WHISTLE BLOWER POLICY

AN IMPORTANT FRAMEWORK OF CORPORATE GOVERNANCE

Nagendra Goel*

Awhistle blower is an employee, former employee or a member of an organization (business or government) who reports of misconduct within the organization. The misconduct which is generally a violation of law, rule, regulation and/or a direct threat to public interest namely- fraud, health, safety violations, and corruption et al.

The whistle blower reports about such misconduct to the people or entities that have the power and desire to take action.

Whistle blower can be internal or external. Where he makes his complaint within the organization then it’s internal and when he does so to the media or a regulatory body then it’s external.

Origin of the term ‘Whistle Blower’
The term ‘whistle blower’ derives its name from the practice by English Bobbies (police officers) who would blow their whistle when they noticed the commission of a crime. The blowing of the whistle would alert both law enforcement officers and the general public of imminent danger.

Legal Protection
In the United Kingdom, the Public Interest Disclosure Act, 1998 provides a framework of legal protection for individuals who disclose information to expose malpractices and matters of similar concern.

In the United States, The Sarbanes Oxley Act, 2002 incorporated provisions for protection of whistle blowers to prevent discriminatory practices against employees who go against the management and report corporate malpractices. Section 806 of the said Act provides for ‘Protection for Employees of Publicly Traded Companies who provide Evidence of Fraud.’ The first US law adopted specifically to protect whistle blowers was the Lloyd-La Follette Act of 1912. It guaranteed the right of federal employees to furnish information to Congress.
In India, the Securities and Exchange Board of India has incorporated some protection policy for whistle blowers in Clause 49 of the Listing Agreement. It is though in the form of non-mandatory requirements as per Annexure ID.
The requirement states that ‘The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.’

Some famous Whistle Blowers
1. Jeffery Wigand is well known in the United States for exposing the Big Tobacco scandal, revealing that the executives of the companies knew that cigarettes were addictive and that they added other carcinogenic ingredients to the cigarettes.
2. Ingvar Bratt, a former engineer with Bofors who revealed himself as the anonymous source in the Bofors Scandal about illegal weapon exports. The act led to a new Swedish law concerning company secrets, referred to as Lex Bratt.
3. Satyendra Dubey, who accused employer NHAI (National Highway Authority of India) of corruption in highway construction projects in India in a letter to the then Prime Minister Atal Behari Vajpayee. He was late murdered on November 27, 2003.
4. Cynthia Cooper of WorldCom and Sheron Watkins of Enron, who exposed corporate financial scandals, and Coleen Rowley of the FBI, who later outlined the agencies’ slow action prior to the September 11, 2001 attacks. The three were selected as Time’s People of the Year in 2002.

Charles Niemer of the United States Public Company Accounting Oversight Board calls today’s business environment ‘the age of the whistle blower’ – a new corporate culture in which ‘informants’ are more likely to be valued than harassed. This is a long way from the vilification experienced by most whistleblowers, whose reputations were often tarnished and livelihoods compromised. The Government Accountability Group, a non-profit organization in the US that lobbies for whistle-blowers, described Sarbanes Oxley Act, 2002 as ‘a revolution in corporate governance freedom of speech’.

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* The writer is a Supreme Court Advocate and also a qualified Chartered Accountant.