Whistleblow India
Whistleblow India
Whistleblow India
Corporate
ISSN 2319-9725
Divya Mehta
Assistant Professor, Dyal Singh College
University of Delhi
Sonal Babbar
Assistant Professor, Department of Commerce
Maitreyi College, University of Delhi
Abstract: The present paper deals with the issue of Whistle-blowing in the organizations. This paper
discusses the role of a Whistleblower. It examines why employees have been reluctant to 'blow the
whistle' and goes on to suggest how effective internal whistle-blowing is a tool for good corporate
governance. It concludes by looking at the impact of the 'whistleblower protection' offered by the
Public Interest Disclosure and Protection to Persons Making the Disclosures Bill, 2010.
Keywords: Whistleblowing, Corporate Governance, Clause 49, Whistleblower Protection Bill 2010,
Satyendra Dubey.
JEL: K42
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1. Introduction:
The Time Magazine presented the People of the year 2002, the three women who had
blown the whistle on their organization: Cynthia Cooper of WorldCom, Coleen Rowley of
the FBI and Sherron Watkins of Enron. By acknowledging them, it has recognized the new
conscience keepers- The Whistle Blowers. Indeed, the cases of corruptions and
mismanagement are prevalent almost in every organization but people are reluctant of
becoming whistleblowers as they are susceptible to threats, harassment, victimization or even
assassination.
In 2003, Satyendra Dubey, a government engineer who exposed corruption in the national
highway building program was found murdered and two years later, Shanmughan Manjunath,
a manager at a state-owned oil company, who laid bare a scheme to sell impure gasoline was
found riddled with bullets in the back seat of his car. This has been the history of whistle
blowing in our country. As such, some obvious questions crop up in the mind: Are whistle
blowers secured and protected? Is whistle blowing ethical? Why do people not blow whistle
informing about corruptions rampant in many of the organizations? The present paper
attempts to address to these issues. The pedagogical objectives of the paper are to discuss the
role of whistleblowers in unearthing wrong doings, the consequences faced by them, to
discuss the effectiveness of the provisions for whistleblower protection as envisaged in the
Public Interest Disclosure and Protection to Persons Making the Disclosures Bill, 2010
(Indias Whistleblower Bill).
2. Whistleblowing:
We begin with defining the term Whistle Blowing. US consumer activist Ralph Nader
(1972) described the whistleblowing as An act of a man or woman who, believing that the
public interest overrides the interest of the organization he serves, blows the whistle that the
organization is involved in corrupt, illegal, fraudulent or harmful activity. Another definition
put forth by Near and Miceli, (1985) is the disclosure by organization members (former or
current) of illegal, immoral, or illegitimate practices under control of their employers, to
persons or organizations that may be able to effect action. Another explanation comes from
the same authors, the term whistleblowing is derived from the act of a referee in a sport
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event where the referee blows the whistle to stop the action, usually on account of an illegal
play (Miceli & Near, 1992). They describe whistle-blowing as a four step process:
i.
ii.
The employee engages in decision making, assessing the activity and whether it
involves wrongdoing, gathering additional information, and discussing the situation
with others.
iii.
The employee exercises his/her voice by blowing the whistle; alternatively, the
employee could exit the organization, or remain silent out of loyalty or neglect.
iv.
Fourth, organization members react to, and possibly retaliate against the
whistleblower.
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3. A Whistleblower:
The term whistleblower originates from the practice of British police officers, who would
blow their whistles when they noticed the commission of a crime. The whistle would alert
other law enforcement officers and the general public of danger. Whistleblowers may be
internal or external to the organization. When the whistle-blower reports the wrongdoing to
the officials at higher position in the organization, she is called internal whistle-blower. On
the other hand if the whistleblower reveals the wrongdoings to the people outside the
organization like media, public interest groups or enforcement agencies, she is called external
whistle-blower.
4. Whistleblowing- Justified:
Whistleblowing is often associated with good citizenship; this link may not be recognized
within many organizations. Whistleblowing can seriously damage organizations (Bather and
Kelly 2005). It was apparent in Enron case- whistleblower- Sherron Watkins: The Company
suffered severe and sudden consequences as a result of wrongdoing: In November, 2001
Enron was removed from the S&P 500 index. On December 2, Enron filed for Chapter 11
Bankruptcy Code protection, one day after, announced the termination of 4,000 employees.
On January 13, 2002 Enron shares closed $.067 per share, after a high of $90.75/share in
August 2000[7].
However, also in the case of Indias Enron i.e. Satyam computers services, it can be argued
that the shocking disclosure of the Rs 7,000-crore plus scam that brought down the company
had been announced to the world by its disgraced founder, but it became known that B
Ramalinga Rajus confession was prompted by whistleblower action[8].
