CNV3-I1-5-Protocol
"Corporate governance is about promoting corporate fairness, transparency and accountability"
...... J. Wolfensohn, President of the Word bank,
One of the key beliefs of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability which is strengthened not just by efficient management and disclosure policies, but also by the creation of systems and processes to detect and address fraud and corruption within the organisation. One such example of lack of transparency and accountability in news was the global auto-giant Volkswagen has deliberately circumvented the US Environmental Protection Agency (EPA) emission laws on its popular “clean diesel” models sold from 2009 and for this scandal popularly known as “Dieselgate”, VW paid $25 bn as penalty.
The use of the term "whistleblower" dates back to the 19th century and was coined by Ralph Nader. One of the most notable whistleblowers is W. Mark Felt, who exposed former President Richard Nixon's involvement in illegal dealings during the Watergate Scandal. Another famous whistleblower is Sherron Watkins, a former Enron employee, who shed light on the company's fraudulent accounting practices resulting into closure of Enron and enactment of Sarbanes Oxley Act, in US. In India whistleblowing is still a work-in-progress compared to the United States or the European Union. The reluctance to report wrongdoing within organizations or communities rises from a fear of punishment.
Madhu Sivaram Muttathil, Corporate Counsel, Avaya India Pvt. Ltd rightly said; “Some exceptionally brave souls have unearthed corruption and fraud in the top echelons of power. However, these rare acts of courage have come at a price”.
Many whistle-blowers have got into trouble and even murdered due to their disclosure. The cases of Satyendra Dubey (officer from IES working with National Highway Authority of India) and Manjunath Shanmugam (a sales officer for the Indian Oil Corporation) immediately come to mind. Both Dubey and Shanmugam paid the ultimate price for daring to expose corruption in the public sector. More recently, the series of suspicious deaths in the wake of the infamous Vyapam disclosures has put the spotlight once again on the dangers facing whistle-blowers in India.
A whistleblower in the ICICI Bank-Videocon loan controversy, wanted the government and regulators to check on the lending practices of the banking system. The issue was first highlighted in October 2016, which have gone unnoticed by the government. The biggest corporate scam in India was by, Satyam founder Mr Ramalinga Raju, who resigned as its chairman after admitting to cooking up the account books.
Harshad Mehta’s bull run between 1991-92, taking advantages of the loopholes in the banking system did not last too long. Ketan Parekh followed Harshad footsteps to swindle crores of rupees from banks.
The Bhansali scam resulted in a loss of over Rs 1,200 crore (Rs 12 billion) using his three companies CRB Capital Markets, CRB Mutual Fund and CRB Share Custodial Services. These scams considerably eroded the trust of shareholders in the corporate governance system in the country.
Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The Companies Act 2013 has made it mandatory for certain classes of companies to establish vigil mechanisms for their directors and employees in order to report genuine concerns in the recommended manner. Clause 49 of the SEBI listing agreement also lays down similar provisions. Non-compliance with these regulations could lead to fines and penalties.
The act of whistleblowing — going to an official government agency and disclosing an employer’s violation of the law — is different from everyday criticism. The whistleblowing is viewed as a public service because it helps society reduce bad workplace behaviour. However, a task of whistle-blower is not easy and those inclined to do so, can expect many hurdles. If a whistle-blower’s identity becomes known, his or her career may get destroyed and he/she may get blacklisted, making it difficult for them to get a job elsewhere.
Blowing the whistle on your employer is thus a big decision with consequences. However, most employees do not want to hide unethical or illegal conduct, nor should they. Ethics says that , if the company actively is breaking the law, it is important that the wrongdoing be reported. However, it a challenge when and how to blow the whistle for an employee wanting to do the right thing.
For whistleblowing an employee should first try internal reporting channels, to disclose the problem to management before going public. Sometimes workers mistakenly identify something as wrongdoing that was not wrongdoing after all. Internal reporting gives management a chance to start an investigation and attempt to rectify the situation. The employee who goes to the government should also have some kind of hard evidence that wrongful actions have occurred; the violation should be serious and blowing the whistle should have some likelihood of stopping the wrongful act.
