Facilitation and Whistle-blower Protection by Indian Firms

Relevance: mains: G.S paper IV: Ethics

Context

• Whistle-blowing is a critical aspect that helps in upholding corporate ethics. In recent times, there have been increasing awareness about whistle-blowing activities.
• The policies related to whistle-blowing among the BSE 30 companies in India are analysed.
• The findings indicate an urgent need to develop and enforce corporate policies to protect the whistle-blowers.

Definition of “whistle-blowing”

• The word “whistle-blowing” is of British origin and was derived from the practice of British police officers who blew their whistles to alert others of wrongdoing.
• In this regard, whistle-blowers and whistle-blowing have been helpful in unearthing various fraudulent and illegal activities in both the public and private sector organisations across the world.
• There are established laws across the world to facilitate whistle-blowing and to protect whistle-blowers.

Main Objectives of “whistle-blowers”

• Promotion of public interest
• Improvement of public service
• Preventing and eliminating wrongdoing in public and private sector organisations
• Promotion of compliance with laws,
• Encouragement and facilitation of disclosures
• Provision of procedures for whistle-blowing, and protection of whistle-blowers

Whistle-blowing in India

• In the Indian context, the concept of whistle-blowing dates back to the Arthashastra (around 300–250 BC) and there appears to have been some encouragement for whistle-blowing through reward systems in that era.
• Kautilya mentions that an informant who supplies information about misappropriation, if they succeed in proving it, get a reward.
• Though such systems were existent in the ancient texts, modern India did not take cognisance of whistle-blowing and pass legislations to facilitate it.
• But, the last two decades have witnessed a surge in recognising the need for whistle-blowing and whistle-blower protection.
• One of the first laws to protect whistle-blowers was suggested in 2001 by the Law Commission.
• Subsequently, the murder of 30-year-old Satyendra Dubey, a whistle-blower, made the Supreme Court direct the enactment of laws to handle whistle-blower protection.

Legislation

• After a reasonable bit of struggle, the whistle-blowers protection bill was introduced in 2012 and finally passed in 2014.
• These laws were aimed to facilitate whistle-blowing against public sector employees and bureaucrats. With Section 177 of Companies’ Act, 2013, the scope of whistle-blower protection extended to the private sector.
• The act directs the companies to establish vigil mechanism to report unethical behaviour or other concerns to management.
• It is mandatory for the listed companies, companies that accept deposits, and companies that have borrowed from financial institutions in excess of ₹ 50 crore under Section 177(9)
• Given this background, Indian companies have laid down whistle-blowing policies over the last four years. There has also been reasonable media coverage on issues related to whistle-blowing.
• In such a scenario, it is important to review the policies that have been made by these companies and the extent of facilitation and protection provided by them for whistle-blowing.

Whistle Blowers Protection Act, 2014

Whistle Blowers Protection Act, 2014 is an Act in 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 will also ensure punishment for false or frivolous complaints.

Main Objective

• An Act to establish a mechanism to receive complaints relating to disclosure on any allegation of corruption or wilful misuse of power or wilful misuse of discretion against any public servant and
• To inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimization of the person making such complaint and for matters connected therewith and incidental thereto.

Salient Features

• The Act seeks to protect whistle blowers, i.e. persons making a public interest disclosure related to an act of corruption, misuse of power, or criminal offense by a public servant.
• Any public servant or any other person including a non-governmental organization may make such a disclosure to the Central or State Vigilance Commission.
• Every complaint has to include the identity of the complainant.
• The Vigilance Commission shall not disclose the identity of the complainant except to the head of the department if he deems it necessary. The Act penalizes any person who has disclosed the identity of the complainant.
• The Act prescribes penalties for knowingly making false complaints.

Limitations of the Act

• The lack of public debate and consultation on the bill seems to indicate the danger of it becoming another “paper tiger”. Typically, ministries proposing draft legislation involve a process of public consultation to give the public an opportunity to carefully critique its provisions.
• The law has neither provisions to encourage whistleblowing (financial incentives), nor deals with corporate whistle-blowers.
• It does not provide a penalty for attacking a complainant.
• The act has a limited definition of disclosure, and does not define victimisation. Other countries (such as the United States, United Kingdom and Canada) define disclosure more widely and define victimisation.

Analysis of whistle-blowing policies of Corporates

• To analyse whistle-blowing policies of Corporates top 30 companies listed on the Bombay Stock Exchange (BSE) that constitute Sensex were chosen for the study.
• The corporate ethics in these companies should throw light on the overall practices of corporate governance among the Indian corporate sector.
• In the facilitative aspect, the procedural and confidence-related issues were studied. In the procedural issues, the analysis first relates to the appropriate authority for the purpose of whistle-blowing.
• Interestingly, 20% of the companies did not touch upon the procedural aspects at all. Further, in terms of mode of complaint, only about half the companies provided postal details and a similar proportion cited email as a medium. In addition, only about 10% companies allowed complaints through telephone.
• It is surprising to note that about 20% of the companies mandated that the complaint will be entertained only if it is filed within 30 days of complainant becoming aware of the wrongdoing.
• In contrast, none of the companies provided any timelines for action to be taken against the misdoer.
• A key component of whistle-blowing regulation is related to the protection provided to the whistle-blower. With regard to that, we find that anonymity is typically encouraged by companies across the world to encourage whistle-blowing.
• In the Indian scenario, we do not find firms encouraging anonymous complaints. We find that only five of the 30 companies seem to allow anonymous whistle-blowing.
• A good practice in whistle-blowing policy is to mention the kind of wrongdoings, the potential retaliation, and the explicit protection in the context of the organisation.
• This was not necessarily the case with the companies considered in this study. The study found that almost one-fourth of the companies do not even mention protection explicitly.
• Another key component of whistle-blowing policy is the way to handle honest mistakes by the complainant.
• This is important as the complainant sometimes may not be sure of whether there has been a wrongdoing but could file a complaint just to make sure something unethical or illegal or wrong does not happen.
• Another interesting aspect in the policies is that they mention that employees should report further if they are not provided protection. This seems to be a strange provision.

• • First, the policy should provide confidence that the protection would be provided and there is no concern related to not obtaining provision.
  • Second, if at all there is a case of protection not being provided, there is high doubt on what further reporting by employee could achieve. Instead, some committee could be probably set up to monitor retaliation due to whistle-blowing for the complainant.

Conclusion

• There is a need for these organisations to improve the policies along both these lines, dimensions of facilitation and protection.
• Both facilitation and protection have to be taken seriously by the firms and the procedures need to be laid down such that there is an encouragement for whistle-blowing.
• The current policies seem to indicate that the firms have just laid down the policies more out of an obligation than with any enthusiasm.
• The firms also need to understand that fraud reporting will also help reduce costs to the firms due to frauds, and developing an ethical culture could also be of benefit to them.
• At this stage, the policies are so weak that they cannot even be called paper tigers.