The rise of whistleblowers
Companies Act of 2013 trigger for surge in whistleblower-led probes, say forensic teams at consultancies
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Bengaluru: Eighteen months ago, a driver’s complaint triggered a chain of events that resulted in the chief executive officer’s (CEO’s) firing at the Indian unit of a global company.
The driver’s complaint against the CEO insinuated that he was doing something illegal. A discreet investigation showed he had been running a parallel business for over five years. Worse, he used the company’s resources and even poached its employees for his own business.
“The driver’s complaints were just the tip of the iceberg. The MNC (multinational company) not only fired the CEO but also sued the Indian chief for causing losses of about Rs.100 crore to the business,” said Reshmi Khurana, managing director of risk consulting firm Kroll Associates India that did the investigation.
Last year, a whistleblower at a large information technology (IT) firm alleged the administrative head was taking kickbacks from vendors while procuring taxis for official purposes. A probe showed the person had indeed been doing this for a year, costing the firm about $2 million, said Arpinder Singh, partner, fraud investigation and dispute services, EY, the consulting firm previously known as Ernst & Young.
Instances such as these, of employees turning vigilantes, are on the rise.
Forensic teams at consultancies such as KPMG India, Deloitte India, PricewaterhouseCoopers and Kroll attested to a surge in the number of whistleblower-led investigations—about 30% in the last 18 months—and agreed the trigger was the Companies Act of 2013.
Firms have had an ombudsman or even a whistleblowing mechanism in place where employees could bring in grievances, but they were rarely used.
The Companies Act mandated firms to have a vigilance mechanism. Coupled with other sections that place a criminal liability on board members for non-compliance and wrongdoing, it is pushing companies to overhaul their whistleblowing systems, consultants said.
Mahindra and Mahindra Ltd, Mindtree Ltd and Tata Steel Ltd are among those that have taken initiatives in the past year to spruce up their whistleblowing systems.
For instance, Tata Steel is starting to reward all its employees, including contract workers, as much as Rs.1 lakh for whistleblowing, said Tripti Roy, ethics counsellor at Tata Steel. Mahindra and Mahindra has set up an externally managed hotline for employees to ensure no complaint is suppressed and is objectively attended, said a company spokesperson.
Meanwhile, Mindtree has mandated an e-learning module on whistle-blowing for its employees to raise awareness and adoption. It has also allowed vendors and customers to raise complaints anonymously, said Chitra Byregowda, head of sustainability and diversity.
These efforts, consultants say, will help in wider adoption of whistleblowing.
Sure enough, the number of whistle-blowing complaints at Mindtree rose from four cases in fiscal 2013 to 34 in fiscal 2015. Similarly, at Tata Steel, the number of cases tripled to 24 in the same period, according to their annual reports.
“The increase is a good indicator to show the confidence stakeholders have in the whistleblowing mechanism. We set up an externally managed hotline a few years ago for Tata Steel, but last year we extended it to all the group companies associated with us,” said Roy.
The Companies Act has also helped strengthen the review mechanisms for whistleblowing at Tata Steel. “I was reporting to the senior management about the complaints earlier, but post the Act, the audit committee of the board regularly reviews all complaints,” added Roy.
The impact is noticeable.
Two years ago, the average number of whistleblowing complaints in a year per 1,000 employees was 1.8 and this has increased to 2.3 now, said Mohit Bahl, partner and head of forensic services at KPMG.
The rise in complaints has in turn boosted the number of whistle-blower led probes. Almost 60% of Deloitte’s investigations have been the result of whistleblower complaints, as opposed to 25% two years ago, said Rohit Mahajan, who heads the forensic and financial advisory practice at Deloitte.
In fact, the number of whistleblowing cases in India (eight complaints per 1,000 employees) is already 2.5 times ahead of the UK, said John Wilson, managing director at InTouch India, a 24/7 external hotline service provider that receives complaints from across 90 countries.
While human resource issues such as pay and working conditions account for 35% of the complaints received, bullying and harassment account for 20% and reporting on theft and financial frauds made up 22%, said Wilson.
Whistle-blowing is a powerful tool and has helped in unearthing serious lapses.
For instance, Dilip Thakur, the former director of research information and project management of Ranbaxy, found the pharma firm falsified data to secure food and drug administration, or FDA, approvals and violated standard manufacturing practices, resulting in sub-standard or unapproved drugs. The generic drug maker pleaded guilty to drug safety violations at two of its plants in India and made a $500 million settlement with the US Department of Justice in 2013.
As for Thakur, he quit in 2005 and was awarded $49 million for blowing the whistle.
The whistleblowing systems have been very rudimentary in India and employees, until a few years ago, didn’t even know they had a legal right to it, said Khurana of Kroll. In fact, firms allowed staff to complain anonymously only a few years ago.
“Till three-and-a-half years ago, anonymity was a no-no as they feared a large number of frivolous complaints; but now, most firms are allowing employees to be anonymous to help more employees come forward,” said Bahl of KPMG.
“When employees complain anonymously, sometimes we need more information. So, to protect their anonymity and also to help close the loop, we chose to have an external hotline which can help in getting all the information needed to investigate,” said Roy of Tata Steel.
Not all firms feel the need for an external agency. Firms such as Lupin Ltd, Infosys Ltd and Maruti Suzuki India Ltd don’t have an external vigilance mechanism.
“We didn’t find the need to have an external hotline, because of the credibility the company enjoys among the employees,” said Divakar Kaza, HR head of Lupin, adding that almost 50- 60% of the complainants disclose their names even though they are allowed to be anonymous.
However, contracting third party services makes implementation of whistleblowing seamless, ensures enhanced confidentiality, is seen as a sign of business entities’ commitment and puts whistle-blowers at ease. Globally, most companies have external mechanisms, said Arpinder Singh.