Whistle blower policy – A strong tool for corporate governance

Audit & Assurance Services

Whistle blower policy – A strong tool for corporate governance

Corporate Governance (CG) is the system of rules, practices and processes by which an entity is directed and controlled. It is an important facet of enterprise governance in the process of achieving its goals and objectives.CG identifies who has power and accountability, and who makes decisions.

The four Pillars of corporate governance are people, process, performance and purpose. It is often thought of as being relevant purely to the financial aspects of a business, but not so. Instead, corporate governance can refer to any policy or procedure that protects the best interests and best practices of the company and its stakeholders- its investors, employees, customers, and suppliers. However, with the increasing attention on corporate social responsibility, the concept of stakeholders has been extended to include communities, governments, and trade associations. The three primary objectives of corporate governance are: 

Motivation of value-maximizing decisions;

Protection of assets from unauthorized acquisition, use or disposition; and

Production of proper financial statements.

The Companies Act of 2013 and SEBI guidelines on listing have given special emphasis on the importance of Corporate Governance in the corporate sector in India.

In an era of acute competition in the corporate world, where financial gain has superseded ethics and customs, compliance and transparency in the functioning of corporate sector is all the more important as corporate frauds are major concerns across the world. Here lies the importance of a whistleblower, who ensures a good corporate governance in an organization.

A cross country analysis shows that post 2000 witnessed several regulatory frameworks on corporate governance with special emphasis on whistleblowing policy, code of conduct and code on ethics. In India Whistle Blowers’ Protection Act, 2014 was primarily enacted to govern public sector. Under this Act, whistleblowers have been provided with protection to hide their identity. SEBI regulations 2015 make it obligatory for listed companies to devise effective whistleblower process and they are required to disclose the same in their annual reports and websites. S 206-229 of the Companies Act 2013 too deal with whistleblowing as regards its enquiry, inspection and investigation.

Steps in a Whistleblower Claim

  1. Step 1 – Get Evidence. This is the most important step in a whistleblower claim.
  2. Step 2 – Presenting the Evidence.
  3. Step 3 – Investigation by Authorities.
  4. Step 4 – The Final Decision.

The whistleblowing policy is a crucial policy which gives stakeholders the liberty to raise concern against any suspected illegal activity. Whistleblowers are protected from retaliation for disclosing information that the employee or applicant, reasonably believes, provides evidence of a violation of any law, rule, regulation, gross mismanagement, gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety.But Whistleblower should not make repeated, malicious, wrong charges/actions which are not based on facts, based on personal grudges, grievances or personal enmity or vexatious allegations. In such a case, appropriate action may be taken against the Whistleblower.

There is a downside to whistleblowing, as much as it is meant to call out illegal practices. Whistleblowing brings with it a lot of negative attention to both the whistleblower and the organization. Hence there is a need to implement the policy effectively and the following suggestions may be relevant in this context.

1. Social acceptance – This is necessary for the successful implementation of any policy;

2. Motivate employees to report unethical activities, rewards may be instituted; they should be encouraged to participate actively and training and awareness programmes be conducted from time to time;

3. It is the responsibility of the top management to ensure effective implementation of the policy across the board;

4. The policy should be dynamic and be updated from time to time based on changes in laws and environment;

5. Effective top down and bottom up communications help in strong actions against unethical practices and wrong doings;

Whistleblowers are to report the illegal/irregular activities of unscrupulous persons even after undertaking a risk on their lives. India still lags behind in the implementation of the whistleblowing policy compared to developed countries. There is a strong need to increase the awareness among the people to report dishonest actions and also to improve social acceptability and all round support to whistle blowers. In our country. A strong will to implement the policy can drastically change the governance of public funds, earmarked for various schemes/infrastructures.

Corporate Governance (CG) is the system of rules, practices and processes by which an entity is directed and controlled. It is an important facet of enterprise governance in the process of achieving its goals and objectives.CG identifies who has power and accountability, and who makes decisions. The four Pillars of corporate governance are people, process, performance and…