People are brought up with the value of loyalty to ones family and friends; it is presumed
that they will be loyal to their organization and colleagues when they enter the workforce.
However, sometimes the individuals will feel a greater need to be loyal to their own
developed knowledge of right and wrong (Bather and Kelly 2005). In this context, David
crook (2000) articulates that Whistleblowing in business is often denounced as morally
unjustifiable, on the grounds that it violates the duty of loyalty and confidentiality to the
business and fellow workers. As a result, many employers still view whistleblowers with
suspicion, not as the loyal bearers of critical information which they often are. In addition,
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but lost his family and his professional reputation was smeared amid years of ugly lawsuits.
Indeed, most of the nationally known whistleblowers had to lose not only their jobs but also
their lives for example Satyendra Dubey, Shanmughan Manjunath. As a matter of fact, the
manner in which whistleblowers are being treated is leading them to be quitting the
whistleblowing. Suryakant Shinde, for example, said, I Decided to Give up
Whistleblowing. This suggests that the whistleblowers not only have to muster courage to
expose some misconduct but also have to tighten their belts to face the repercussions, which
also might be difficulty of finding employment after whistleblowing. The most important
reason why whistleblowers find it hard to find a job is because their employers put their
names on a blacklist. If a whistleblower is placed on a blacklist, it will harm him in many
ways. It will prevent him or her from employment in a comparable organization (Peretz, 1970
as cited in Qusqas and Kleiner 2001). Worldwide experience has clearly shown that the lot of
a whistleblower is not a happy one. Such revelations are seen as unfaithfulness towards the
employer and colleagues. In such circumstances, the response of both employers and
colleagues has generally been to take unfavorable action against the whistleblower in
retaliation. Such detrimental action may include:
i.
ii.
iii.
iv.
v.
vi.
vii.
Assault.
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led to the Whistleblower Protection Act in 1989 (amended in 1994). More recently, the US
Sarbanes-Oxley law was adopted following the scandals at Enron, WorldCom and other
companies. The Act strongly condemns retaliation against whistleblowers and it also
encourages the act of whistle blowing. With the enactment of the Sarbanes-Oxley Corporate
Reform Act of 2002, internal and external whistleblower protection has been extended to all
employees in publicly traded companies for the first time . The Sarbanes-Oxley Act mostly
deals with public companies and all of their employees are covered under the statute but
eventually the employees of the private companies are also covered under Section 1107 of the
Sarbanes-Oxley Act, 2002 The U.S. corporate governance law, Sarbanes-Oxley Act 2002,
has made it a criminal offence, punishable by a fine and/or up to ten years in prison, to take
any action harmful to a person who provides truthful information about a federal offence to a
law enforcement officer. On July 21, 2010, President Obama signed the Dodd-Frank Wall
Street Reform and Consumer protection Act. It includes significant new whistleblower
protections, including the creation of SEC (Securities Exchange Commission) and CFTC
(Commodities Futures Trading Commission) whistleblower programs, a dramatic expansion
of current whistleblower protections under the Sarbanes-Oxley Act of 2002, and a new
whistleblower cause of action for employees performing tasks related to consumer financial
products or services. The Dodd-Frank Act provides powerful monetary incentives for
whistleblowers to report securities and commodities law violations to the SEC and CTFC.
The United Kingdom also has a strict law for the protection of whistleblowers. The Public
Interest Disclosure Act 1998 is designed to protect workers from detrimental treatment or
victimization from their employer if, in the public interest, they blow the whistle on
wrongdoing. The legislature of U.K. has very clearly set out the rules for regulation and
protection of whistleblowers. It provides protection to all public, private and nonprofit sectors
[20]
Australia, Canada, South Korea, Russia, Mexico, and more have already enacted whistle-
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drafted a Bill in its report. In 2004, in response to a petition filed after the murder of
Satyendra Dubey, the Supreme Court directed that machinery be put in place for acting on
complaints from whistleblowers till a law is enacted. The government notified a resolution in
2004 that gave the Central Vigilance Commission (CVC) the power to act on complaints
from whistleblowers. Lately, in 2010 The Public Interest Disclosure and Protection to
Persons Making the Disclosures Bill, 2010 (commonly known as Whistleblower Protection
bill) is introduced. The highlights of Bill, 2010 are as follows:
i.
The Bill seeks to protect whistleblowers, i.e. persons making a public interest
disclosure related to an act of corruption, misuse of power, or criminal offence by a
public servant.
ii.
iii.
iv.
The Vigilance Commission shall not disclose the identity of the complainant except to
the head of the department if he deems it necessary. The Bill penalizes any person
who has disclosed the identity of the complainant.
v.
