Open Access Research Article
THE ROLE OF WHISTLEBLOWER IN CORPORATE GOVERNANCE IN UNCOVERING CORPORATE CRIMES: A COMPARITIVE LEGAL AND ETHICAL ANALYSIS WITH UK AND USA
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THE ROLE OF WHISTLEBLOWER IN CORPORATE GOVERNANCE
IN UNCOVERING CORPORATE
CRIMES: A COMPARITIVE LEGAL AND ETHICAL ANALYSIS
WITH UK AND USA
AUTHORED BY - SNEHAL
UPADHYAY
ABSTRACT
Corporate governance is considered to
be an important aspect of corporate governance, it assures that companies are
running in an efficient and ethical manner. Whistleblowing is considered to be
an important element of corporate governance it embroils employees or insiders
complaining about any illegal or unethical activities taking place within the
company. Whistleblowers play a very vital role in uncovering corporate crimes,
thereby guaranteeing transparency and accountability in corporate governance.
This paper intends to conduct a research analysis on the comparative legal and
ethical role of whistleblowers in corporate governance in India, UK and the USA
and how they contribute in unveiling frauds. The researcher would demonstrate
the legal frameworks and protections available to whistleblowers in particular
jurisdictions, as well as the ethical considerations surrounding
whistleblowing. This research will highlight the key differences and
similarities between India, UK and US legal systems regarding safeguarding of
whistleblowers. The paper also appraises the benefits and encounters of
whistleblowing in corporate governance, including the potential risks to
whistleblowers such as retaliation and the impact on their careers. Even after
adopting whistleblower policy corporate crimes are still increasing hence, the
paper will identify the reasons on why the policy is failing to serve its
purpose and how the situation can be improved. Additionally, the paper explores
the ethical considerations surrounding whistleblowing, such as the duty to
report illegal or unethical activities versus loyalty to the company. The
research would also highlight how having a robust whistleblowing policies and
mechanism can protect and encourage whistleblowers to come forward and report
about wrongdoers.
RESEARCH
OBJECTIVES, RESEARCH METHEDOLOGY AND LITERATURE REVIEW
1.1.1
Research objectives:
-
Ø
To
understand the legal framework for whistleblowing in India, UK and USA and
their implication on corporate
governance.
Ø
The
research will show how far Whistleblowing mechanism has been useful to stop
corporate crimes and what all risks whistleblowers go through while disclosing
any information.
Ø
To
compare the whistleblowing that of India with UK and USA and their impact on
corporate governance.
Ø
The
research would also identify the pitfalls and some recommendations will be
given in order to make the mechanism more effective in the respective
jurisdiction.
1.1.2
Research
Methodology: -
The researcher has used secondary sources for the research, the paper dwells
in a case study analysis
where through cases approach will be used to examine the role of whistleblowers
in uncovering corporate crimes in the
UK and USA and in India as well. The case studies will be selected
on the basis of their relevance to the research
objectives. Lastly a comparative analysis
will be conducted to compare the legal and ethical frameworks for whistleblowing in India, UK and
USA. This will involve identifying similarities and differences in the frameworks
and evaluating their
impact on corporate governance.
1.1.3
Literature review: -
The researcher has done a literature
review which is a comprehensive literature review on the legal and ethical
frameworks for whistleblowing in India, UK and USA. Several scholarly articles,
books, government reports, and other relevant publications has been reviewed by
the researcher while writing this paper.
Books:
Ø
Whistleblowing
for Change: Exposing Systems of Power and Injustice[1] is
taken as a reference to understand whistleblowers experiences and challenges
that they face while disclosing any information.
Ø
Whistleblowing
and the Law: A Comparative Study[2]
this book provides about laws relating to whistleblowers across other
countries.
Statutes:
Ø
The
Whistleblower Protection Act, 2004 and some provisions of Companies Act, 2013
which lays down laws relating to Whistleblower protection in India.
Ø
The
Public Interest Disclosure Act 1998 which provides protection to whistleblowers
in UK
Ø
The
Sarbanes-Oxley Act of 2002 and The Dodd-Frank Wall Street Reform and Consumer
Protection Act which provides safeguards whistleblowers interest in USA.
Articles:
Ø
Whistleblowing:
A Comparative Perspective[3]
it’s an article which provides a comparative analysis of whistleblowing in
different countries and discusses the legal and ethical issues surrounding
whistleblowing.
Ø
Whistleblowing:
A Review of the Literature[4] is
another article which is referred and which specifically deals with the ethical
and legal issues surrounding whistleblowing.
