Business ethics unit 4

Whistleblowing and corporate governance

What is whistleblowing?
Whistleblowing is when an employee, contractor or supplier goes outside the normal management
channels to report suspected wrongdoing at work, i.e. speaking out in a confidential manner. This can be
done via internal processes set up by the organisation (internal whistleblowing) or to an external body
such as a regulator (external whistleblowing). While public disclosure to the media can also be perceived
as whistleblowing the IIA report focuses on formally prescribed channels.

Whistleblowing and Corporate Governance

 Whistleblowing is an essential safety valve, an important element in a healthy corporate culture,
and should be part of the internal control environment.
 For listed companies, the UK Corporate Governance Code states that boards should ensure these
procedures are properly planned and properly implemented (reference Section C.3.5)
 Whistleblowing procedures should encourage individuals to disclose concerns using appropriate
channels before these concerns become a serious problem, thus avoiding reputational damage
through negative publicity, regulatory investigation, fines and/or compensation.
 Boards need to consider the effectiveness of whistleblowing policies and procedures on a regular
basis as part of their oversight of the system of internal control.
 Internal audit can play a vital role in supporting boards in this area .

The concept of whistle-blowing

Whistle blowing policy is a policy through which anyone can report alleged dishonest or
illegal activities or misconduct in the company directly to any person having authority or to the
director or the CEO. The alleged misconduct can be classified in many ways like fraud,
violation of law, threat to the interest of the stakeholders of the company, violation of a law,
rule or regulation, gross mismanagement, gross waste of funds, abuse of authority and a
substantial and specific danger to public health or safety. A whistle blower is an employee or
ex- employee or any other stakeholder who provides information about his or her company
which he or she reasonably believes provided they have evidence to support it. Whistle blower
plays a very important role in contributing to the better corporate governance.

Principally there are two kind of whistle blowing:

1. Internal – report misconduct to another employee or a superior within their organization.
It is often helpful to the organization or the company as it enables them to correct their
discrepancies internally and relieve themselves from further embarrassment before the public.
2. External – whistle-blowers report misconduct to outside persons or entities like media or law
enforcement authorities.

A whistle is blown in circumstance like:

Knowledge of inappropriateness – Making proprietary software available to public,
Embezzlement or redirection of funds.
Bad claims – Unrealistic date projection, advertising hype, etc.
Knowledge of impending doom – When you know the project is doomed for failure and
can prove it, yet no one else realizes it yet.

The whistle blower must choose between the various alternatives available to blow the
whistle, like to blow it anonymously, in a group, by presenting just the evidence, disclosure
through internal channels, through external channels i.e. going public. Whistle blowing through
external channels have colossal menace as it brings about huge exposure in public which may be
detrimental.
“Effective whistleblowing is a key component in any strategy to challenge inappropriate behaviour at all
levels of an organization. It is both an instrument in support of good governance and a manifestation of a
more open organizational culture.”

Types of whistle blowers

Whistle Blowers

A whistle blower is a person who raises a concern about the wrongdoing occurring in an organization or
body of people. He can be an employee working within the organization or a contractor or a customer
who becomes aware of or notices any illegal activities occurring within the organization. These activities
can be of the form of fraud, corruption, misconduct, deceiving employees, indiscipline, willful misuse of
power, criminal activity, health and safety violations, non-compliance with the regulations, etc.

The person who becomes aware of such wrongdoing may report the same to senior officer of the
organization or and outside authority like media personnel. Based on reporting authority, there are
basically two types of whistleblowers-

1. Internal Whistleblower
2. External Whistleblower

1. Internal Whistleblower
These whistleblowers report the wrongdoings of the company to a superior authority within the
organization. For e.g. an employee may report a fraud committed by his co-worker to his CEO or head
human resource.
Several organizations have their own policies and whistle-blowing mechanisms which specify the way of
reporting such incidents and the procedure attached thereto. Many companies also have their internal „hot
line‟ or „tip line‟ to aid the internal whistleblowers in reporting the misconduct happening inside the
company.
In case of internal whistle-blowing, neither any government investigation takes place nor there is any
actual litigation. The required actions are taken by the company internally without the involvement of any
outside authority. However, in some cases the company reports such matters to appropriate government
authority for formal investigation to avoid harsher sanctions that may incur if government becomes aware
of such wrongdoing on its own notion.

