Whistle Blowing Mechanism and Corporate Governance

 important role in checking the corruption and the maladministration of

companies.

There are six elements contained in whistle blowing. These are:

• The whistle blower
• The disclosure subject (the act that was perceived)
• The act of disclosing the wrongdoing
• The target organization
• A recipient to whom the disclosure will be made
• An outcome

A whistleblower is an individual who reports internal misconduct, illegal activities,

or unethical behavior within an organization to authorities or the public.

Or, A whistleblower is an employee or any authorized person who makes an

unauthorized disclosure of information about criminal or irregular conduct of
business or activities which are detrimental to the functioning of an organization.

In order for a disclosure to take place, the whistleblower must witness an incident
or practice, or set of incidents or practices, as incorrect and improper behavior.

Typically, two categories of wrongdoing are found:

• Firstly, as an organizational crime, that is committed on behalf of the
organization by one or more of its employees, officers or managers or directors
with the primary purpose of increasing organizational wealth.
• Secondly, some occupational crimes include acts of wrongdoing which are
purely for self-interest.

In a whistleblowing, the blower has only good intention of preventing the

wrongdoing and protecting the organization from the harmful effect of such
wrongdoing.
Types of Whistle Blower -------------------------------------------

Peer-reporting the whistleblowing involves the disclosure of

information regarding a peer’s illegal,
immoral or harmful practices
to report to people or managers within the
Internal whistleblowing organization who are higher up in the
organizational hierarchy
the disclosure of information outside the
organization and includes media, politicians,
External whistleblowing public protectors, government bodies,
regulatory bodies, interest groups and
enforcement agencies
Open and anonymous identity of the whistleblower is known to the
whistleblowing public through the disclosure of the identity,
& the anonymous whistleblower whose
identity is kept secret
Dutiful and freewill auditors of the company are expected to
whistleblowers report any malpractices in financial
statements (Dutiful)

Factors Influencing the Whistleblower in Disclosing Wrongdoing

Credibility if people are trusted, such an action may
be taken seriously
if there are any suspicions about the
Motivation reasons why someone chooses to blow
the whistle, chances are that the
complaint will not be heard
Perceived validity of the evidence The perceptions or the motivations of
the whistleblower should be the most
important reason for taking a disclosure
of wrongdoing seriously
Position power and status often influence the
capacity of an individual to influence
management
Membership of minority groups Females or members of
within an organization underrepresented ethnic groups may
find it harder to be heard
Why Whistle Blowing in the Corporate Governance?
 The corporate governance is incomplete without whistleblowing.
 It creates confidence in the stakeholders and it is also seen as an early
warning signal in the imminent threat to organizations on its existence.

The Whistleblowing process

Step1: Reduce  New employees must be screened effectively and
opportunities to commit there should be no opportunities that could
unethical or illegal motivate unethical or illegal conduct.
conduct.  Regular reinforcement should also be done to
motivate employees to avoid any wrongdoing
through,
Step 2: Establish if the The decision to report the perceived activity should be
observed activity is determined by the seriousness of the act and if the
actually wrong. reporting is effective
Step 3: Use internal Critical information systems or internal reporting
mechanisms in the mechanisms must be in place in the organization at an
organization to raise appropriate level to ensure that employees follow the
concerns. correct internal channels and not the damaging external
channels
 If the correct procedures/policies are used within
the organization, the damage and disruptions can
Step 4: Organizational be minimized and the situation is rectified
policies/procedures must internally and rapidly.
be used  Once the whistle has been blown, the
organization should take action and investigate
the matter, even if there is a dispute as to whether
or not the activity is legitimate or not.
 As a last resort, one can justify external
whistleblowing if all internal channels have been
Step 5: External exhausted, are unavailable or unusable, or when
whistleblowing organizational policies/procedures are not in
place.
 Whistleblowers often choose the external
channel if they are of the opinion that the case
might be treated as more credible and that more
attention will be attracted and that corrective
actions can be ensured.
An effective internal system of whistleblowing adopted by companies includes
the following:
 Respect for the confidentiality of staff members raising concerns if they wish and an
opportunity to raise their concerns outside the line of management structure.
 A clear statement that malpractice has taken seriously in the organization and an
indication of the kinds of conduct regarded as malpractice.
 Penalties for making false and malicious allegations.
 An explanation of the proper way in which concerns may be raised outside the
organization, if necessary.

