Whistle-blowing mechanism in CG

What is Whistleblowing?
• Raising a concern about a malpractice within an organization or through an
independent structure associated with it.
• It is defined as an act by an individual who believes that the interest of the
public overrides the interests of the organization he or she serves. The act of
whistleblowing can have an extraordinary influence on the organization, on the
society and on the whistleblower.
• There are six elements contained in whistle blowing:
• The whistle blower
• The disclosure subject (the act that was perceived)
• The act of disclosing the wrongdoing
• The target organization
• A recipient to whom the disclosure will be made
• An outcome
• No universally accepted definition of whistleblowing
Examples of wrongdoing
• Misconduct of material gain (such as bribery, corruption, theft of money
and property, using official position for services/favours, giving unfair
advantage to the contractor, making false/inflated claims for
reimbursement, etc.)
• Perverting justice or accountability (such as covering-up corruption,
unlawfully altering or destroying official records, hindering an official
investigation, etc.)
• Conflict of interest (such as intervening in a decision on behalf of a friend
or relative, failing to declare financial interest, etc.)
• Improper or unprofessional behavior (such as sexual assault and sexual
harassment, racial discrimination against a member of the public, being
drunk/under the influence of illegal drugs at work, misuse of confidential
information, etc.)
Examples of wrongdoing
• Defective administration (such as producing or using unsafe products,
acting against public policy, regulations or laws; incompetent or negligent
decision making; endangering public health or safety, etc.)
• Personnel or workplace grievances (such as allowing dangerous or harmful
working conditions; racial discrimination against a staff member; favoritism
in the selection or promotion, etc.)
• Waste or mismanagement of resources (such as negligent purchase or
leases, inadequate record keeping, etc.)
• Non-compliance of laws and regulations.
• Illegal activities, unethical and improper practices relating to financial and
accounting matters and standards.
Types of Whistleblowers
1. Peer-reporting: when the whistleblowing involves the disclosure of
information regarding a peer‘s illegal, immoral or harmful practices.
2. Internal Whistleblowing: reporting to people or managers within the
organization who are higher up in the organizational hierarchy.
3. External Whistleblowing: disclosure of information outside the organisation
and includes media, politicians, public protectors, government bodies,
regulatory bodies, interest groups and enforcement agencies.
4. Open and anonymous whistleblowing: Open whistleblowing is when the
identity of the whistleblower is known to the public through the disclosure of
the identity, while the anonymous whistleblower whose identity is kept secret
5. Dutiful and freewill whistleblowers: those who are generally given the
responsibility to bring to light any wrongdoing in the organization, e.g.,
auditors of the company
Factors Influencing the Whistleblower in Disclosing
Wrongdoing
“One stone is enough against fifty clay pots” - Ethiopian proverb
• The credibility of the whistle blower: if people are trusted, such an action
may be taken seriously.
• The motivation of the whistle blower: if there are any suspicions about the
reasons why someone chooses to blow the whistle, chances are that the
complaint will not be heard.
• The perceived validity of the evidence: it is rather than the perceptions or
the motivations of the whistleblower should be the most important reason
for taking a disclosure of wrongdoing seriously.
• The position of the whistle blower: the power and status often influence the
capacity of an individual to influence management.
• Membership of minority groups within an organization: females or
members of underrepresented ethnic groups may find it harder to be heard.
The Whistleblowing process
Step 1: Reduce opportunities to commit unethical or illegal conduct.
Step 2: Establish if the observed activity is actually wrong.
Step 3: Use internal mechanisms in the organization to raise concerns.
Step 4: Organizational policies/procedures must be used.
Step 5: External whistleblowing
Impact of Whistleblowing: negative and positive
Some consequences:
• Abuse and anger from the people directly or indirectly involved in the wrongdoing.
• Whistleblowers may face hostility and resentments from his peers and superiors.
• He may face an awkward social surrounding and stilted relation with his employers.
• He may be compelled to leave the organization.
• He may be demoted from the position.
• He may be transferred to a less desirable location.
• In an extreme situation, his family, health and or life might be in jeopardy.
• It may put him into isolation from the rest of the organisation.
• His credibility and future job opportunities may be at risk.
• Reputation of organization against which whistle has been blown may be at stake.
• The whistleblower may feel restlessness, fatigue, headache, insomnia, anger, anxiety
and disillusionment.
Impact of Whistleblowing: negative and positive
Some positive outcomes:
• Promotion
• Increased salary
• High reputation
• Getting a higher assignment where responsibility is expected
• Financial rewards like perks, awards, bonus, etc.