2. External Whistleblower
These whistleblowers reports the wrongdoing happening inside a company to an outside authority like
law enforcement agencies, media groups, regulators, higher government officials, etc. For e.g. a
contractor may report a big scam to appropriate government agency.

Under this, private or classified information of the company or organization is revealed to an outside
authority to ensure greater public interest as the fraud, illegal activity or any other wrongdoing happening
inside the company or organization might be detrimental to public at large. This may subject it to external
inquiries and constraints. Such cases often land up in litigation process inside the courts.
People often go for external whistle-blowing due to the reason that the internal mechanism often fails to
deal with organization failures largely because of their own officers being involved in it or the advantages
they may accrue as a result of such fraud or illegal activity.

Whistle blower policy

The whistleblower policy is a set of rules and guidelines for all the company stakeholders, be it the
employees, contractors, shareholders, vendors, or any other person, to be followed when they see
something illegal or unethical happening within the organization intentionally or unintentionally. And,
such acts are not in the public interest or undermine the interest of the shareholders.

 A whistleblower policy establishes rules and guidelines for all stakeholders of a

company, including employees, contractors, shareholders, vendors, or any other person,
to follow when they witness or become aware of illegal or unethical activities within the
organization that are not in the public interest or undermine shareholders‟ interests.
 The purposes of a whistleblower policy include encouraging employees to report
misconduct, creating awareness about the policy, and promoting corporate governance.
 The advantages of a whistleblower policy include raising awareness among stakeholders
about misconduct, enabling prompt reporting and resolution of issues, and fostering a
culture of accountability and transparency.

Purpose of the Whistleblower Policy

 Encourage employees: A whistleblower policy encourages employees to report in good

faith if they see any misconduct because they are made aware they must report such
instances. But, of course, one will take care of their anonymity.
 Create awareness: Employees are aware of the possible issues under this category and
for educational purposes. Otherwise, such acts might go unnoticed.
 Guide for stakeholders: The policy contains a step-by-step guide of what the employee
or other shareholder needs to do when he sees misconduct and whom to report such
instances. Therefore, they achieve the resolution quickly and efficiently. Without such a
policy, the stakeholder might not know what to report an incident.
 Corporate Governance: Corporate governance is the process in which the interests of
staggered shareholders and external stakeholders are protected because they cannot be a
part of the company‟s day-to-day activities. Therefore, they are vulnerable to misconduct.

Conclusion
The whistleblowing policy is a must in all organizations, whether big or small, to prevent misconduct and
uphold the interests of all the stakeholders, internally or externally. It needs to maintain anonymity to
encourage the whistleblowers to act when they see wrongdoing.
However, in practicality, whistleblowing is not free from danger as the whistleblower may face
challenges such as being laid off, not getting a new job, or even threats to their lives. Therefore, the
proper implementation of the policy is highly important.

Whistle blower legislation and development in india

Whistle Blowers Protection Act, 2011 is an Act of the Parliament of India which provides a mechanism to
investigate alleged corruption and misuse of power by public servants and also protect anyone who
exposes alleged wrongdoing in government bodies, projects and offices. The wrongdoing might take the
form of fraud, corruption or mismanagement.
The Act was approved by the Cabinet of India as part of a drive to eliminate corruption in the country's
bureaucracy and passed by the Lok Sabha on 27 December 2011. The Bill became an Act when it was
passed by the Rajya Sabha on 21 February 2014 and received the President's assent on 9 May 2014.

Corruption is a social evil which prevents proper and balanced social growth and economic development.
One of the impediments felt in eliminating corruption in the Government and the public sector
undertakings is lack of adequate protection to the complainants reporting the corruption or willful misuse
of power or willful misuse of discretion which causes demonstrable loss to the Government or
commission of a criminal offence by a public servant.

It was decided to enact a separate legislation to provide adequate protection to the persons reporting
corruption or willful misuse of power or discretion which causes loss to the Government or who disclose
the commission of a criminal offence by a public servant.