There are specific laws under which whistleblowing employees are protected and these laws are in the environmental area, where it is in the public interest for employees to report violations of the law to the authorities, which, in turn, helps the average citizen concerned about clean air and water. The Clean Air Act protects any employee reporting air emission violations from area, stationary, and mobile sources from any retaliation for such reporting. The Water Pollution Control Act similarly protects from retaliation any employee who reports alleged violations relating to discharge of pollutants into water. In such cases, without the help of employees who are “on the ground” and see the violations occur, it could be difficult for government regulators to always find the source of pollution. In such situations, the responsible employee becomes a steward of the public interest, and we all should want whistleblowers to come forward.
A few whistle blowers have become rich (Source: ABC News story), with awards @ $100 million. In 2012, a single whistle-blower, Bradley Birkenfeld[1], a former UBS employee, was awarded $104 million by the Internal Revenue Service (IRS), making him the most highly reward ed whistle-blower in history. Birkenfeld also spent time in prison for participating in the tax fraud he reported. In 2009, ten former Pfizer employees were awarded $102 million for exposing an illegal promotion of prescription medications. John Kopchinski, the original whistle-blower and one of the ten, received $50 million. In another case involving the health care company HCA, two employees who blew the whistle on Medicare fraud ended up receiving a combined total of $100 million.
Some prominent whistle blowing cases in Indian in cointext:
· Nisha Yadav: Jan 2013 – won Godfrey Phillips Bravery Award for lifting lid on child abuse racket at NGO orphanage “Suparaana Ka Aangan”
· Kunal Saha: August 2009 – wins Supreme Court case against Advanced Medicare Research Institute in Kolkata for negligent treatment of his wife.
· Paul Blakeslee: March 2013 – won $3.4 million for wrongful termination after he blew whistle on a colleague overcharging the government.
· Vijay Pandhare: October 2012 – Uncovered Maharashtra Irrigation scam. Led to Ajit Pawar’s sacking.
· Seema S Bhat: November 2005 – Wins Rs. 2.25 crore after exposing excessive levels of lead in water in Washington D.C.
· Manoranjan Kumar: March 2009 – IES officer wins Rs. 25,000 case against Shipping Ministry for Kandla Port scam.
· Dinesh Thakur: 2013, - Worked at Ranbaxy was responsible for blowing the lid on the company‘s falsification of certification documents submitted to drug controllers around the world. The wrongdoings took place over years and top management also involved in it. Thakur, received $48.6 million (Rs262.4 crore) for his efforts.
The whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistle-blowers themselves. There is no one set solution for all and hence company to establish a whistle-blower mechanism on the following lines:
· Reporting mechanism: To allow for meaningful, reliable, yet anonymised disclosures ensuring confidentiality to the whistle-blower. The whistleblowing policies should focus on protecting the complainant and the alleged wrongdoer should be given a fair hearing and reasonable opportunity to furnish his/her defences.
· Evaluation process: After complaint is registered on the whistle-blower mechanism, it needs to be evaluated for its severity and dealt with by the appropriate department.
· Investigation procedure: Success of a whistle-blower mechanism depends upon effectiveness of the mechanism by stakeholders. If the employees of a company feel that their complaints are likely to be evaluated and resolved, they will actively report thereby ensuring good corporate governance. Therefore, the whistle-blower complaints are investigated by a team of independent personnel ensuring that there are no conflicts of interest in handling allegations.
· Confidentiality: It is required that the contents of WB complaints to be treated as sensitive data and the company should adopted certain safeguards in protecting such data from leaking.
In conclusion the companies aspiring for institutionalising good corporate governance practices, they should keep four key principles while putting in place appropriate whistleblowing policies are; first to protect and anonymise the whistle-blower; second to give fair hearing to the alleged wrongdoer; third to ensure legal evaluation of complaint to assess regulatory and disclosure obligations and forth to deliver immediate corrective action. Hence, a lot more needs to be done in this area as Madhu Sivaram Muttathil, Corporate Counsel at Avaya India Pvt. Ltd rightly said that the whistleblowing is still in very early stage of its acceptance level in corporate world in India.
Dr Vinod Sople, Dean (Research), ITM Group of Institutions