Ombudsmen can address internal (staff) or external (client and customer) problems. Internal ombudsmen - the more common of the two - serve two major functions in a corporation: they provide impartial advice to employees with all types of issues and dilemmas and they assist management with cases of legal and ethical violations of codes of conduct and corporate policies.

An ombudsman needs to be credible, neutral and independent. In addition, he or she must keep information confidential, give good service, serve on a relatively longer term basis and avoid all conflicts of interest. Often ombudsmen will be former senior executives, judges, public officials, professionals, academics, human resources managers, engineers, theologians or human rights specialists. This wide range of options means a corporation can pick and choose an individual from a profession that would afford him or her the best practical experience for serving as an ombudsman in that particular corporation.

An ombudsman most frequently deals with complaints of a communications or management related nature. In terms of frequency, this is followed by inquiries of a legal or fraud-related nature and, then finally issues related to infringement of rights. If an employee decides not to move forward with a more formal complaint in one of these or many other areas, the ombudsman must respect that person's decision. However, if the complaint deals with fraud or harassment, the ombudsman could approach the board or CEO as long as the confidentiality agreement is not broken.

An internal ombudsman's office runs in a fairly simple manner. He or she receives all complaints confidentially from anyone in the organization regarding illegal or improper corporate conduct. This provides employees with a channel to voice ethical, moral or legal complaints without fear of repercussion and without having to immediately resort to whistle blowing. Then the ombudsman typically conducts a fact finding investigation and reports his or her results to the board of directors or CEO. It is then up to the board or CEO to make a decision regarding what action will be taken in light of the ombudsman's report. Typically, but not in all organizations, the ombudsman does not have a decision making role but is limited to advising employees of their rights and options as well as assisting the board with options in a given situation.

The benefits of an ombudsman office are numerous. Some include serving as an early warning device, demonstrating an organization's commitment to corporate social responsibility, and acting as an independent verification of corporate social responsibility. Others include increasing the knowledge of the board or CEO on the state of the corporation, reducing the need for increased government regulation, institutionalizing ethics training, and reinforcing an ethical corporate culture.

Not all ombudsman programs are equally effective. For instance, ombudsmen for public institutions tend to be more effective than their counterparts in private corporations because their jobs and salaries are more secure. Because of this security, the public ombudsman can afford to be more independent than the private one who more often than not has to report to the CEO who is in control of the hiring, promotions and salaries of management. Moreover, it is easier for the public ombudsman to report directly to stakeholders because of his independence. A private ombudsman is often limited to reporting to the CEO with no guarantees that his or her findings will be made available to the stakeholders.

However, if more private ombudsmen were able to report directly to the board of directors instead of to the CEO, their independence would increase greatly, making them more effective ombudsmen. Furthermore, ombudsman programs tend to work best if they exist within a generally ethical and trusting corporate culture and if they are in conjunction with other stakeholder programs.

As more and more corporations explore the idea of an ombudsman program, there is no doubt that the program and the individual ombudsmen themselves will grow in importance and influence in the business community.