I. INTRODUCTION
1.1 BACKGROUND AND CONTEXT
With coming up of globalization and
privatization of the economy corporate sectors saw a boom and witnessed several
progressive changes over a last decade. Even though having a powerful regime of
companies still the sector has witnessed white collar crimes leading to various
scandals which has not only impacted the interested parties but also the
country’s economy scams like P&B, Satyam Computer scandal, the Kingfisher
scandal, the Enron Corporation Scandal these have led a series of corporate
failure. The companies have learnt from such failures and have adopted a model
of corporate governance within each and every entity. Corporate governance is
the fundamental ethical code upon which a company operates. The three tools
which are important in a corporate governance is to establish transparency,
effectiveness and efficiency within the company. These three tools enables the
company to take decisions which are strategically construed while keeping the
interest of the interested parties like shareholders of the entity in mind. On
the other hand corporate whistleblowing plays a crucial role in corporate
governance. Whistleblowers are considered to be a part of corporate governance
but at the very same time these whistleblowers have to even give up their life
which led the parliament to bring up such laws which protects the whistleblower
from any type of threat.
The paper will deal with the role of
whistleblowers in maintaining the corporate governance unveiling of corporate
crimes. The paper would also exhibit the study on the legislative framework for
corporate whistleblowing in India along with the legislative framework of the
United Kingdom and the United Nations of America and its legal and ethical
analysis. Lastly the researcher would provide some recommendations on efficient
implementation of the laws concerning whistleblowers.
2.
CORPORATE GOVERNANCE AND
WHISTLEBLOWING
2.1
CONCEPT OF CORPORATE GOVERNANCE
Corporate governance is the ethical
code of conduct according to which the company or an organization should
operate. It act as a set of principle norms for the company for enabling them
to take strategic decisions which are considered effective, efficient and
transparent while on the other hand the interest of the shareholders must be
maintained and kept in mind while applying such principle norms. Corporate
governance enhances the growth and stability of the entity it also holds the
integrity and reputation of the entity. It basically ensures transparency in
order to integrate board of directors and the management of the company.
Further it also ensures disclosure of business activities of the company in
order to gain investors trust.
Corporate governance is an important
concept not only in India but everywhere, with the increasing number of corporate
scandals it’s important for the companies to implement the norms which are laid
down by corporate governance in a stricter sense. Corporate governance emerged
in India when the country witnessed various types of scams like Satyam scam[5]
which highlighted the need of having a better corporate governance practices in
India. In another scam IL&FS Crisis[6]
(2018) a leading infrastructure development and finance company in India, faced
a liquidity crisis due to mismanagement and poor corporate governance practices.
This crisis led to a significant decline in the company's financial health and
raised concerns about the lack of transparency and accountability in the Indian
financial system.
2.2
IMPORTANCE OF WHISTLEBLOWING IN CORPORATE GOVERNANCE
As duly quoted by Glenn Greenwald[7]
“The purpose of whistleblowing is to expose secret and wrongful acts by those
in power to enable reform.” Corporate whistleblowing plays an important role in
the corporate governance which is adopted by any entity. When we tend to analyze
the corporate governance scenario in India we can refer upon a lot many good
examples of corporate governance but at the same time there are examples of a
number of corporate frauds which has steeply forced the regulators and the law
makers to up bring stringent regulatory policies which could help to curb such
corporate frauds and one of such step is introducing the concept of
whistleblowing which is a very fresh concept falling under the purview of
corporate governance.
Whistleblowing is the act of a person
revealing information to the public or within an organisation, typically
concerning some wrongdoing or unlawful action. An employee or other insider
with access to this information, which is frequently sensitive or confidential,
is usually the one who divulges it. Whistleblowers could come out to reveal
unethical behaviour they have seen in the workplace or in their sector, such as
fraud, corruption, or other types of dishonest behaviour.
Whistleblowing is frequently seen as
a sort of public duty since it can assist in exposing wrongdoing and holding
offenders accountable. Whistleblowers may, however, experience retaliation for
speaking up, such as being fired, demoted, or subjected to harassment. Numerous
nations have laws in place to safeguard whistleblowers against such retribution
and to give them access to legal action should they become the target of such
actions for speaking out. The International Labor Organization (ILO) defined
whistleblowing as “Reporting by employees or former employees of illegal,
irregular, dangerous or unethical practices by employers.” Michael Davis[8] in
his “The
Complicit Theory” believes whistleblowing is a morally ethical practice that is adopted by those employees
who dissent or do not wish to be part of any malpractice or wrongdoing that takes place within the organization, company.
