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BW Businessworld

Indian Cos Not Protecting Whistleblowers: Survey

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Ninety-three per cent of Indian companies have a whistleblower policy, mandatory under the new Companies Act, but not many investigate complaints seriously, a survey conducted by business consultancy Ernst & Young (EY) showed.

The survey titled “The Whistleblowing Quandary: India Inc’s Journey from Oblivious to Obvious” found that only 13 per cent of companies have systems in place that make them fully compliant with the requirements of the Companies Act.

The act requires all listed companies to create safeguards against victimisation of employees who report to the management cases of suspected or actual fraud, violation of the organisation’s code of conduct or instance of unethical behaviour.

The mechanism should also give whistleblowers access to the chairman of the audit committee overseeing the process.

What is interesting is the level of implementation of leading practices by companies. Ninety-one per cent of companies allow the reporting of complaints anonymously. That should be a great thing, except it isn’t. Just 26 per cent have outsourced their whistleblowing mechanisms to a third party. Many employees would feel threatened if they had to report to somebody within the organisation.

Reporting to a third party is predominantly done in places like the US and Britain, says Arpinder Singh, national leader for Fraud Investigation and Dispute Services at EY and the report’s author.

Only 44 per cent companies have multiple reporting channels. Employees, depending on their backgrounds, may prefer to use different methods for airing their concerns – some would do it in writing while others would like to communicate verbally. Some would prefer using their native tongues. Not providing for different channels of communication would simply render the vigil mechanism ineffective due to non-participation. Only 57 per cent of the companies had a hotline, a globally popular channel for whistleblowers, on which anybody could call with a complaint.

Consumer products and BFSI (banking and financial services industry) companies led the charts when it came to having whistle-blowing policies in place. Singh said both industries have traditionally been more mature dealing with complaints. However, real estate and manufacturing companies, usually bugbears of industry when it comes to incidences of illicit practices, also report a high level of compliance with whistleblower policies.

Singh points to another finding that could explain this anomaly. Less than 25 per cent of frauds in India were investigated. He says on average 50-60 per cent of all cases need to be investigated fully. This would suggest that many companies are not taking complaints seriously. Among the complaints that do not get addressed, are there allegations of wrong-doing at the top level? Remember that Satyam also had a whistleblower mechanism, said Singh, referring to the huge scam at the country’s top outsourcing firm, which revealed in 2009 that its profits had been overstated for years and assets falsified.

Media and entertainment companies topped the list for taking action against frivolous complaints, another curious fact, considering that the sector does not top any of the other metrics surveyed. Does the sector target whistleblowers? Maybe that is what the numbers suggest.

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