Although the bill to protect the whistleblowers in the country was much awaited, yet it has
some notable deficiencies. First and foremost, it has its limited scope. It will apply to
authorities and companies under Central and state government control and cover all public
servants. However, Public servants of armed forces and intelligence, private companies and
non-governmental organizations such as charities, trusts, voluntary organizations are not
included its range. The Whistleblower Bill does not allow members of the Indian armed
forces to make public interest disclosure about wrongdoing in the armed forces. On the other
side, the current scandals such as Satyam etc. show that corrupt practices are gaining foothold
in the Indian private sector as well. The private sector (including NGOs) is growing rapidly
both in terms of economic resources and also entering the public domain under privatization
schemes. At a time when the private sector is only increasing, such an exemption from
liability is dangerous. Therefore, the private sector and the armed forces should also be
brought under the ambit of the whistleblowers bill. In simple words, Public interest
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[27]
disclosures to be made to the media or a legislator or to any other person whom the
whistleblower may trust.
Disclosures must be made in writing, in good faith and should include the identity of person
making disclosure. That is to say each disclosure shall be accompanied by full particulars and
supporting documents. The Vigilance Commission shall not entertain anonymous complaints.
Furthermore, the protection for the whistleblower will take effect only after she makes a
complaint. For example, RTI activists who often come under threat just by virtue of filing an
RTI application will not be covered unless they file a complaint
With regard to procedure of inquiry, the Competent Authority (CA) will confirm identity of
complainant and make discreet inquiry in such manner as may be prescribed to ascertain if
any basis for investigation. For further investigation, CA will seek comments from head of
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. The bill makes provision to ensure confidentiality but does not allow anonymous
complaints. This provision alone defeats the very purpose of the law. The fundamental
purpose of any such legal framework is to keep the identity of the whistleblower secret so
that they do not fall prey to the maligned authorities. Obtaining the consent of the
whistleblower is not an element for consideration by the Competent Authority. Moreover,
there are no clear provisions on what grounds the Vigilance Commission may reveal the
identity of a complainant to the Head of an organisation.
Further, the bill prescribes that if complaint is found to be willfully false or malicious,
complainant is liable for imprisonment up to two years and fine up to Rs 30, 000.[30]
However, there is no policy to reward the authentic whistleblowers.
The Bill does not define what constitutes victimisation. There is no penalty against the public
servant who may be victimising the complainant. This Bill does not provide for witness
protection programme to protect witnesses during investigation and trial. Another flaw is that
Investigation is not time-bound and thus there is a room to delay the investigation.
The internal whistleblowing is not covered by the bill. The Bill does not require public
authorities to create internal procedures for whistleblowing. All disclosures of wrongdoing
are required to be made to the single Competent Authority established at the Central and
State level
It is propagated that effective internal whistle-blowing or controlled whistleblowing is,
however, a good business practice. One of the worlds leading investors Warren E. Buffett,
chairman of the board of Berkshire Hathaway, praised the companys installed hotline in his
2005 chairmans letter. Berkshire would be more valuable today if I had put in a
whistleblowing (hot) line decades ago, he wrote. The issues raised are usually not of a
type discoverable by audit, but relate instead to personnel and business practices (Slovin,
2006 as cited in Micel, Near and Dworkin 2009).
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transparency level. Accordingly, the whistleblowers can be viewed as the guardians to the
companies. Therefore, one of todays important corporate responsibilities is to provide an
environment where anybody can reach the authorities without fear or hesitation.
Indeed, Corporate Governance initiatives in India began with the CII (Confederation of
Indian Industry). It came up with the first voluntary code of corporate governance in 1998.
The second was by SEBI now enshrined as Clause 49. The codes were based on
recommendations of the Kumar Managalam Birla Committee Report. The third was the
Naresh Chandra Committee, which submitted its report in 2002. The fourth was again by
SEBI-Narayan Murthy Committee, with revised Clause 49 on listing agreements in 2003[31].
This has a mention on the whistle-blower policy. Though it has not been made mandatory so
far, but if a company has put in a voluntary whistle-blower policy then the Audit Committee
will review the mechanism. Many companies have established mechanisms to encourage
potential whistle-blowers to alert management about poor business practices within the
workplace. The whistle-blowing is perceived as a tool for good corporate governance.
The internal policy on access to Audit Committee vis--vis whistle blowing includes the
following Guidelines:
i. Personnel who observe an unethical or improper practice (not necessarily a violation
of law) shall be able to approach the audit committee without necessarily informing
their supervisors.
ii. This right of access should be communicated to all employees through means of
internal circulars, etc. The employment and other personnel policies of the company
shall contain provisions protecting "whistle blowers" from unfair termination and
other unfair prejudicial employment practices.
iii. Company shall annually affirm that it has not denied any personnel access to the audit
committee of the Company (in respect of matters involving alleged misconduct) and
that it has provided protection to "whistle blowers" from unfair termination and other
unfair or prejudicial employment practices.
iv. Such affirmation shall form a part of the Board report on Corporate Governance that
is required to be prepared and submitted together with the annual report
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In India, there are certain companies who are resorting to whistle blower protection policy. It
is a very positive step taken by the Indian corporate as it will set a good example. Tata
Motors Limited has adapted a whistle blower policy with very comprehensive provisions
regarding the protection of a whistleblowers interest. The whistle blower policy has been
formulated with a view to provide a mechanism for employees of the company to approach
the Chief Ethics counselor/Chairman of the audit committee of the company.