Since the term
"whistleblower" is not defined in any statute, it is evident that the
legislature intended for the term to have a more expansive application. A
whistleblower is essentially any employee who works for the organization and
has knowledge of any type of insider information regarding any form of
corruption, fraud, or abuse of power by the organization's leaders or members
of top-level management. Employees within the organization are frequently the
major sources of trustworthy information about any unethical behavior or
wrongdoing occurring within the business, it has been observed in countless
cases of corporate whistleblowing. However, these employees frequently hold off
reporting such behaviors until later phases out of fear of a possible
suspension or termination. This emphasizes how important it is for businesses
to create whistleblower procedures that protect their confidentiality.
Additionally, such employees should be protected by the law.
Implementing a strong structure for
whistleblowing can prevent employees from participating in wrongdoing and help
organizations’ catch malfeasance early. A well-thought-out mechanism for
reporting wrongdoing can also give whistleblowers the assurance they need to do
so without worrying about repercussions. Internal controls, ethics, and
compliance programs for an organization must include procedures for protecting
whistleblowers. These regulations show both investors and law enforcement
agencies that the company has taken proactive measures to stop, identify, and
deal with unethical behavior.
2.3
LEGAL AND ETHICAL FRAMEWORKS FOR WHISTLEBLOWING
Whistleblowers are often referred as
Public Interest Disclosures as they work in the interest of the entity in which
they are working and also sometimes in the interest of the public when public’s
interest is involved. As per the resolution it’s the responsibility of CVC to
keep the identity of the complainant confidential and the agency has to act on
the complaint filed by the whistleblower. The legal framework for
whistleblowing varies across countries and sectors. In the United States, for
example, whistleblowers are protected under the False Claims Act, the
Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer
Protection Act, among others. These laws provide various protections for
whistleblowers, including immunity from retaliation, the right to a trial by
jury, and the possibility of receiving financial rewards for reporting fraud or
corruption.
The Whistleblower Protection
Directive, which establishes basic criteria for protecting whistleblowers
across all industries, is one of the regulations the European Union has
implemented to protect those who come forward with information. The directive
mandates that member states guarantee whistleblowers' anonymity, protection
from reprisal, and access to free legal counsel.
There are ethical frameworks that
encourage and support whistleblowing in addition to the legal framework. A
standard for whistleblowing management systems (ISO 37002) has been created by
the International Standards Organization (ISO), and it offers recommendations on
how organizations should create a culture of accountability and openness as
well as protocols for dealing with disclosures from whistleblowers. The
guideline advises organizations to set up explicit whistleblowing policies and
processes, educate staff members about the value of whistleblowing, and put in
place safeguards to prevent reprisal.
Whistleblowing is encouraged by the
professional behaviour norms that are part of the ethical framework. For
instance, the Model Rules of Professional Conduct of the American Bar
Association mandate that attorneys notify the proper authorities of any ethical
transgressions committed by judges or other attorneys. Similar to this, the
International Federation of Accountants' Code of Ethics mandates that
accountants notify the proper authorities of any suspected criminal activity.
The Heritage Food (India) Ltd, Wipro,
Infosys, Tata Motors, and Reliance Industries are just a few Indian businesses
that have lately established whistleblower policies to allow staff members to
disclose any unethical or improper business practices. These firms'
whistleblower policies give employees a way to voice their complaints, which
will be taken in good faith. All communications must be given in writing and
include proof of any misconduct. The management board takes reasonable efforts
to look into the issue, and the whistleblower's identity is protected from
harassment or victimization. According to Wipro's whistleblower policy, a
complainant has three months from the date they first learned of the misconduct
to voice their concerns. The establishment of an Ethics and Compliance Task
Force is required by Reliance Industries' policy, and it works under the
direction of the Audit Committee to look into all complaints made by
complainants or by whistleblowers. While these organization’s whistleblower
reporting processes and organizational structures vary, all of them strive to
provide staff members a voice and advance corporate governance. Indian
businesses do not support anonymous complaints, unlike overseas firms like
Deloitte and KPMG overseas.
3.
CORPORATE CRIMES AND WHISTLEBLOWING
3.1
TYPES OF CORPORATE CRIMES
Whistleblowers are essential to the
investigation of various business crimes. Following are a few instances of
corporate crimes that whistleblowers have assisted in exposing:
For instance, whistleblower Harry
Markopolos revealed Bernie Madoff's Ponzi scheme, which caused billions of
dollars in damages.
Ultimately, it ought to remain
acknowledged that whistleblowers have been crucial in exposing a variety of
corporate misdeeds, from financial fraud to workplace discrimination. They aid
in holding businesses responsible for their deeds and guarantee that they abide
by the rules and laws that control their business.
