Whistleblowing: An Effective Key to Good Corporate Governance
You might be reading news of various frauds being committed in organizations. Some are exposed by media, while others get exposed by employees of the company. These people who expose the misconducts are called as whistleblowers and the process is termed as ‘whistleblowing’.
Table of Contents:
- Types of Whistleblowing’s
- Things that can be reported through Whistleblowing
- Whistleblowing: An Effective key to Good Corporate Governance
- Important Indian Whistleblowing cases
- India’s stand on Whistleblower laws
- Not many Safeguards to Whistleblowers
Whistleblowing is the act of exposing malpractices in the company to others. No organization can be said to be immune from the threat of malpractices. Whistleblowing is an effective mechanism to ensure corporate governance in a company. The concept originated from the practice of blowing whistle by the British policemen whenever they saw a crime being committed.
The term was first discussed in the case of Winters Houston Chronicle Pub. Co. by Doggett J.
Thus, whistleblowing is when an individual opens up and reports a crime being committed in an organization. The person who exposes the crime is called as a whistle blower.
A whistle-blower can report the wrongdoings to the high officials of the organization. He also has the option to file a lawsuit against the wrongdoer or can simply expose it to the public.
Types of Whistleblowing’s in India
Institute of Companies Secretary, in one of its Paper titled “Whistleblowing- Balancing on a Tight Rope” laid 8 different types of whistleblowing’s. They are as follows: –
i. Internal Whistleblowing
When the whistleblower, reports the misconduct to the higher authorities of the organization itself, it is called Internal Whistle blowing. The subjects of the complaint are usually corruption, disobedience etc.
ii. External Whistleblowing
In contrast to internal whistle blowing, external whistleblowing is when the whistleblower reports the wrongdoings to the public. It can be reported to the media or to some interest groups.
iii. Alumni Whistleblowing
As the name suggests, if the whistleblowing is done by a person who was formerly part of the organization, it is called alumni whistleblowing.
iv. Open Whistleblowing
When the identity of the whistle blower is not hidden, it is called as open whistleblowing.
v. Personal Whistleblowing
When the wrongdoings in a company will cause harm to only one person, then to leak such wrongdoings to others is called personal whistleblowing.
vi. Impersonal Whistleblowing
When the wrongdoings will affect only others, it is called Impersonal whistleblowing.
vii. Government whistleblowing
When the disclosed misconducts are about officials of the government, it is called government whistleblowing.
viii. Corporate whistleblowing
When the wrongdoings of a corporate are exposed by a whistleblower, it is called corporate whistleblowing.
Things that can be reported through whistle blowing:
- Breach of Justice and Law;
- Health or safety danger to someone;
- Damage to the environment;
- Criminal offence;
- Violation of laws in Companies Act;
- Misappropriation of funds.
Whistle blowing: An Effective Key to Good Corporate Governance
Corporate governance is a structure of good practices towards which the affairs of the company are directed. For a healthy corporate structure, the absence of any kind of wrongdoings is essential. This environment cannot be maintained only by the top officials of the company. The corporate employees are equally responsible to maintain it. This is because they are the one’s who have the opportunity to witness any unethical incident in the company.
Good governance in companies requires transparency and disclosure of important information’s. It aims at business integrity, accountability towards shareholders, protection of shareholders etc. This transparency and accountability can better be maintained if the employees of the company provide their support in maintaining it. They can extend their help by reporting any wrongdoing they come across in the company.
Thus, what is required for good corporate governance is whistle blowing. Whistleblowing whether internal or external will help the company to regain its stability. With each passing day this makes the concept of whistleblowing more important for companies.
The increasing number of corporate scams are posing threat to the corporate governance structure of a company. With such being the case, exposing the wrong expeditiously becomes vital. This makes whistle blowing an important key to achieve good corporate governance.
Though cases of wrongdoings in corporate are on an increase, the whistleblowers have also actively taken part to expose them.
With the increase in the number of scams and frauds, number of whistleblowing complaints are also rising. 17 Nifty companies in the financial year 2017 stated in their annual reports that they together received 3,508 complaints filed by whistleblowers.
In the financial year 2017-2018, Wipro was in lead with 1526 complaints of whistleblowers being filed with it. 71% of complaints were later resolved by Wipro. The main reason for such complaints is corruption, improper conduct etc.
At International level, European Union in order to combat the effect of various recent scandals, has introduced Whistle Blowing Directive 2019 and Whistle Blowing Directive 2021.
Important Indian Whistleblowing cases
Here are some brave heart whistleblowers and their story of whistleblowing: –
- Satyendra Dubey
Dubey was a project director in the National Highway Authority of India (hereafter referred to as NHAI) at Jharkhand.
