This article is written by Vaibhav Chauhan, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com.

Introduction

Do you know who brought to the fore the illegal transactions between ICICI Bank and Videocon Group? Arvind Gupta, a whistleblower and the founder and trustee of the Indian Investors Protection Council. Similarly, multiple anonymous complaints were filed against the two non-founding CEOs of Infosys, Vishal Sikka, and Salil Parekh, for misconduct. 

An increase in whistleblower complaints in India leads to the need for strong whistleblowing mechanisms or say policies in the companies and organizations. Whistleblowing has grabbed major attention in the global scenario with increasing complaints be it small or big organisations and businesses. Whistleblowing is an issue which affects the operations as well as the culture of the organisation up to greater extent irrespective of their size. That’s why every company, however small, is required to have a whistleblowing policy to safeguard both their employees and employers.

In this context, this piece firstly, highlights who the whistleblower is and how whistleblowing is related to corporate governance. Secondly, this article also provides a snapshot of the legal regime in India related to whistleblowing and up to what extent it covers private employers. Thirdly, why there is a need to have a whistleblowing policy for small businesses with special reference to the recent AirAsia India whistleblowing case. At last, this piece provides how small businesses can form such policies along with the effective implementation of the same is also discussed in this piece. 

Whistleblower and whistleblowing

A whistleblower is an individual who makes a ‘disclosure’.  Disclosures are usually made by an employee or group of employees in the same company, which can be in writing or in good faith disclosing and providing information related to the company, based on actual facts and not on dire imagination such as acts about health and safety dangers, damage to the environment, a criminal offence, failure to work within regulations or covering up of wrongdoing etc. whistleblowers have been called ‘canaries in the coal mine’. They have been accused of ‘committing the truth’.

Pertinent definitions of the whistleblowing are produced below:

• R.M Green (1994) defines a whistle-blower as an employee who, who is blowing the practice that he believes to be illegal or unethical, seeks to abridge this practice by alerting the top management or failing that by notifying authorities outside the organization.
• Boatright (2003) Whistleblowing is the release of information by a member or former member of an organisation that is evidence of illegal and/or informal conduct in the organization that is not in the public interest.
• Koehn defines whistleblowing occurs when an employee informs the public of inappropriate activities going on inside the organization.

Whistleblowing can be further classified into two types firstly, internal whistleblowing and Secondly, external whistleblowing. Internal whistleblowers are the ones who make their allegations related to maladministration or misconduct to the superior management or say the officers within the organization whilst external whistleblowers are those who disclose such activities to the law enforcement authorities, media, law enforcement or watchdog agencies or other local or state agencies.

Further, the process of internal whistleblowing consists of 5 steps, where at first when a concern is raised by an employee of the company it’s referred to the Ombudsman, who could be a legal adviser, audit committee, or a compliance officer of the company. Further, communication to the ombudsman will lead to the starting of the inquiry in which a complaint might get dismissed with the immediate effect if it is found to be false, scandalous, or insignificant.

But if the complaint is prima facie true then it can be taken up for further investigation by the enquiry committee formed by the organisation and based upon this enquiry wrongdoer must be punished and action may be taken against the wrongdoer as the case may be. Moreover, internal whistleblowing is often helpful to the organisation because it helps them to rectify their acts internally while protecting its market standing in public.

Whistleblowers and corporate governance

After seeing the concept of whistleblowing with the whistleblowers it is pertinent to consider the concept of corporate governance. The structure of corporate governance whether of big business and small business usually consists of a supervisory board, board committees, risk management framework, internal control framework and whistleblower mechanism. The core objective of corporate governance is to enhance the value of shareholders and to encourage the honesty keeping in view the interest of the other interested shareholders of the company/organisation.

Do you know why it is necessary to encourage the culture of honesty in organisations?

It is crucial to encourage the culture of honesty and open-ended flow of communication in businesses and employees of the company need to have that feeling where they can raise any concerns related to operations of the company or any other relevant concern without the risk of dismissal or victimisation along with that they should be ensured that their concern will be dealt fairly and transparently. Further, employees should also need to know that to whom they can raise their concern or say issue and that is why a clear and communication through proper channel whistleblowing policy is necessary for the businesses including the small businesses because they don’t have to comply with any legal requirement related to whistleblowing thus, policy within the business will suffice and encourage the employees at the same time.

The central objective of corporate governance is the “boost of shareholder value, keeping in view the interests of other shareholders”. Fundamental to this examination and infusing throughout this exercise is the recognition of the three key aspects of corporate governance, namely; accountability, transparency and equality of treatment for all stakeholders.

Whistleblowers play an important role in protecting corporate governance and he is the one who informs the superiors in the organisation about any kind of mismanagement. Therefore, whistleblowers safeguard the interest of stakeholders thus, it can be said its internal organisations which provide liberty and safeguard to the whistleblower and not use its policies as a weapon to punish the blower.

Moreover, it is pertinent to highlight that whistleblowers came into limelight and in focus by world media due accounting scandals and also when Time magazine awarded Cynthia Cooper of WorldCom, Sherron Watkins of Enron, and Coleen Rowley of the FBI as its “Persons of the Year” in 2002.

Legal regime in India

India has enacted the Whistle-Blowers Act, 2014, which only governs the public servants and it is pronounced to introduce and mechanism to receive the complaints pertaining to reporting any act of corruption, wilful misuse of power against any public servant, to inquire upon such disclosure, and to provide the proper safeguard to the person making  complaint. [1]

But, there is no specific law on whistleblowing applicable to private employers in India. Some broadminded companies especially Multinational Companies (hereinafter referred to as the MNC’s) and its subsidiaries have incorporated a whistleblower policy with respect to extending their policies at the global level which covers all employees of the company along with that it also covers parties outside the company. The main motive of introducing any whistleblower policy in the organisation is to encourage employees (or any other person for that matter) to disclose or say report matters without any risk of subsequent victimization, discrimination, harassment or disadvantage.