3.2
EXAMPLES OF CORPORATE CRIMES UNDERCOVERED BY WHISTLEBLOWERS IN INDIA
Even if they are aware of the
possible risks of being a whistleblower, employees frequently feel compelled to
reveal unethical or unlawful behavior that they come across within their
company. Their job security and personal safety may be at risk if they report
misconduct since they could face harassment or any sort of victimization from
their employer. Many employees nonetheless decide to speak up and report any
wrongdoing they have seen despite these dangers because they believe it is
morally right and in the best interests of the corporate entity, its
stakeholders, and society at large.
3.2.1
SATYENDRA DUBEY
While serving as the project director
for the Golden Quadrilateral Corridor Project, Satyendra Dubey[9], a
project manager for the National Highway Authority of India, learned about
financial irregularities and unethical practises within the company. The NHAI
was allowing sub-contracting and the use of low-grade materials, so he took
action by suspending three engineers engaged in the anomalies.
Dubey learned that the scam involved
high-ranking officials and politicians after being moved to a different project
and learning that it was not confined to a single place. He disclosed the
financial errors and disparities he had discovered in a letter to the prime
minister, asking that his identity remain secret.
Dubey was criticised by the NHAI
vigilance officer after his letter was sent to the Ministry of Transport and
Highways, despite his attempts to resolve the problem. Tragically, Dubey was
discovered dead on November 27th, albeit there was no solid evidence connecting
it to the con. He may have been slain while trying to prevent a robbery.
3.2.2
MANJUNATH SHANMUGAM
Manjunath Shanmugam[10],
Two petrol stations in Lucknow were selling contaminated fuel, which was found
out by him, a marketing manager for the Indian Oil Corporation. The pumps were
blocked for three months as a result of his action, but he later learned that
they had started working again after only one month. To stop the pumps, he
launched a surprise raid, but regrettably, the killer shot and killed him.
3.2.3
DINESH THAKUR
After joining Ranbaxy in 2003, Dinesh
Thakur[11]
discovered suspicious manufacturing practices within the company. When he
informed his seniors and top-level management about these practices in 2005, he
was forced to leave the company. Thakur then provided U.S. regulators and
authorities with evidence that Ranbaxy had falsified drug data and violated
good management practices. He also uncovered evidence that the company had
manufactured and distributed adulterated drugs. As a result of Thakur's
efforts to expose the malpractices, Ranbaxy pleaded
guilty to felony
charges and agreed
to pay $500 million to settle the case. Thakur
himself received an award of $48 million.
3.3
CHALLENGES FACED BY WHISTLEBLOWERS IN UNCOVERING CORPORATE CRIMES
Whistleblowers faces a lot of
challenges while uncovering any sort of corporate crimes. The challenges such
as retaliation, intimidation, isolation, legal hurdles, death threats, and
threats related to family members killing or kidnapping, emotional distress and
reputational damage. Many a times these challenges stops the whistleblowers
from opening their mouth and it also destroys there personal and professional
life. There’s a risk felt that the whistleblower might lose their job
livelihoods, and even their personal safety for exposing corporate crimes.
Employers often use retaliation tactics such as demotion, harassment,
blacklisting, and even termination to intimidate whistleblowers and discourage
others from coming forward.
The whistleblowers while disclosing
any information should have a backup in form of supporting evidences because in
many cases they have to face defamation cases and even criminal charges in some
cases further they must decide to report any wrong internally or externally.
Whistleblowers may also face isolation and emotional distress as they fight
with the decision to come forward and the repercussion of their actions. They
might feel isolated from their colleagues and friends. Moreover, whistleblowers
may experience emotional trauma, anxiety, and depression as they cope with the
stress of exposing corporate wrongdoing. Reputational damage is another
significant challenge for whistleblowers. They risk being labeled as
troublemakers or traitors, which can damage their professional reputation and
make it difficult to find new employment. Furthermore, whistleblowers may face
negative media attention which can attack on their reputation and also invite
death threats.
Therefore the whistleblowers are
needed to be protected because they risk not only themselves but also their
lives in order to show the wrongful act which is going on in the entity.
4.
