Whistle Blowing Policy6th May 2021 0 By indiafreenotes
When a former or the existing employee of the organization raise his voice against the unethical activities being carried out within the organization is called as whistle blowing and the person who raise his voice is called as a whistle blower.
The misconduct can be in the form of fraud, corruption, violation of company rules and policies, all done to impose a threat to public interest. The whistle blowing is done to safeguard the interest of the society and the general public for whom the organization is functioning.
The companies should motivate their employees to raise an alarm in case they find any violation of rules and procedures and do intimate about any possible harm to the interest of the organization and the society.
Types of Whistle Blowing
Internal Whistle Blowing:An employee informs about the misconduct to his officers or seniors holding positions in the same organization.
External Whistle Blowing: Here, the employee informs about the misconduct to any third person who is not a member of an organization, such as a lawyer or any other legal body.
Most often, the employees fear to raise a voice against the illegal activity being carried out in the organization because of following reasons:
- Threat to life
- Lost jobs and careers
- Lost friendships
- Resentment among workers
- Breach of trust and loyalty
Thus, in order to provide protection to the whistle blowers, the Whistle Blower Protection Bill is passed in 2011 by Lok Sabha.
Now, the question comes in the mind that which offenses are considered valid for whistle blowing and for which the protection is offered by the law. Following are the acts for which the voice can be raised and are law protected:
- Health and safety in danger
- Damage to the environment
- Violation of company laws
- Embezzlement of funds
- Breach of law and justice
CSR is corporate social responsibility and that is the responsibility of organizations to act in ways that protect ad improve the welfare of multiple stakeholders. A key word in this definition is “stakeholder” where that is any group within or outside the organization that is directly affected by the organization and has a stake in it’s performance. Stakeholders can be customers, organization members, owners, other organizations that work with them, competitors, community members, financial investors, any anyone else who would be effected by the organization’s actions. This means a lot considering how the difference between a company that considers all stakeholders and a company that considers only shareholders can heavily influence a company to be more or less socially responsible.
Developing an Effective Whistle Blower Policy:
All business entities often struggle with an appropriate level of segregation of duties making a whistle blower policy a good mitigating tool. The Whistle blower policies effective implementations not only reduce the fraudulent activities but also send a signal to both internal and external agencies that organisations exercises good corporate governance.
The Whistle Blower Policy may be drafted and implemented by management but it should be submitted to Audit Committee and Board of Directors. The foundation of Whistle Blower Policy is a clear and specific definition of Whistle Blowing. The key aspects are:
- Clear definition of individuals covered by the Policy
- Non retaliation provisions
The Whistle Blower Policy should include the methods to encourage employees, vendors, customers and shareholders to report evidence of fraudulent activities. It should properly address the processes that the employees should follow in filing their claims. Specific Reporting Mechanisms within the process could include telephone, emails, hotlines, websites or suggestion boxes. The first steps of creating an environment where a whistleblower will report problems that exist is the crucial one, to be fully effective whistle blower policy must be consistently implemented, claims investigated and evaluated and proper enforcement taken when necessary. Clause 49 of the Listing Agreement keeps whistle blowing as non-mandatory item but it should be mandatory.
Economic Volatility, Global Competition, Growth risk appetite demands the governance professionals, the Company Secretaries to prioritise their role as whistle blowers.
Employees are usually the first to witness dangers and wrongdoings on Job. Although most employees remain silent, many chase to speak out and bear witness in corporate crimes that has not been addressed when flagged through normal company channels i.e Corporate Security, Audits, Inspections, Law enforcement combined.
Company Secretaries rank among the most productive, valued and committed members of their organisations. As they are the part of Top management and Board of Directors, they have a strong conscience; they are committed to formal goals of their organisation and have strong sense of professional responsibility.
Company Secretaries is also Corporate Governance Officer (CGO) and required to perform following roles:
- To ensure the effective running of the activities of the Board and its Committees.
- To ensure compliances of all listing rules, other Regulatory Codes and Acts.
- Keep under review all legal and regulatory developments affecting the company operations and make sure that directors and management are properly informed of the same.
- Manage relations with all stakeholders with regard to Corporate Governance, Corporate Social Responsibility, etc.
- Work with Board of Directors, Management to ensure that all regulatory reporting is correct and does not lead to errors resulting in offences under Various Acts.
- Act as the Conscience Keeper of the Company.
- Act as the Primary point of contact for Board of Directors and source of guidance in order to assist their decision making process.
- To assess, manage the compliances in the governance domain, governance processes, tracking of outcomes of governance processes and disseminate the information and documents for proper governance.
