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Caveat Whistleblower: Indian Corporates Doing Enough?

Published on Fri, Jun 07,2013 | 15:28, Updated at Fri, Jun 07 at 19:09Source : Moneycontrol.com 

By: Harish H V & Ajith Bhaskaran, Grant Thornton

In the dynamic environment that organisations operate, whistleblower mechanism is considered an important tool to detect and prevent inappropriate acts and behaviour which conflict with the organisation’s objectives and public interest. Often, the nature of inappropriate acts and behaviour is clandestine and can be discovered only when reported by operational level people in the course of their work. Whistleblower mechanism is therefore recognised as an effective tool that compliments the organisation’s good governance practices, code of business conduct and social responsibility initiatives.

While some organisations implement whistleblower mechanism as part of their governance initiatives, others introduce it when a serious malpractice is discovered that threaten to erode its credibility and reputation, as was recently experienced by an Indian MNC having operations in multiple geographies. The company was faced with allegations of misconduct by its top management and this paved the way for several governance improvement initiatives by its Board, including setting up of a whistleblower process across its business locations.

Improving effectiveness of Whistle Blowing

 For the system to work, people at all levels should be convinced about the organisation’s ethical culture, have the confidence that the whistle they would blow will reach the right authority, that the matter will be resolved through a well-defined process, that the matter will be dealt with by people who would not be conflicted and that the person who would blow the whistle will be protected. Further, people are more likely to take action with respect to unacceptable acts or behaviour if the mechanism offers a choice of channel options that ensure absolute confidentiality, including if required, anonymity and protection to the whistle blower when the whistle blowing is against the organisation to the authorities.

 At the fundamental level is the effective rollout of a code of business conduct, the whistleblower policy and procedures to deal with whistle blowing. The whistleblower mechanism should be clearly articulated to employees as well as other stakeholders such as vendors and customers, usually through a post on the organisation’s website and intranet, and provided regular reinforcement at induction and training programs.

 At the next level is the identification of an Ombudsman who would register the matters people raise on the whistle blower mechanism and channelize them through a defined process for resolution. The Ombudsman may either be a senior internal resource or the process can be outsourced to a third party service provider. Employing the services of a third party service provider lends the assurance of an independent and impartial process, and helps build people’s confidence in the system.

 While designing the process and response mechanism to the matters raised on the whistle blower channel, care should be taken to consider the regulatory angle in all the geographies the organisation operates. For instance, definitions of what would constitute corruption and inappropriate sexual behaviour as well as the manner in which these matters should be dealt with differs from country to country.

 Importantly, the process should afford adequate protection to the whistleblower. Reporting an unacceptable act or behaviour can carry enormous personal risks. Whistle-blowers may lose their jobs, dampen their career prospects, and even put their own lives at risk. It is well known that many people do not consider blowing the whistle, not only because of fear of retaliation, but also because of fear of losing their relationships at work and outside work.

 A typical case study (Source Article on JP Morgan in the Huffington Post) of Corporate Whistle blowing.  Almonte had been working at Chase for just a few months when asked to pitch in on a deal to sell 23,000 credit card accounts. After reviewing more than a third of the files, Almonte's team reported back to her that nearly 60 percent contained some sort of major error, including discrepancies about the amount or that the court cases involving the accounts had indeed ruled for the bank. Concerned, Almonte went up the chain of command, flagging the errors and encouraging management to halt the sale. Instead, the bank fired Almonte and completed the deal. Almonte filed a whistle blower claim with the SEC and is awaiting the SEC ruling.

Corporate history is replete with instances of the whistleblower being victimised. It is quite likely that ethical violations of large magnitude may involve people at top management levels and it is imperative that the whistleblower structure should ensure that the people against whom the whistle is blown are neither allowed to influence the proceedings nor are in a position to jeopardise or threaten the whistleblower with consequences. In the event of a potential retaliation against the whistleblower, it would be the organisation’s responsibility to afford the required support, including guaranteed access to normal court procedures as well as protection against any financial or other damages suffered as a consequence of the disclosure. It may be noted in context that some developed countries, such as the United States, provide significant financial rewards to whistle-blowers who externally report illegal behaviour to government entities. Bradley C Birkenfeld, a former banker at UBS is to receive USD 104 million whistle blowing award for revealing secrets of the Swiss banking system.
 
Lastly, how well the whistle blower system works in an organisation can best become established over time, as the organisation demonstrates amply each time, that the system has been designed with honesty and works effectively in the interests of the organisation and society. Whistle blowing policies must be fully supported by the organisation’s top leadership and the results of the whistle blowing mechanism should be regularly communicated to the stakeholders to constantly reinforce the fact that the system indeed works!

India

In India corporates are recommended to set up a whistle blowing mechanism as part of circular on Clause 49 of the Listing Agreement issued by SEBI. Annexure 1D to the circular suggests a mechanism for employees to report to the management on concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. However based on anecdotal experiences the efficacy is very poor… Credibility of independent directors who are sometimes used as ombudsman needs to improve. External agencies have started providing these services which help in building credibility.   At the same time a mechanism to separate frivolous and motivated whistle blowing is equally critical.  Such acts must also be punished to prevent recurrence.

These guidelines should be made mandatory, as we believe this is a key measure against corporate fraud and Indian corporates need to work on implementing this strongly. Indian regulators may look at setting up a separate body to receive whistleblower issues, redress by directing these issues to relevant regulatory bodies and provide appropriate protection to whistle-blowers.

Ultimately the best solution to all this is obviously for people to act honestly and with integrity but given that this is not the case mechanisms such as Whistle blowing become imperative.

By Harish H V Partner India Leadership Team and Ajith Bhaskaran Partner business Risk Services with inputs from Utsav Prakash and Anup Thomas from Grant Thornton, an assurance, tax and advisory firm

 
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