LEGAL AND ETHICAL ANALYSIS
OF WHISTLEBLOWER PROTECTION IN
INDIA
4.1
WHISTLEBLOWER PROTECTION UNDER INDIAN LAW
The concept of vigil mechanism or
whistleblower can be traced from an ancient time period, it was proposed by
Kautaliya. He stated that “any informant (suchika) who supplies information
about embezzlement just under perpetration shall, if he succeed in proving it,
should be rewarded 1/6th of the amount in question and if he happens to be a
government servant (bhritaka) he shall get for the same act 1/12th of the
amount.”[12]
It was for the very first time talked
about in Kumar Mangalam Committee[13]
which recommended that the companies must have a whistleblower policy. If we
talk about legislative frameworks related to protection of whistleblower then
it’s still being considered in the blooming stage as compared to the
legislative frameworks present in countries like UK and USA. Although we have
several pieces of legislation which deal with protection of whistleblowers. The
below mentioned are the laws:
v
The
Whistleblowing Protection Act, 2014.
v
The
Companies Act, 2013 read along with “The Companies (Meeting Board and its Power)
Rules 2014.
v
The
SEBI’s Equity Listing Agreement.
4.1.1
THE WHISTLEBLOWER PROTECTION ACT, 2014
The act aims on protecting the
whistleblowers from any kind of victimization or retaliation because of their
move on unveiling any wrongdoing affairs of a corporate entity. The act ensures
confidentiality when it comes to any disclosure hence, the whistleblowers tend
to report any wrongful act confidentially in most of the times. The act has a
wider application as it applies on both private employees as well as government
employees, as well as on person who directly approach to the government in
order to disclose any such information. Further the act lays down types of
information that can be unveiled by whistleblowers and the procedure that they
need to follow while making and reporting as such disclosure. The disclosure
should always be made in good faith and by following the due procedures. One of
the crucial feature of the act is that that the act provides for an independent
authority, Central Vigilance Commission (CVC) which is authorized to perform
investigative function. They investigate complaints filed by whistleblowers.
The act also mentions about penalty
in any person victimizes or retaliates against the whistleblowers. Penalty
includes imprisonment and fines. The act also compensates the whistleblowers
who suffered any sort of torture or loss by the person or organization against
whom they had disclosed any information. Also, the act punishes the
whistleblowers as well when file any false complain therefore the act maintains
transparency and a proper checks and balances.
Even though having such provisions
the act is considered to be a failure upon its executions and effectiveness.
There have been instances where whistleblowers have faced issues after they had
unveiled certain facts even though the act promotes protection but they fail on
providing such protection. Hence, the act needs a stronger implementation
mechanism, awareness amongst the employees so much that they are aware about
their rights as a whistleblower. Therefore there is still a room left for such
improvements to be done.
4.1.2
THE COMPANIES
ACT, 2013
As stated under section 177 (9) of
the Companies Act, 2013 read along with the Regulation 7 of the Companies
(Meetings of Board and its Powers) Rules, 2014 it makes the vigil mechanism
compulsory for all the listed public companies hence, enabling directors and
the employee to raise their grievances to the competent authority.
Section 177(10) of the companies act,
2013 states to take reasonable care in order to protect the whistleblower from
any sort of victimization. Further the clause also mentions the procedure that
is needed to be followed when they wish to raise any concern directly before
the chairperson of the audit committee. It’s mandatory as per this section for
the listed companies to publish on their website a report about such vigil
mechanism which is adopted by them.
Section 177 was brought in change in
the year 2017, wherein the phrase “every listed company” was amended to “every
publicly listed company.” Setting up a vigil mechanism was considered to be an
important part for the company as it provides the whistleblower a platform to
come open and expose any illegal practices, fraud, or any kind of wrongdoing that
is adopted inside the company.
Section 208 of the companies act,
2013 provides additional power to the registrar or the inspector in order to
investigate companies’ documents and records on receiving such complaints and
based on such investigation they have to prepare a report and submit it to the
Central Government. Further, only if required they will provide all the
relevant documents to the Central Government. Lastly, Section 210 lays down the
guideline procedure that needs to be followed by the registrar of the inspector
during the time of investigation. As per section 211 of the act, the government
has been vested with the power to establish an office for serious fraud
investigation officer in order to conduct investigation on any company involved
in any sort of corporate crime.
4.1.3
THE SEBI’S
EQUITY LISTING AGREEMENT
Clause 49 of the SEBI’ equity listing as made by the
Security Exchange Board of India it was made
compulsory for every listed company for having a vigil mechanism which means
these companies had to adopt whistleblowing policy
mandatorily. It further
highlights that there must be awareness created
by all the companies for their employees about the policy
so that whenever they need to report
about any sort of wrongful
act they are aware where
they had to go and complain regarding it. Lastly, the clause directs
the companies to take reasonable care in order to protect the director and the complainant from
any kind of harassment or victimization.