Moreover, it is pertinent to highlight here one of the lacunae in law that there is no mandatory requirement for private, unlisted companies to adopt a whistleblower policy / a policy to protect whistleblowers (except the specific classes of companies prescribed under Companies Act, 2013). However, certain large MNCs have adopted international best practices and included whistleblower policies. Moreover, the introduction of such policies into the private organisations and businesses are totally voluntary in nature and not abiding by these policies would not attract any legal liability upon such organisations or businesses. There is a possibility that in future CARO might address this issue of law regarding covering private employers and companies.

How a whistleblowing policy helps small businesses?

As seen above that whistleblowers are crucial for the corporate governance in furtherance to which a properly introduced whistleblowing policy reassures the employees of the small organisations/businesses that it’s properly safe to raise the concerns and that they will be not be punished by using the policy as a weapon as mentioned in above para also. Providing the well-structured policy will provide them with the proper chain of communication which has to be followed which ensures that whistle-blower has approached the correct person.

Also, in the section of the legal regime, it is mentioned that private employers don’t have to comply with any legal compliances and if they don’t form such whistleblowing policies they won’t be held liable for the violation of any law but to ensure the fear-free culture especially in small businesses with proper effective and efficient working mechanism it is important for the small businesses to have established whistleblowing policies or say a mechanism.

In a recent case of Pilot Gaurav Taneja, who is the employee of one of the major players in the aviation industry that is AirAsia India (hereinafter referred to as AirAsia) raised the issue of safety concerns in the flights undertaken by AirAsia India. He is a whistleblower of AirAsia who raised this safety concern and in return, AirAsia terminated him from his employment for raising such issues publicly. Moreover, he raised this issue before the Directorate General of Civil Aviation (hereinafter referred to as DGCA) because AirAsia is trying its level best to bury this issue deep and to victimize Gaurav Taneja as the culprit.  But, after the receipt of the complaint by DGCA, it did a surprise audit of the AirAsia and found serious concerns with their flight safety, thus, DGCA suspended its head of operation for this act.

From this incident, it is crystal clear that in such big businesses/companies also, whistle-blower has to face the consequences for raising his voice against the mismanagement of the company. Thus, in this case, also AirAsia used its whistleblowing policy as a weapon to victimize the whistle-blower by imposing other fallacious allegations like Pilot Gaurav Taneja is not fit for the job because he is taking so many holidays from the job without giving any concrete reason for the same.

So, considering the above-mentioned case of such a big player in the industry it can be said that whistle-blowers still have to face the dire consequences and to remove this wrong conduct of the companies, it is need of the hour for small businesses to establish whistleblowing mechanisms in its organisation.  Also, having a clear whistleblowing policy would help small businesses to reduce the risks to the business and how an employee should counter the malpractices.

However, there are employers who usually combine the whistleblowing policy with the ongoing grievance policy which is strictly not recommended and separate policy should be devoted completely for whistleblowing with potential risks and high up stakes being involved.

Practical steps a small business can take while framing whistleblowing policy

After considering the importance of whistleblowing policy it is important to know how one can go about creating the whistleblowing policy. So, below mentioned are some points which small business can take while framing of the policy:

• Identify who in your business/company is specified as ‘a worker’ which includes employees, trainees and members of a business.
• Ensuring that the company is having a specified process for whistleblowing along with that proper files shall be maintained because the same will be required to report on the whistleblowing claims.
• Employee’s contracts should be updated with the clauses referring to the whistleblowing.
• Managers and other superior officers of the company should be well versed about their role when issues are raised by the whistleblower.
• Also should send internal mail to all the employees informing them about the whistleblowing policy of the company and ensuring them that they will get fair and non-discriminatory inquiry related to the issue raised.
• Whistleblowing policies should be communicated to all the employees within the company/organisation irrespective of superiority so that every employee of the company should be well-informed about the chain of communication which has to be followed if he wants to raise any concern related to the mismanagement in the company or business.

Thus, these steps can be undertaken to frame the whistleblowing policy in a practical scenario.

Subsequently, after framing of the policy how will the employer implement it?

In the practical world, there are concerns with the implementation of this policy because employees are afraid of whistleblowing because in return they have to face the dire consequences like in Pilot Gaurav Taneja Case. However, as an employer you have the duty to support the whistleblower to ensure the effective work culture in your company.

Moreover, as an employer it’s your responsibility to look into the case fairly and putting everything right, also whistleblowing policy should be produced with proof that you are looking into the issues raised without any arbitrary nature. If the policy framework is effective then it will be in support of the employees of small businesses and every employer should be on their toes when it comes to whistleblowing.

Moreover, whenever there would be any update in the legislation related to whistleblowers which cover private employers then the same should be incorporated in the policy too. So, effective implementation of the policy is also crucial for small businesses to carry their operations without any hindrances.

Conclusion

The law on handling the complaints of whistleblowing and about safeguarding the whistleblower is still being developed because private employers are still out of the purview of the law. To this, an effective whistleblowing policy is a must for small business and organisations. A robust mechanism for investigating and resolving whistleblowing complaints are required in small business/companies to ensure adequate protection to a whistleblower in the form of anonymity if he likes to remain anonymous. Further small businesses required such whistleblowing mechanisms to create a compliance culture and strengthen anti-retaliation policies. At present, the need of the hour is to make employees who are whistleblowers to feel safe. It may take some time to develop a well-focused whistleblowing mechanism in small businesses but it will certainly get there with increased awareness in such business companies. 

References

 [1] Preamble, WhistleBlowers Protection Act, 2014.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: