Whistle Blowing

The recent whistle-blower complaints against the Infosys management have taken huge toll on the company’s formidable reputation. Let’s probe the whole phenomenon of whistleblowing and what is being done in this matter.

Who is a whistle blower?

A whistle-blower can be anyone who chooses to expose wrong practices in an organisation and has evidence to support the allegations. They can be either from within or outside the organization—such as current and former employees, shareholders, external auditors, and lawyers.

What are some examples of the areas where non-compliance may be reported?

• Harassment or Discrimination & Workplace Violence 
• Fraud or questionable accounting/financial reporting 
• Corruption 
• Conflicts of Interest 
• Insider Trading 
• Theft, misuse of company’s assets 

How does the Whistle Blowers Protection Act, 2014 deal with the challenge?

The Act contains the following provisions in this regard

• Establish a mechanism to receive complaints relating to allegation of corruption or 
• Willful misuse of power or willful misuse of discretion against any public servant 
• To inquire into such disclosure and 
• To provide adequate safeguards against victimization of the person making such complaint 

Are there similar provisions for private companies?

Companies Act 2013 mandates a whistle blower policy. It is mandatory for

• All the listed companies and
• Companies which accept deposits from the public
• Companies which have borrowed money from Banks and public financial institutions in excess of Rs.50 crores.

It provides adequate safeguards against victimization of employees and directors who avail of the Vigil mechanism.

Under the Act, there is also responsibility on auditors at to act as whistle blowers and they have to report directly to the Central Government if they have any reason to believe that there is any fraud being committed.

Serious Fraud Investigation Office(SFIO) has the power to arrest for offences, which are specified as frauds. 

How does Securities Exchange Board of India (SEBI) enforce it?

Securities Exchange Board of India (SEBI) lays down standards for integrity and corporate governance. They were originally provided in the Clause 49 of the Listing Agreement which is replaced with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which is given in the standard listing agreement. It states that the company will have a whistle blower mechanism that also will protect against the victimization of whistle blowers. The existence of such mechanism should be publicised within the company.  

Why should we have the Whistleblowing policy?

There are many benefits.

• In public offices, it reduces corruption and enhances people’s trust in the civil service
• Building trust is another benefit of a whistleblowing system. 
• It enables organisations to access hard-to-reach information that can help  to minimise a wide range of risks
• Whistleblowing also has a preventive impact; the mere presence of a well-communicated whistleblowing system will make potential wrong-doers think twice.
• Research showed that organisations that did not have a whistleblowing system in place suffered losses that were twice the size compared to those who did have a whistleblowing system.
• If firms do not listen to and act upon whistleblowing tips internally, people may decide to report externally, for example to the media where the reputational damage is more.

What more can be done?

To gain greater whistleblowing benefits organisations need to implement a secure whistleblowing system that allows for anonymous reporting and dialogue. Anonymity is essential as potential whistle blowers may be afraid of retaliation, and consequently choose to stay silent about any unethical behaviour they suspect. An anonymous reporting channel gives people more confidence to speak up. However, there should be safeguards built against its misuse.

What are the Challenges for effective enforcement of the Policy?

1. Low awareness: Organizations need to appreciate the importance of publicizing their whistleblowing policies and the reporting channels to everyone (including third parties).
2. Poor infrastructure: Create and enable appropriate channels (emails, phone lines, suggestion boxes or internet links) to cater for the preference of the reporter. 
3. Data analytics is a very useful tool in proactively responding to fraud. Offices should be   well-equipped in it.
4. reporters have little trust in the system due to fear of victimization or intimidation and needs to be addressed.
5. reporters are not encouraged to speak out because there are no far-reaching actions after investigations are conducted. Consequently, there is less motivation to report wrongdoing. It requires correction.