SEBI has also took an initiative to give reward to the employees who come forward
and take much risk to report any sort of wrongful act which is being committed by or under the
company.
4.2
TYPES OF WHISTLEBLOWERS
Whistleblowers can be classified in
eight types:-
4.2.1
Internal Whistleblower- Any person who is working in a
particular entity comes forward and puts up complain about any wrong which is
being committed by any other member of the company.
4.2.2
External Whistleblower- When any complain is brought by any person other than
the person working in that particular entity for instance general public, media
reports, NGO working for public who disclose about the wrong doing of the
company.
4.2.3
Alumni Whistleblower- When complain is made by person who was earlier
working for the entity but is now not working hence, has left the corporate
entity and has filed the complaint against any member of the entity involved in
any sort of e]wrongful act.
4.2.4
Open
Whistleblower- Any
complaint is treated as an open complain when the complainant disclose their
identity as most of the time whistleblowers tend not to disclose their
identities.
4.2.5
Personal Whistleblower- When a complaint is made against any one particular person
and the company is running well but only the act of that particular person is wrongful
then that complain would be deemed as personal whistleblower.
4.2.6
Impersonal Whistleblower- The exposure of
wrongs committed against the whistleblower is a component of personal
whistleblowing. Unspecific whistleblowing exposes misconduct or harms to other
people, such as coworkers, customers, stakeholders, or clients.
4.2.7
Government Whistleblower- It involves disclosures which are made upon governmental
officials involved in doing malpractices. It can be central as well as state
government.
4.2.8
Corporate
Whistleblowers- Occurs
when an individual reports wrongdoing in any corporate entity and such
wrongdoing is in the nature of financial misconduct or any sort of
discrimination.
5.
COMPARATIVE ANALYSIS OF WHISTLEBLOWERS AND CORPORATE CRIMES
IN UK AND USA
5.1
WHISTLEBLOWER PROTECTION
IN UK
After numerous scandals and with the
collapse of BCCI Bank and the Herald of Free Enterprise there was a need felt
in the United Kingdom to have stringent mechanism in order to stop such
scandals. In the late 90’s the UK parliament decided to formulate a legislation
which would entirely deal with the protection of person who declare valuable
information about their employers’ malpractices. The parliament enacted the
Public Interest Disclosure Act, 1988. The act was solely based to the
recommendations that the parliament received by Nolan Committee Report. The act
allows the whistleblowers to claim compensation on any victimization after they
had made any disclosures. The Employment Rights Act of 1996 provided protection
for a whistleblower whose line manager engineered her termination
notwithstanding the fact that she had been fired for poor performance, the UK
Supreme Court said. The Supreme Court[14]
ruled that the motivation of the line manager had an impact on the employer's
decision to fire the employee, making the firing automatically unfair. In
another case, The Employment Rights Act of 1996 protected a whistleblower who
had expressed concerns about his employer's financial practices, according to
the Court of Appeal, even though his revelations only applied to a small number
of employees. The revelations, according to the Court of Appeal, were made in
the public interest and as a result qualified for whistleblower protection
under the Act's provisions[15].
The act defines “workers” in both the
private sector and the public sector and while extending immunity to them also
extends its immunity to contractors and suppliers. “In 2014, the UK Supreme
Court established that even members of an LLP Partnership are “workers” under the
Act.”[16]
One of the crucial aspect of this act
is that the act focuses more on the quality of the disclosed information and on
whether the information is genuine or not, rather than the whistleblowers.
Political leaders in UK have always criticized the act and have always demanded
to have various amendments which should primarily focus on establishing a
safeguard mechanism which should encourage people at large to come forward and
report their grievances and apprehensions against their employers or their corporate
entity under which they are working and once such disclosures are received the
appropriate authority must investigate on such disclosed information and also
protect the identity of the whistleblower.
5.2
WHISTLEBLOWER PROTECTION IN US
USA became the first country in the
world to recognize the very concept of whistleblowing. It was the year 1863
when USA passed a legislation named the United States False Claim Act, 1863 and
became the first country in identifying whistleblowing.
There are several legislations which
deals with the protection of whistleblowers namely:
The Sarbanes Oxley Act, 2002
Occupational Safety and Health Act 1970.
Wall Street Reform and Consumer
Protection Act 2010.
There is also an initiative taken by
the securities exchange commission in the U.S to inspire the employees to
report any wrongful act which they have known or seen in places where they
work. Therefore, the regulator promotes transparency and a practice of full
disclosure.
