduct, encouraging them to come forward without fearing retaliation by strengthening and expanding protections and making it a critical component of corporate governance.
The Amendment will impact corporate governance practices with:
- Enhanced Transparency: Organisations must have robust reporting mechanisms in place through which Workers can safely and securely report corporate misconduct. These concerns must be heard and addressed promptly. The reporting mechanisms should lead to greater transparency in corporate affairs and make it much more likely that internal issues will be uncovered/discovered.
- Protection from Retaliation: The Amendment prohibits retaliation against Workers who report corporate misconduct, including demotion, termination, harassment, or discrimination. Protecting whistleblowers promotes a culture of safety and trust and encourages reporting of any misconduct.
- Improved Accountability: Protecting individuals who want to report corporate misconduct encourages organisations to be accountable for their actions – employees and stakeholders are more likely to come forward and make a report which results in better corporate governance.
- Anonymous Reporting: The Amendment gives individuals the option of remaining anonymous when reporting corporate misconduct. This provision is crucial for encouraging reporting as it ensures that individuals can report potential wrongdoing without fearing being identified and subsequently targeted.
- Legal Recourse for Retaliation: Whistleblowers now have access to legal recourse if they face retaliation and can seek remedies through the legal system.
- Confidentiality and Secure Handling: The Amendment emphasises the importance of confidentiality in handling reports of corporate misconduct to protect the identity of the whistleblower and the information they provide. This secure handling of confidential information aims to build trust that the organisation is committed to handling these reports with care.
- Cultural Shift towards Accountability: The Amendment aims to foster a cultural shift within organisations. By promoting and enhancing accountability and ethical behaviour, Workers are encouraged to report concerns of wrongdoing, thereby reinforcing the idea that unethical behaviour is not acceptable and will not be tolerated.
- Risk Mitigation: Organisations can significantly reduce the risk of legal, financial, and reputational damage if they identify and address issues early on. The Amendment encourages the early detection and resolution of corporate misconduct, thereby reducing risk.
- Public and Investor Confidence: Improved corporate governance practices with enhanced measures for identifying and addressing concerns of corporate wrongdoing can:
- Raise and reinforce the organisation’s reputation;
- Bolster public and investor confidence in the organisation’s ethical standards and overall integrity; and
- Benefit the organisation’s financial performance and long-term sustainability.
Get Compliant, Stay Compliant
The legislative requirements of the Protected Disclosure (Amendment) Act already apply to organisations employing 250+ employees and, as of the 17th of December, the legislation extends to organisations with 50 or more employees.
These organisations must have in place mechanisms for the reporting and handling of reports, including a whistleblowing policy and procedures for employees that establishes the following:
- Reporting channels for making protected disclosures;
- Procedures for employees to follow when making a protected disclosure;
- Confidentiality procedures to maintain confidentiality and ensure the secure handling of such confidential information;
- Procedures for how reports will be addressed and followed up, as well as the process for providing feedback to a whistleblower;
- Provision for anonymous reporting and how these will be addressed and managed; and
- Provision for ensuring that whistleblowers are protected from retaliation. Organisations are now legally bound to ensure that individuals who expose any wrongdoing in good faith are protected from such retaliatory measures as demotion, termination, harassment, etc.
Organisations must ensure that their whistleblowing processes are competent and impartial. Organisations may procure the services of specialised external providers; however should the organisation opt to manage these processes internally, those involved must receive the appropriate training to ensure that the organisation remains compliant with its regulatory obligations.
For whistleblowing to be effective, and in line with the intent of the legislation, the organisation must raise awareness of whistleblowing, and the organisation’s policies and procedures for dealing with reports of wrongdoing and misconduct. Employees must be made aware of the whistleblowing policy, how reports can be made and how they will be managed, their rights when making a disclosure, feedback procedures, etc. By raising awareness and providing employee training, the organisation will not only be working towards preventing and mitigating wrongdoing and misconduct in the workplace, but developing a culture of transparency, accountability and integrity.
The Protected Disclosure (Amendment) Act is a crucial step toward reinforcing corporate governance practices. As organisations increasingly recognise the importance of a strong corporate governance framework, laws like the Amendment become essential tools for fostering a culture of integrity and responsibility.