Keep boards in the loop of those whistleblower reports
Oct 12, 2023
Summary
Whistleblowing is coming of age in India and companies must institute a proper mechanism of reporting issues raised to the board so that risks are tracked and whistleblowers protected.
Five years ago, a whistleblower complaint against Chanda Kochhar, the then-CEO of ICICI Bank, alleged improprieties in the bank’s lending practices and conflicts of interest (as her husband was an alleged middleman) in a loan granted to Videocon Group. ICICI’s board initiated an independent inquiry after an initial refusal to admit any wrongdoing, and involved a former Supreme Court judge, who too found no basis for the allegations. However, Chanda eventually stepped down amid mounting concerns—a victory of sorts for a whistleblower against the top leadership.
A year earlier, a whistleblower had alleged that L&T used improper accounting practices to boost profits. Its board initiated an internal investigation and found no evidence of wrongdoing, and the company remained publicly traded without any significant legal or regulatory repercussions.
Two years later, a whistleblower accused Sun Pharmaceuticals of corporate governance lapses, including insider trading, improper financial dealings and lapses in regulatory compliance. The company’s board formed a special panel to investigate and acknowledged that some regulatory queries existed, but denied any wrongdoing. It attributed the concerns raised to complexities of the pharmaceutical industry.
The same year, a Vedanta whistleblower accused it of violating environmental laws in mining, among other related issues. Here too, the board initiated an inquiry and maintained that its operations complied with all environmental laws.
It looks like whistleblowing in India is slowly coming of age, with high-profile boards getting involved, even if hesitantly. When faced with whistleblower allegations, various boards have had varied responses. While some initiated thorough probes and took corrective action, others defended their positions. Whistleblowing in India is still evolving, and the outcomes often depend on the seriousness of the charges, the effectiveness of the company’s internal reporting mechanisms, and the level of transparency and accountability maintained by corporate boards.
The days of quietly covering up internal company wrongdoings and missteps will soon be gone. Worldwide, legal and regulatory standards now demand internal reporting and compliance structures to monitor (and often disclose) legal, financial and human-resource problems. This requires an effective whistleblower system to prompt alerts and also protect those who report. While there are many international guides available, one aspect is still often left to chance—reporting to the board of directors.
What works best to assure your board that it’s in the loop of what whistleblowers have to report? Here are some pointers:
Board reporting on whistleblower activity within a firm should have two primary tracks. The first should compile statistics on complaints, issues raised and outcomes in a report that could be part of a staff presentation.
A whistleblower report embedded in a quarterly board report could have a dashboard showing results. It should cover basic numbers on the disposition of reports, most common concerns raised, updates on any investigations, and their outcomes.
As this basic whistleblower report may sound a bit data-driven and perfunctory, a proper presentation to the board by the staffer responsible (with a follow-up Q&A session) is crucial. How effectively is the company policy shared and known throughout the organization? What insights are hidden in the whistleblower data? A large number of non-serious reports at a particular location could flag a problem. What flaws have been uncovered in assessing the reporting and follow-up system, and are they being addressed? Research shows directors want more granular whistleblower details. An Australian survey found 60% of board members wanted more information on all whistleblower reports received, not just those with the most “serious consequences." Boards, therefore, must be encouraged to seek independent surveys of the company’s workforce for an honest appraisal of how well they trust and use the firm’s whistleblower programme.
The above addresses the first part, quarterly board whistleblower reporting. A second complementary track must cover top-level matters involving top executives where the stakes are high and/or the concerns are grave. If your CEO, CFO, CHRO, top legal officer or a member of the board is involved, what procedures are in place to quarantine them while fast-tracking the investigation? Allegations against members of the whistleblower reporting team also need such a cordon. It should not be done the ICICI way for sure (a probe done without asking Kochhar to step down). All high-stakes allegations, like accounting fraud, theft, assault, bribery, securities violations, insider trading or other reportable offences, demand that the board is alerted right away.
This raises the final question: Where exactly should an alert whistle for the board sound? A former top corporate secretary told us that the audit committee was the body that would often see such reports first. With its independence, expertise and strong information structures, that entity seems like a natural gatekeeper. A dedicated risk management panel could also take up this first-look role. It would dovetail well with its broader risk-assessment job.
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