5.2.1
THE SARBANES OXLEY ACT, (SOX) 2002
The Sarbanes Oxley Act, is one of the
prominent statute in USA which gives protection to the whistleblowers who
unveil any insider trading, any kind of fraud or corruption taking place in the
corporate entity. It was brought enforce after Enron Scandal and WorldCom
scandal which disclosed dark reality of corporate and finance sectors, it was
felt by the legislature to enact a legislation to protect person who disclose
such information in a good faith. The act has a wider ambit and is binding on over
40 million employees of publicly traded corporations in the US.
The act under Section 301made it
compulsory for the public companies for having an audit committee. The
committee possess the responsibility for establishing a procedural safeguard in
order to protect the whistleblower’s identity from getting disclosed. The act
reassures the internal whistleblowers who come forward and report complaint
against their employers in front of the stock exchange commission. The act aids
the whistleblower by adding a provision of whistleblowers making a complaint
against any retaliation made after they had reported any complaint against
anyone. The complaint can be made within 90 days of such retaliation. After
receiving the complaint, the labor department is authorized to start an
investigation upon such retaliation. Once the investigation has been completed
from the side of the department it will be referred to the Occupational Safety
and Health Administration for review. OSHA shall issue compliance order on such
referral. The act punishes the person who retaliates against a whistleblower
with a fine or imprisonment for 10 years or both and it’s considered as a
federal offence.
5.2.2
THE DODD – FRANK
WALL STREET REFORM AND CONSUMER PROTECTION ACT, 2010
The act was enacted as an extension
of SOX, 2002 it also provides protection to the whistleblowers who report any
wrongful act or when they provide any sort of information which is confidential
in nature but is a wrongful act and such information may help in proving that
the company is actually involved in a fraud or malpractice. The whistleblower
can report about such practices to the Stock Exchange Commission or the
Commodities Future Trade Commission.
The Act also expands the window for
filing complaints against any form of retaliation from 90 days to 180 days. It
also offers immunity to everyone who works for both the parent and subsidiary
enterprises. The Act also establishes a provision that ensures the
whistleblower is compensated for the information they provide. If the
whistleblower discloses any actions that demonstrate the company benefited for
an amount of $1,000,000 or more from any wrongdoing, the company must pay the
whistleblower a sum that is not less than 10% and not more than 30% of the
amount in question. In a case the Ninth Circuit Court of Appeals[17]
determined that even if an employee did not report malfeasance to the SEC, they
were still protected from retaliation under the anti-retaliation provisions of
the Dodd-Frank Act. The Court ruled that whistleblowers who disclose to their
employer internally as well as those who report to the SEC are protected from
retaliation under the anti-retaliation provisions of the Dodd-Frank Act.
6.
COMPARITIVE ANALYSIS OF WHISTLEBLOWERS PROTECTION IN INDIA, UK AND USA
In the earlier section as we have
discussed the whistleblowing mechanism of India, UK and USA now we will compare
these different state’s mechanism and how they are similar and different from
each other. The whistleblower protection that we have in India has a limited
ambit when compared to UK and USA. As in India it’s limited to private sectors
basically whereas in UK and USA its open for both public and private sectors.
The reporting process in India is ambiguous there is no proper guidelines and
it’s merely formed how the respective companies want it to be whereas in case
of UK and USA they have established a well reporting procedures. Even though
India has recognized protection of whistleblowers very recently hence number of
complaints is less when compared to that of UK and USA therefore the mechanism
in India is in its developing stage and there is still a room left for
enhancements and effectiveness. In UK and USA there is a provision for getting
interim relief on any sort of retaliation done towards the whistleblower but in
India there is no such provision.
Overall, UK has the most robust
whistleblower mechanism followed by USA meanwhile as India has recently taken
steps towards providing protection to the whistleblowers therefore there is a
need for more enhanced framework in order to ensure comprehensive protection to
whistleblowers across all the sectors
7.
MAJOR PITFALLS OF WHISTLEBLOWER PROTECTION
To establish a strong corporate
governance system, a nation cannot simply create many regulatory bodies but
exclude certain sectors from their scope and make it optional for them to
comply with the framework. To ensure the effectiveness of any law, it is
essential that the scope and application of the law are clear and precise. As
already mentioned laws relating to whistleblowers and their protection is still
at a base level which means it needs many more developments.
Any execution with regards to
whistleblowing policy requires trust which means companies should create such
environment where the company itself encourages it members to always come up
and put a complain regarding any wrongful act which they are aware off to the
appropriate authority within the company, hence this type of transparency
should be created by the company itself but there are many difficulties in real
companies fails on creating such type of environment companies are ignorant
towards the whistleblower policy and don’t implement the policy efficiently.