The then Atal Bihari Vajpayee’s government in power initiated a project to link major cities of India through 4 and 6 lane highways. The project was named as ‘Golden Quadrilateral Project’. Dubey was responsible to deal with segment NH-2.
He came to know that Larsen and Toubro with whom the Government has entered into a contract, have eventually passed it to small contract mafia, who were incapable to take care of such a huge project. He found that the roads built are of poor quality.
He wrote a letter to the superior authorities of NHAI. Instead of giving a proper answer to the letter, he was transferred to Gaya, Bihar. Even there he exposed the financial irregularities and poor construction of roads.
Dubey then took a step forward and wrote a letter to PM Vajpayee detailing all the irregularities. He also requested to keep his identity secret. But still, the letter along with his information was sent t Ministry of Road Transport and Highways.
He was murdered in Gaya, in 2003. Three accused were found guilty of the offence and were sent to life imprisonment.
- Shanmugam Manjunath
He was a Marketing manager in the Indian Oil Corporation.
He sealed a petrol pump, that came in his jurisdiction, due to the wrongdoings of the petrol pump owners.
As a result, he was murdered.
- Ratna Ala
Ratna Ala is from Gujarat and is blind since birth. He filed an RTI (Right to Information) to ask for information about a stretch that connected his village to a highway that was in very bad condition.
In its reply, he was told that the road has been repaired two times in the last two years. He handed this reply to the media. The road was then repaired.
He later continued to expose various scams. He also stopped the officials to give the grazing fields of the village to a factory without permission.
India’s stand on Whistleblower laws
i. Companies Act, 2013
The Companies Act, 2013 (hereafter referred to as 2013 Act) aims to build a good corporate structure in a company. The 2013 Act came after various corporate scandals were seen by India and also the world at large. Though it does not include the term whistleblowing, its provisions in Chapter XIV deals with the concept of whistleblowing. The said chapter deals with ‘Inspection, Inquiry and Investigation’ starting from section 206 to section 229.
Under section 210 of the 2013 Act, the Central government has the power to investigate the affairs of the company in the public interest, or when a special resolution is passed by the company for investigating into the affairs of the company.
Under section 211, the Central Government has the power to establish an office called as Serious Fraud Investigation Office, for investigating any kind of fraud in the company.
The 2013 Act, in its section 177(9), provides for the establishment of vigil mechanisms. It is established so that the employees and directors can easily report their genuine concerns.
The Companies (Meeting of Board and its Powers) Rules, 2014 also states that every listed company and the companies accepting deposits from the public, and those which have borrowed from banks and financial institutions over fifty crore rupees will have to establish a vigil mechanism, to facilitate reporting of grievance and complaints by employees and directors.
The market regulator in SEBI (Prohibition of Insider Trading) Regulations, 2015, provides a reward to the whistleblowers if the concerns expressed by them are revealed to be true and legitimate. Earlier the reward was Rs. 1 crore which has now been increased to Rs. 10 crores.
Regulation 22 of SEBI (Listing of Obligations and Disclosure Requirement) Regulations, 2015 mandates the listing companies to have a whistle blowing mechanism.
iii. Whistleblower Protection Act, 2014
A Whistle Protection Bill was proposed in the year 2011. It finally became a law in the year 2014. The Act provides for a mechanism under which allegations of power misuse or corruption allegations can be made against a public servant. The Act provides safeguards to the person making complaints.
iv. Protected Disclosure Scheme for Private Sector and Foreign Banks
It is a measure to increase the public’s confidence in the financial sector. Under this, all the private sector and foreign banks are asked by the Reserve Bank of India to have a whistleblowing policy. The policy should be approved by the Board.
Not many Safeguards to Whistleblowers
Though the 2013 Act and SEBI Regulations, 2015 protects certain categories of companies, those falling out of it can are free to not mandate any mechanism to protect whistle blower’s interest. Still, many whistle blowers are ousted after they expose the truth. Thus, there is a long way India has to go to make the Whistle blowers feel protected.
According to the Right to Information Act, in the year 2018, eighteen whistleblowers were killed for blowing whistles.
Whistle blowers are now taking up the charge to remove any wrongdoings from the company. They are not waiting for the top officials to take an action. They actively are reporting their complaints to regulators in India and as well as abroad, as in the case of ICICI Bank, where a letter was written to the US Securities and Exchange Commission.
This increase in participation by whistle blowers, to blow the wrong away from the company is surely helping to achieve a healthy environment where the efficiency of corporate governance will increase.
The steps taken by the Companies Act 2013 and SEBI for the companies to mandatorily take cognizance of the whistle blower complaints filed before it will help to further corporate governance in a company.
But exposing wrongdoings is still not easy for everyone, as many a times the whistle blowers are threatened and are asked to keep their mouths. Many whistleblowers have lost their jobs. Thus, more strict mechanisms are now required to protect them.