Wednesday, October 8, 2014

Whistle-blowing: A tool for refining Indian Corporate Governance Standards.

Corrupt practices going on in corporate sector of India has been targeted by the Companies Act, 2013 and SEBI. SEBI has strengthened the effect of the whistle-blower mechanism and made it mandatory in all listed companies for their employees and directors. For ensuring better Corporate Governance Standards via precision and transparency, the market watchdog, SEBI’s Market Advisory Committee has recommended companies to make this mechanism available to all employees and stakeholders of the company.

Section 177 of the Companies Act, 2013 prescribes for the formation of an Audit Committee wherein the sub-section (9) and (10) provide for a vigil mechanism to be present for the directors and employees to rely upon for reporting any misdeeds or corrupt practices by their senior colleagues which they need to report.

Some companies have taken the news within its true spirit, such as BHEL. Bharat Heavy Electricals now have an official policy pertaining to the mechanism of Whistle-blowing which ensures that the identity of the whistle-blower will remain undercover in order to avoid their victimization. Not only the whistle-blower but also the identity of any person who helps in the investigation will be kept undercover. However, such protection will not be provided in cases where the information provided is found to be false or motivated or vexatious. This was supported by SEBI as they said that the mechanism of whistle-blowing should encourage employees for disclosures of malpractices as well as avoid fraudulent accusations made to harass the management.

Whistle-blowing hasn't been very popular in the Indian corporate world up until now and the culpability could be attributed to the politics in the management of companies and the employees’ vulnerability. This will no longer be an issue as long as the complaint is carefully drafted by mentioning specific and verified information and addressed to the concerned authority which may be the audit committee.

Not only is it a matter of moral to report misdeeds taking place in a company, but if the precedent of Infosys is to be relied upon, the whistle-blower would get a portion of Settlement in malpractice suit which arises from his complaint. An American employee of Infosys brought a lawsuit against the company when he witnessed a widespread visa fraud. The US Attorney of Texas mentioned to news reporter that he will be “amply and justly rewarded”.

The mechanism of whistle-blowing is taken very seriously in global legislations such as The Public Interest Disclosure Act, 1998, in the UK (which protects whistle blowers from victimization and dismissal) and the Sarbanes Oxley Act, 2002 (which provides for the protection of whistle blowers and is applicable even to employees in public listed companies). It seems that SEBI has taken such precedents seriously and is reared up to deter such offences in the future.

No comments:

Post a Comment