The whistleblower protection act,
2014 excludes private companies is one of the major pitfall. Clause 49 of the
SEBI Equity Listing Agreement is non-mandatory for private institutions. The
whistleblower protection act, 2014 applies only on the companies which are
enlisted on the stock exchanges. The act fails to mention any sort of provision
dealing with internal procedure in order to investigate complaints. There were
further amendments passed which made it mandatory for the whistleblower to
reveal their identity but I guess parliament has failed to understand that this
mandating might victimize the whistleblowers and they might to face threats and
harassment. Lastly the other problem with the act is that it does not provide
any type of compensation to the whistleblowers when they are subjected to any
sort of harassment or victimization. Therefore it fails to serve the purpose
itself it calls itself a protection act but it’s not providing protection on
critical areas.
When we talk about the robust
whistleblowing policies in UK and USA they are in a better practice as compared
to India but still corporate crimes do take place in these places. The first
and foremost reason for this is the fear of retaliation even though having an
effective mechanism still there is such stringent provision which could stop retaliation
against the whistleblowers that’s why they fear to report anything even the
remedies provided to them is not sufficient to address the harm which is
suffered by the whistleblowers, especially in cases where the whistleblower's
career or reputation is irreparably damaged. Inadequate enforcement, corruption
takes over the whistleblowers often time’s whistleblowers are lured for money
or with position or perks this becomes tougher to stop when one is practicing
within their limits. Therefore addressing these issues might improve the
whistleblowing policy in the respective jurisdiction.
8.
CONCLUSION
8.1
SUMMARY OF KEY FINDINGS
The role of whistleblowers in
corporate governance is essential in disclosing corporate crimes. Due to a lack
of understanding, apprehension about reprisals, a lack of effective remedies
and enforcement, and the extent of available protective measures, corporate
crimes continue to occur. In order to increase the efficiency of whistleblower
protection measures and decrease corporate wrongdoing, it is imperative to
address these challenges. In conclusion, protecting whistleblowers is essential
for preserving the integrity of businesses and their operations since they play
a critical role in fostering transparency and accountability in corporate
governance. India is very recent in this type of mechanism when compared to UK
and USA the only way to make corporate crimes minimal is to have a better
enforcement mechanism and involvement of such a body which is not related to the
affairs of company so that they can’t be influenced and all the investigation
and other procedures should be quicker so that the person can’t harm or
retaliate against the whistleblower
8.2
IMPLICATIONS
FOR CORPORATE GOVERNANCE AND WHISTLEBLOWER
PROTECTION
As discussed in earlier sections it
can be concluded that whistleblowers do play a great role in corporate
governance by taking all the risk and stand straight strong against any
wrongdoer. They have somewhat improved transparency by bringing attention of
the regulators and the public to not trust blindly and inspect anything and
everything while getting involved with any corporate related activities whereas
hand in hand by protecting the whistleblowers, corporate governance can also be
improved by promoting transparency and accountability in any corporate entity.
Whistleblowers also enhances compliances and builds a better risk management
system wherein they help the organization to manage risks by unveiling
potential violations of company’s affairs. They also prevent reputational
damage by already informing the wrong within the entity before it can be
covered by media. Effective whistleblower protection requires ethical
leadership and a culture of accountability within organizations. By promoting
ethical behavior and a culture of transparency and accountability,
organizations can reduce the likelihood of misconduct and foster an environment
in which whistleblowers are supported and protected.
X. BIBLIOGRAPHY
Whistleblower Protection Act, 2014
Companies Act, 2013
Public Interest Disclosure Act, 1988
The Sarbanes Oxley Act, 2002
Whistleblowing for Change: Exposing
Systems of Power and Injustice https://lexpeeps.in/protection-of-whistle-blower-a-socio-legal-perspective/
[2] Edited by by Robert G. Vaughn and Meghan J. Ryan
[6] Infrastructure Leasing
and Financial Services Limited and its subsidiaries, Writ Petition (Civil)
No. 1036 of 2018 (Delhi
High Court Nov. 15,
2018).
[11] United States of America
vs. Ranbaxy Laboratories Limited [1:13-cr-00118-RBW-1]
[15] Chesterton Global
Limited v Nurmohamed [2017] EWCA Civ 979.
Article Information
THE ROLE OF WHISTLEBLOWER IN CORPORATE GOVERNANCE IN UNCOVERING CORPORATE CRIMES: A COMPARITIVE LEGAL AND ETHICAL ANALYSIS WITH UK AND USA
Authors: SNEHAL UPADHYAY
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/09/04
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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