Setting up a whistle-blower program

Setting up a whistle-blower program
21 Nov 2022
There are many approaches to describe Whistleblowing. In short, revealing misconduct within a company to internal and external parties is whistleblowing. The reporting of internal whistleblowing is carried out from a source inside the organisation. In contrast, for reporting the external whistleblowing, the material is taken beyond the organisation, for instance, by the media or regulators.
Good governance denotes that it is in the best interests of an organisation, entity, or economy to expose any wrongdoing that occurs within it. This reporting of misconduct (whistleblowing) aims not to hurt the organisation but to encourage the disclosure of an individual or groups' wrongdoings or omissions that are opposed to the interests or values of the company. 
In the era of globalisation, in which economic factors precede all virtues and cultures, it has become very important to defend the greater public interest from major corporate scams by creating an effective whistleblower program.

Major Components of whistleblower program

Identification of what, why and how
At the initial stage of designing a program, it is very crucial to understand these 3 things - what, why and how. What, why and how of whistleblower program is “Whistleblower program helps an organisation or company to install a highly secure channel for disclosing any wrongdoing, illegal activity or harmful behaviour within the organisation”.

Fulfilment of requirements under act enacted in India

In India, the Companies Act 2013 and the new corporate governance norms for listed companies (Clause 49 of the Listing Agreement) encourage companies to have a structured whistleblowing framework, ensuring sufficient security for whistleblowers. Moreover, in accordance with the Companies Act 2013, the Rules (Chapter 12) stipulated that any listed company and the companies of the following types (whether the non-listed firm is a public or private company) must set up a vigil mechanism for the director and employees to report the legitimate complaints or concerns—
  • Companies that receive public deposits; and
  • Companies who have borrowed more than Rs. 50 crores from banks and public financial institutions
For more details about the overview of governing laws in India please visit our article Legal Regime of whistleblowing in India

Setting up the complete process from filing of complaint till resolution

One of the more common fears of employees wanting to report misconduct is that someone may recognize their voice. Whistle blower program must consist a complete process that will define the criteria for filing a complaint, tracking of the complaint and steps to resolve the issues within the time limit.

Issues reported through a Whistleblowing channel

A well-designed whistleblowing framework will facilitate the reporting of various types of problems and complaints, which includes:
  • Allegations of fraud, corruption, unethical activities, or wrongdoing 
  • Concerns over doubtful business practices or strategies
  • Unchecked warnings about such risk areas
  • Failure to comply – in terms with corporate policies or legislation

Extension of Whistleblowing program to vendors, customers, business partners, and third parties

Many companies have focussed their whistleblowing policies exclusively on the employees, but often certain important issues have been highlighted by the external stakeholders, such as customers, vendors, suppliers, etc. All the other stakeholders must be encouraged to use the mechanism to expose corruption or employee-led fraud between customers and other third parties.

Importance of “Anonymity” in Whistleblower program

Anonymity is a powerful weapon to ensure a whistleblower mechanism's effectiveness. In our knowledge, anonymity allows consumers to trust the whistleblower mechanism for reporting their complaints. In order, however, to ensure that the whistleblowing program does not operate on frivolous matters, businesses should allow and encourage consumers to include reliable facts supporting the allegation, for example, alleged perpetrators, venue and type of incident, names of other employees aware of the issue, factual details, the money involved, etc. With a regulation reiterating this message, the effectiveness of anonymous complaints will be enhanced.
Companies who insist whistleblowers sharing their identities either do not accept complaints or begin receiving anonymous complaints outside of the formal monitoring channel. It is impossible to trace such complaints in these cases, since they could have received it from various persons within the organisation. In many cases, the company must take cognizance of the most extreme claims and act on them. Therefore, it is in the company's best interests to allow anonymous reporting while also creating awareness about what a complainant's role might be in terms of providing information, etc.

Determining the in-charge of the Whistleblower policy

Compliance teams are in-charge of the entire whistleblower mechanism in the majority of large multinational corporations. 
In India, the whistleblower mechanism has been typically led by internal audits or human resources. An improvement in the ownership of the Legal & Secretarial role has been witnessed since the implementation of the Company Act, 2013. The Companies Act 2013 empowers the Audit Committee and the Independent Directors for managing the whistleblower mechanism, while senior employees in the company will continue to oversee the organization's daily processes.

Necessity of reporting the Whistleblower complaints to the Audit Committee

Audit Committee members should be regularised concerning the number of complaints/inquiries registered through the whistleblowing process and its current status. This reporting shall include information such as the extent and manner of the allegation, the hierarchical layers of people involved, the status of the inquiry, the effects (financial or other loss), and the company's action against it.

Reviewing a Whistleblower regulatory non-compliance by the Regulatory team

Any successful inquiry must be conducted with independence and objectivity. As a result, any regulatory noncompliance that is identified must be reviewed by an unbiased team in order to ensure the investigation's objectivity. The same will extend to any alleged fraud claim involving any other business activity or location.

Handling complaints of ex-employees/employees on notice period

Complaints issued from former employees or current employees can be treated in the same way as of any complaints. It should be determined based on the gravity of the situation and the evidence provided.
It has been observed that former workers are much more articulate about their concerns and offer more detail without fear of retaliation. This further assists the organization in assessing the impact of the complaint in terms of financial or other damages suffered and shortcomings in anti-fraud measures that contributed to the situation. 

Identifying and dealing with the false complaints

It has been observed that allegations that are not well accompanied by evidence and seem vague are usually false complaints. To deter such allegations, companies must raise employee awareness of the goal and intent of the whistleblower mechanism. The communication to employees must also emphasise that clear and reliable evidence supporting complaints needs to be provided. In lack of reliable evidence, the company cannot investigate the case.
 
Conclusion
Setting up a whistleblowing policy isn’t an easy task. Certain aspects should be kept in mind for establishing an effective whistleblower policy. The aspects range from the laws mandating the whistleblower policy to the identification of false complaints. With the implementation of the aspects mentioned above, developing an effective whistleblower policy isn’t something to worry about.

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