Pros & Cons

Pros
The Act, under section 3, provides that any public servant or any other person including a non-
governmental organization may make a public interest disclosure to a Competent Authority.

What is important under this Act is the term “Public Interest Disclosure” which is meant to be any
disclosure by a public servant or any other person including any non-governmental organization before
the Competent Authority notwithstanding anything contained in the provisions of the Official Secrets Act,
1923 in Public interest. Any disclosure made under this Act shall be treated as public interest disclosure
for the purposes of this Act and shall be made before the Competent Authority and the complaint shall be
received by such authority as may be specified by regulations made by the Competent Authority.

The name of the Act itself makes it very clear that the purpose of this act is the protection of the persons
who make public interest disclosure or have assisted in such matters from possible victimization or
harassment and the Central Government has to ensure such protection . The Competent Authority has
been empowered to give proper direction to the concerned authorities for the protection of complainant or
witness either on an application by the complainant or based on its own information. It can also direct that
the public servant who made the disclosure may be restored to his previous position.

The Vigilance Commission has to protect the identity of the complainant and related documents, unless it
decides against doing so, or is required by a court to do so. Furthermore, the Commission is empowered
to pass interim orders to prevent any act of corruption continuing during inquiry.

If any person is being victimised or likely to be victimised on the ground that he/she had filed a complaint
or made disclosure or rendered assistance in inquiry than he/she may file an application before the
Competent Authority seeking redress in the matter, and such authority shall take such action, as deemed
fit and may give suitable directions to the concerned public servant or the public authority, as the case
may be, to protect such person from being victimised or avoid his victimization.

Cons
The Whistleblowers Protection Act, 2011 has neither provisions to encourage whistleblowing (financial
incentives), nor deals with corporate whistleblowers; it does not extend its jurisdiction to the private
sectorand it does not include the definition of victimisation. Further, competent authorities under the Act
are very limited and right of appeal is not provided to the complainant in case he/she is not satisfied by
any order of the competent authority. Appeal provisions have been provided only relating to imposition of
penalty.

Actions on anonymous complaints have not been included in the ambit of the Act. The Lokpal (National
level apex anti‐corruption and Grievance Redress agency) which will be established under the Lokpal &
Lokayuktas Act, 2013 will have no role to play in the scheme of protection of Whistleblowers. , the
Lokpal should also have been mentioned as a competent authority under the Act for the purpose of
receiving complaints.

The Act does not specify a procedure for inquiring into complaints of about acts of corruption, willful
abuse of power or willful misuse of discretion or offences committed by members of the lower judiciary
Conclusion
Although the Act has yet to come in force by a notification of the Central Government in the Official
Gazette the provisions of the Act on the bare perusal of the Act seem inadequate and thus there are
chances that the zeal of the Whistleblowers to make disclosure will be affected.

It has to be seen that the Act does not become a Paper tiger like the Benami Transactions (Prohibition)
Act, 1988 and proper rules should be formulated and passed to give better effect and force to the
Whistleblowers Protection Act 2011

Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially
accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also
called corporate citizenship, companies can be conscious of the kind of impact they are having on all
aspects of society, including economic, social, and environmental.

To engage in CSR means that, in the ordinary course of business, a company is operating in ways that
enhance society and the environment instead of contributing negatively to them.

 Corporate social responsibility is a business model by which companies make a concerted

effort to operate in ways that enhance rather than degrade society and the environment.
 CSR helps both improve various aspects of society as well as promote a positive brand image
of companies.
 Corporate responsibility programs are also a great way to raise morale in the workplace.1
 CSRs are often broken into four categories: environmental impacts, ethical responsibility,
philanthropic endeavors, and financial responsibilities.
 Some examples of companies that strive to be leaders in CSR include Starbucks and Ben &
Jerry's.

Types of Corporate Social Responsibility

In general, there are four main types of corporate social responsibility. A company may choose to engage
in any of these separately, and lack of involvement in one area does not necessarily exclude a company
from being socially responsible.
  Environmental Responsibility :- Environmental responsibility is the pillar of
corporate social responsibility rooted in preserving mother nature.