• It changes the organization culture that prevails
• Motivate the transparency and the trust in organization
• It encourages the organization to venture into risky areas
Elements of Whistleblowing policy
• Manager should address disclosures of wrongdoing to avoid damage to individual or
organizational reputations and other negative consequences.
• All parties in the problem involved must be adequately heard and proper recordings be
made.
• Explain how the whistleblower is protected as per the policy of the company as well as the
law prevailing in the country.
• State the good intention of the company in promoting the whistleblowing within the
company.
• Specify the consequences if the guilt is proved and the seriousness and severity of the
measures taken after the whistleblowing.
• Specify how the immunity is provided on staff who have positively contributed to the entire
episode of whistleblowing.
• Obtain the feedback obtained from the parties involved in the whistleblowing.
• The time-frame must be specifically mentioned in finding solutions to issues involved in the
whistleblowing.
Benefits of Good Whistleblowing policy
• It fosters good governance based on strong foundations of corporate
ethics.
• It fosters a good ecosystem in organization conducive for whistleblowing.
• It prevents corruption and nepotism in organization and promotes
governance based on professionalism and competence.
• It promotes CSR in organizations.
• It promotes a good employer-employee and employee to employee
relationship.
• It discourages management, administration and employees from
committing mistakes and wrongdoings.
OECD Initiatives on Whistle Blowing protection law
Check list:
1. 1Is there a comprehensive and clear legislation in place to protect from
retaliation, discriminatory or disciplinary action, employees who disclose
in good faith and on reasonable grounds, the suspected acts of
wrongdoing or corruption to competent authorities?
2. Are there effective institutional frameworks and clear procedures and
channels in place for facilitating the reporting of wrongdoing and
corruption?
3. Are protected disclosures and persons afforded protection clearly
defined?
4. Are retaliatory actions clearly defined and is the protection afforded
robust and comprehensive?
OECD Initiatives on Whistle Blowing protection law
5. Are remedies and sanctions for retaliation clearly outlined?
6. 6. Is awareness-raising regularly undertaken to encourage the reporting
of wrongdoing and corruption and to disseminate existing information on
the protection of whistleblowers?
7. Is the effectiveness in the practice of the whistleblower protection
framework periodically evaluated and reviewed?
Whistleblower laws in India
• Whistleblowers protection act 2014:
The Central Vigilance Commissioner is the competent authority to deal with
corporate corruption. False complaints or cooked up complaints are
discouraged and the law imposes two years imprisonment and a fine of Rs.
30,000 for the persons who file false and frivolous complaints.
Whistleblowers protection act 2014
Disclosure: The Act provides that any public servant or any other person,
including a nongovernmental organization may make a public interest
disclosure to a competent authority, i.e., Central Vigilance Commissioner or
State Vigilance Commissioner.
Procedure of Inquiry: The Vigilance Commissioner first ascertains the
identity of complainant and has to protect such identity, unless the
complainant has revealed it to any other authority. If the commissioner is
convinced about the substance of the matter, inquiry is initiated and facts
are collected and the steps to prosecute the guilty are taken. The
appropriate court can take criminal proceedings against the guilty. But if any
inquiry is already initiated by any court or tribunal based on any public
interest litigation, the Vigilance Commission is exempted from further
proceedings.
Penalty: The Act aims to balance the need to protect the honest officials
from undue harassment and protecting persons making a public interest
disclosure. It punishes any person making false complaints.
The Act lays down that for not furnishing reports to the Vigilance
Commission, a fine of up to RS. 250 shall be imposed for each day till the
report is submitted. However, total penalty shall not exceed Rs. 50,000.
When a person knowingly makes false or misleading disclosures with mala
fide intentions, the penalty is 2 years imprisonment and a fine of Rs. 30,000.
Whistleblowers protection under Clause 49 of the listing agreement
Clause 49II(F) of the Listing Agreement on the Whistleblower Policy effective
from 1 October 2014 provides the following:
• The company shall establish a vigil mechanism for directors and employees
to report concerns about unethical behavior, actual or suspected fraud or
violation of the company’s code of conduct or ethics policy.
• This mechanism should also provide for adequate safeguards against
victimization of director(s)/employee(s) who avail of the mechanism, and
also provide for direct access to the Chairman of the Audit Committee in
exceptional cases.
• The details of the establishment of such mechanism shall be disclosed by
the company on its website and in the Board’s report.
Some important cases are mailed to you.