In ensuring implementation of proper corporate governance practices in the organisation, Company Secretary requires Governance Management and Reporting which includes:
- Development of Board framework and to determine the level of Independence
- Monitoring and reporting on the Independence of Audit Committee
- Development and Maintenance of a Board Charter to ensure that Board decisions can be measured against it.
- Acting as Board voice for providing shareholders feedback.
- Participating in Strategic Planning process, Risk Management process, Internal Control process, MIS, Corporate Communications, Succession Planning, Board performance evaluation process.
In light of above, Company Secretary acts in the capacity that ensures high level corporate administration in accordance with best governance practices which results to well run, governed and sustainable business for the benefit of its stakeholders at large.
Company Secretary can be useful aid to implement whistle blowing as an internal regulator for ensuring good corporate governance in spirits. As he is a part of Board decisions process and recipient of all important information flowing in the organisation, he can easily smell the rat. He can suspect the improper activities/unethical practices adopted by organizations or some of its members.
India had fairly weak whistleblower protection laws. The companies Act, 1956 though provided for provision through which mismanagement can be ventilate does not expressly provide for the protection of whistleblower as such. However, after coming into force of the Companies Act, 2014 there is a provision to protect the Whistle Blower. Every listed company or any company that is prescribed shall establish a Vigil mechanism specifically for the directors and employees to report genuine concerns. It also seeks to provide adequate protection to the employees from victimization as a result of disclosure made using the mechanism. It affords direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. The establishment of a vigil mechanism has to be disclosed on the company’s website.
India lacks a specific whistleblowers protection law and does not cover all whistleblowers. The Indian Parliament has passed the Whistle Blowers Protection Act, 2011, however the Act has not come into force. The Act was approved by the Cabinet of India and passed by the Lok Sabha on 27 December 2011. The Bill was passed by Rajya Sabha on 21 February 2014 and received the President’s assent on 9 May 2014 yet the Act has not come into force till now. The Act provides for mechanism to scrutinize alleged fraud and abuse of power by public servants. It also seeks to protect one who would bring to light wrongdoing in government bodies, projects and offices. The wrongdoing might take the form of fraud, corruption or mismanagement. The Act will also have provision of penalty in case of false or frivolous complaints.
The Central Vigilance Commission, the sole authority in protecting future whistleblowers. The Act expanded the definition of whistleblower.It classifies anyone making “public interest disclosure” a whistleblower. It is aftermath of murder of environmentalist activist Amit Jethava who was campaigning against illegal mining in the Gujarat’s Gir lion reserve to protect the lions.
The Central government came up with a legislative proposal to prevent such tragic killings. The Act empowers the Central Vigilance Commission to issue binding orders to protect whistleblowers from physical attack and/or victimization. CVC is authorized to issue interim orders to stop corrupt practice pointed out by the whistleblower. But these limited powers are likely to prove insufficient if CVC remains no more than an advisory body with regard to sensitive matters which may or may not be a corruption case that is to be registered against a public servant. It was an immense leap forward from where the legal framework stood. Only a public servant could be a whistleblower under the 2004 Cabinet resolution, but the expanded definition is the only real positive change in the official attitude towards whistle-blowing. The Act is to some extent on the lines of the Sabanes Oxley Act in United States which enacted as the repercussion of the Enron and WorldCom scandals, making it compulsory for audit committees of boards to establish procedures to receive anonymous complaints and reports from whistleblowers. Senior management is forbidden from discriminating against whistleblowers. Any retaliation against a whistleblower is a criminal offence, which can be punished with up to ten years in prison. But SEBI initially made whistle blowing mandatory clause 49 of the listing agreement but later made it non- mandatory when SEBI accepted the argument made by the corporate sector that the regulation would lead to too many frivolous complaints.
Various companies are establishing Whistle Blower Policy in the company. Maruti Suzuki India Ltd in its preface of their Whistle blowing policy mentions that Clause 49 of the Listing Agreement provides, a non-binding requirement, to establish a mechanism called “whistle blower policy” for all listed companies for the employees to report unethical behavior actual or suspected fraud or violation of the company’s code of conduct or ethics policy to the management of the company.
HCL adopted a whistle blower policy to afford appropriate avenues to the employees, contractors, clients, vendors, internal or external auditors, law enforcement / regulatory agencies or other third parties to bring to the consideration of the management any issue which is identified to be in infringement or in conflict with the essential business principles of the company. The employees are encouraged to raise any of their concerns by way of whistle blowing. All cases registered under the whistle blower policy of the company are reported directly to the CEO.