 Ethical Responsibility :- Ethical responsibility is the pillar of corporate social

responsibility rooted in acting in a fair, ethical manner. Companies often set their
own standards, though external forces or demands by clients may shape ethical goals.

 Philanthropic Responsibility :- Philanthropic responsibility is the pillar of corporate

social responsibility that challenges how a company acts and how it contributes to
society. In its simplest form, philanthropic responsibility refers to how a company
spends its resources to make the world a better place.

 Financial Responsibility :- Financial responsibility is the pillar of corporate social

responsibility that ties together the three areas above. A company make plans to be
more environmentally, ethically, and philanthropically focused; however, the
company must back these plans through financial investments of programs,
donations, or product research.

Benefits of Corporate Social Responsibility

As important as CSR is for the community, it is equally valuable for a company. CSR activities can help
forge a stronger bond between employees and corporations, boost morale, and aid both employees and
employers in feeling more connected to the world around them. Aside from the positive impacts to the
planet, here are some additional reasons businesses pursue corporate social responsibility.

1. Brand Recognition
2. Investor Relations
3. Employee Engagement
4. Risk Mitigation

Corporate Philanthropy:

Corporate philanthropy refers to the activities that companies voluntarily initiate to manage their impact
on society. Typically, corporate philanthropic activities include monetary investments, donations of
products or services, in-kind donations, employee volunteer programs and other business arrangements
which aim to support a social cause. While some companies spearhead and operate corporate
philanthropy programs themselves, others may focus on advancing the work of local community
organizations, nonprofit organizations or other social initiatives geared toward improving society.

Corporate philanthropy has become increasingly popular in recent years, as consumers now expect a
certain level of accountability and transparency from corporate entities. With higher levels of open
dialogue between consumers and businesses via social media, companies have taken on more
responsibility for their particular social effects, wielding their financial and societal influence to empower
communities. It's important to note that corporate philanthropy differs from corporate social responsibility
(CSR) in that CSR is typically incorporated into a company's actual practices and functions as a business.
Here are a few types of corporate philanthropy programs that companies undertake:
 I. Gift matching
II. Volunteer grants
III. Employee grants
IV. Community grants
V. Community works
VI. Scholarships
VII. Volunteer support initiatives
VIII. Corporate sponsorship

Benefits of corporate philanthropy

 It can help the company give back to the community.

 Philanthropy programs can improve a company's public reputation.
 Company sales can increase due to philanthropic efforts.
 Customers may become more loyal to company products.
 Connecting to communities can improve company culture.
 Philanthropic companies may attract more talented candidates.

Business Ethics and Corporate Social Responsibility

CSR initiatives in India

Very broadly, CSR involves individuals within a business or organization concluding that a problem or
issue exists and then devising a solution to help tackle it. Any CSR initiative will start there. However,
there are about as many directions to take with a CSR initiative as there are organizations that engage in
such initiatives.
Examples of CSR initiatives
Many businesses throughout the U.S. provide support to their local communities through charitable
giving or employee CSR volunteering with local groups. For example, a company could encourage
employees to volunteer their time to help reduce the buildup of litter on the roadside. This volunteering
effort would provide a service for the community while protecting the natural environment at the same
time. Through the initiative, the company would promote its local community as a clean, healthy place to
live and work.

Many clothing manufacturers, another great example, work hard to provide the best clothing on the
market, and many consumers are willing to pay higher prices for clothing they know is the highest
possible quality. But today‟s consumer is often also willing to pay a premium for clothing from a
company with a conscience. A clothing manufacturing company could implement a CSR initiative to
donate climate-appropriate clothing to those in need around the world. The campaign could mean that the
company donates one item to a person in need for every purchase made by a shopper. This would help the
company make an impact as well as making the consumer feel they‟ve made an impact. Consumers are
glad to make purchases that help send clothing to someone in need.

Companies in India for CSR

1. Godrej Consumer Products Limited

2. Infosys Limited.
3. Wipro Limited.
4. Tata Chemicals Limited.
5. ITC Limited.