Dabur India has adopted whistle-blower policy to strengthen its corporate governance
initiatives. The policy, 'Direct Touch', will allow employees and business associates to bring
to the management's notice concerns about suspected unethical behavior, malpractice,
wrongful conduct, fraud and violation of the company's policies. The Direct Touch Team will
report to Dabur's Audit Committee, which will review the former existence and functioning.
With respect to Hindustan Unilever Ltd. (HUL), The Company has adopted a Whistle Blower
Policy to provide appropriate avenues to the employees to bring to the attention of the
Management any issue which is perceived to be in violation or in conflict with the
fundamental business principles of the Company. The Company has provided a dedicated
email address whistleblowing.hul@unilever.com
Alternatively, employees can also send written communications to the Company. The
employees are encouraged to raise any of their concerns by way of whistle blowing and none
of the employees have been denied access to the Audit Committee. The Company Secretary
is the designated officer for effective implementation of the policy and complaints registered
under the policy. The cases registered under the Code of Business Principles and the Whistle
Blower Policy of the Company is reported to the Committee of Executive Directors and is
subject to the review of the Audit Committee.
Many other companies like Tata communications, Maruti Suzuki India Ltd., Heritage Foods
India Ltd., and the PSUs like Oil and Natural Gas Corporation Ltd. (ONGC) have voluntarily
adopted Whistle Blower policy.
Also, there may be circumstances in which people feel uncomfortable raising issues directly
with their managers or corporate ombudsperson; company may plan to provide a confidential
"whistle blowing" telephone facility or hotlines throughout the Company which the
employees will be able to use.
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The Internet offers resources for people that are interested in becoming a whistleblower.
There is actually a growing community of people who have an interest in helping other
whistleblowers,
and
the
range
of
websites
supports
this
assertion
like
9. Conclusion:
This paper supports the encouragement and protection of whistleblowers disclosures to the
market. Whistle-blowing is emerging as an indication of maturing transparency and fairness
that many of the leading corporate are embracing. In a bid to stop unethical practices by
corporate and prevent frauds, the SEBI has suggested "whistle-blower policy" where an
official of a company who observes an unethical or improper practice can approach the audit
committee of the company without necessarily informing his supervisors. A whistleblower
policy cant be a fool proof safeguard against unethical and improper practices but it is still a
hope. The legislature should make the non mandatory provision of whistleblower policy in
each company mandatory under clause 49. The Indian legislature has enacted a code for the
protection of whistle blowers. The need of the hour is a comprehensive enactment which
should cover the protection of employees working under government organizations, private
organizations as well as non - profit organizations. The study has followed an explanatory
approach.
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Sherron Watkins:
was Vice President of Corporate Development at the Enron Corporation.
helped to uncover the Enron scandal in 2001.
wrote a concerned internal email message to Enron CEO Kenneth Lay pointing out
that there were misstatements in the financial reports.
Cynthia Coopers :
An internal auditor and consultant who is best known for being the whistleblower
who exposed massive accounting fraud at WorldCom in 2002.
worked as the Vice President of Internal Audit at WorldCom. After conducting a
thorough investigation in secret, she informed the audit committee of WorldCom's
board that the company had covered up $3.8 billion in losses through phony
bookkeeping.
At the time, this was the largest incident of accounting fraud in U.S. history.
Coleen Rowley:
Outlined the FBI's slow action prior to the September, 11 2001 attacks.
Frank Serpico:
Former New York city police officer
Reported several of his fellow officers for bribery and related charges
Satyendra Kumar Dubey:
project director at the National Highways Authority of India (NHAI).
Accused employer in letter to the then Prime Minister Atal Behari Vajpayee.
was assassinated in Gaya, Bihar for fighting corruption in the Golden Quadrilateral
highway construction project.
Shanmughan Manjunath:
formerly manager at Indian Oil Corporation Ltd (IOCL), and advocated against
adulteration of petrol.
He was shot dead on November 19, 2005, allegedly by a petrol pump owner from
Uttar Pradesh
Suryakant Shinde:
Was Working with the Bombay Port Trust,
he regularly exposed thefts of goods and smuggling. But he was named the thief.
Shinde has now been sacked for being absent from duty though he was deposing
before the CBI on those days
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