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An Increase In Corporate Governance Should Result In A Decrease In The Need For Whistleblowers

Corporate enterprises and Government agencies have dealt with whistleblowers who have had the moral courage to bring wrongful practices or fraud to the attention of the public along with relevant authorities for investigation and redressal.

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A whistleblower is defined as an employee who brings wrongdoing by an employer or other employees to the attention of a government or law enforcement agency and who is commonly vested by statute with rights and remedies for retaliation.

Corporate enterprises and Government agencies have dealt with whistleblowers who have had the moral courage to bring wrongful practices or fraud to the attention of the public along with relevant authorities for investigation and redressal. Whistleblowing is, by its very act, a corrective action that acts as a form of checks and balances. It is seen as essential in the complex world of corporate governance today. However, whistleblowing, given that it is, in a sense considered turning traitor against your masters, is now replete with policies to protect a whistleblower who is vulnerable to a slew of legal actions that could potentially irrevocably damage his or her career.

In 1989 the US Congress passed a Whistleblower Protection Act to “strengthen and improve protection for the rights of federal employees, to prevent reprisals, and to help eliminate wrongdoing within the Government.” In fact, according to Transparency International, G-20 countries have committed adequate measures to protect whistleblowers, though much more needs to be done in this area. India has a Whistle-blowers Protection Act too which was passed in February 2014 and provides whistle-blowers safety and protection in case they expose wrongdoing, abuse of power or other malpractices.

When one thinks of whistleblowing, one may recall Edward Snowden who may be the most infamous whistleblower in recent memory on an international scale. However, whistleblowing in businesses has had an impact on the corporate houses that have had to defend charges of malpractices that the whistleblower brought upon them.

Let’s take a brief look at some of the recent cases involving a whistleblower, in corporate India:

· Recently a letter was made public by an alleged employee of a well-known bourse, purporting a fraud of crores of rupees with regard to loopholes in trading that benefited some players. The case is under investigation, and the management of the exchange is spending money, time and effort to mitigate the negative fallout of this whistleblowing act.

· In May of 2019, it was alleged that an independent credit rating agency manipulated with the ratings of a financial company that had financed several companies for decades. The rating company rated its client AAA in the complaint filed by a whistleblower. The rating agency is investigating the complaint and has enlisted the help of external parties to get to the bottom of how it could have failed to see the warning signs of the client that plunged into default just two months after the rating.

· In May 2019 an anonymous whistleblower purported accounting malpractice where the company is alleged to have over-reported its profits and also lent money to an unnamed entity. The whistleblower alleged that the auditors of the publicly listed company were aware of the failure of corporate governance, despite which turned a blind eye to the accounting entry which was incorrect and led the company to report a profit whereas ordinarily, it would have been a loss. The whistleblower’s letter is now with several enforcement agencies and the investigation is in progress.

· A whistleblower brought the attention of SEBI (Securities and Exchange Board of India, a regulatory body for the securities market in India) to malpractices observed in a pharmaceutical entity’s trading practices. The stock of the business entity sank as soon as the report was made public. This was allegedly a corporate governance failure that has cost the business millions in revenues and profits.

In all the above, the common theme is the wilful non-adherence of corporate governance. It is because of this disregard or failure of corporate governance that these whistleblowers seem compelled to bring these wrongdoings to the attention of the relevant authorities and the public.

Several whistleblowers have been written about in books, and some have had movies made based on their stories, but have had to pay a price for doing what is morally and ethically correct. However, the question to be asked is: can we only depend on whistleblowers to expose corruption, fraud or other malpractices?

Corporate Governance

Why are whistleblowers relevant and needed more than ever? This is because enterprises and businesses continue to disregard corporate governance. This perception can lead to serious consequences, including shut-downs and bankruptcy that can completely alter the lives of thousands of people directly or indirectly connected to the business.

If businesses were to take the issue of corporate governance with the gravitas that is required, they could mitigate some of the risks that come as a fallout. Share prices nosedive, companies are downgraded as ‘junk’ and may need to file for bankruptcy, the reputation of many of these companies need a long, slow and expensive road back to redemption, if at all.

Many think that short-term gains are better than long-term stability, growth and brand equity and they disregard the underlying risks. Therefore, corporate governance must be taken seriously.

Enterprises need to be cognizant of the risks of corporate governance failure and enlist experts for due diligence. An internal audit may not suffice, as that can be biased. It is crucial to understand the criticality of mitigating reputation risk. Why be in a situation where millions of dollars have to be spent to recover?

We live in a globally connected world so it is imperative for businesses across sectors to be mindful, vigilant and ruthlessly stringent in their corporate governance practices and compliance. It is up to every individual in an organization to be unimpeachable towards their business conduct and ethics.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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