Organizational responses to Whistle Blowing

Internal or External
Whistle Blowing
There are four components of whistleblowing:
• An individual executes an action or a series of actions
intended to make public information about an alleged act of
wrongdoing.
• The information becomes a matter of public record. Successful
Discussions with whistleblowing requires that information becomes public and
that it be accessible to others as part of a formal or open record.
Colleagues • The information is about possible or actual wrongdoing in an
organization, such as dangerous, illegal or unethical activities in
the organization.
• The individual who makes the information public is not a
journalist or an ordinary citizen, but a member or a former
member of the organization. Thus, whistleblowers sound an
alarm from within the very organization within which they
work, aiming to spotlight the neglect or abuses that threaten the
public interest.
 As the government is entrusted with certain responsibilities,
such as national security, confidentiality would be of the
utmost importance and a breach of confidentiality through
whistleblowing could have damaging effects on everyone.
Whistle Blowing in • A public official may resort to the whistleblowing if the
conduct of another official is gravely offensive to the standing
the public Sector and the fundamental interests of the public.
undertaking • The changing character of political heads could lead to a
conflict of interests occurring between the public sector and the
government. Whistleblowing occurs, therefore, whenever
individuals take it upon themselves to point out what they
believe to be an unethical or irregular behavior. Such action
is often met with a great deal of resistance from others in the
organization. Superiors often view such actions as being an
insult to their authority or as a challenge to the organizational
imperative, which they find useful to protect.
Whistle Blowing policy of Organizations
Organizations that intend to pursue its activities in high ethical order will frame
policies for whistleblowing and thus frame a conducive ecosystem for
whistleblowing.
The main purpose of the whistleblowing policy is to bring a platform to the
management and officials responsible for the governance without any fear or favor.
Whistleblowing policy must provide confidentiality with respect to information
and the identity of the informer. It should provide for the protection of
whistleblowers and quick action against the wrongdoings.
This could be achieved only when the designated authority dealing with
whistleblowers are independent, senior and responsible.

Elements of Whistleblowing policy

• Manager should address disclosures of • Specify the consequences if the guilt is
wrongdoing to avoid damage to proved and the seriousness and severity
individual or organizational reputations of the measures taken after the
and other negative consequences. whistleblowing.
• All parties in the problem involved • Specify how the immunity is provided
must be adequately heard and proper on staff who have positively contributed
recordings be made. to the entire episode of whistleblowing.
• Explain how the whistleblower is • Obtain the feedback obtained from the
protected as per the policy of the parties involved in the whistleblowing.
company as well as the law prevailing in • The time-frame must be specifically
the country. mentioned in finding solutions to issues
• State the good intention of the involved in the whistleblowing.
company in promoting the
whistleblowing within the company.
 Example of whistle blowing case

Successful case: In 2018, Dr. Eric Topol, a former Pfizer scientist, blew
the whistle on the company's clinical trials for the pain medication
Bextra. Topol alleged that Pfizer had falsified data and withheld safety
information about the drug, which was eventually withdrawn from the
market.

Topol's whistleblowing led to a $2.3 billion settlement between Pfizer

and the federal government. He also received a whistleblower award of
$100 million, which is one of the largest ever awarded in a False Claims
Act case.

Topol's case is an example of how whistleblowers can play a vital role in

protecting public health and safety. By speaking out about wrongdoing,
they can help to hold corporations accountable and ensure that patients
are not harmed.

Unsuccessful case: In 2019, a group of nurses at the Veterans Affairs

hospital in Tomah, Wisconsin, blew the whistle on the hospital's
management, alleging that they were falsifying records to make it appear
that patients were receiving better care than they actually were. The
nurses also alleged that the hospital was understaffing and that patients
were being neglected.

The allegations led to a federal investigation, which found no evidence

of wrongdoing. The nurses were subsequently disciplined for making
false allegations.

This case is an example of how whistleblowing can be abused. In this

case, the nurses made false allegations in order to get the hospital
management fired. This is not whistleblowing, but rather defamation.
It is important to note that whistleblowing is a serious matter. It should only be
used to report legitimate wrongdoing. False allegations can damage the reputation
of individuals and organizations, and they can also discourage people from coming
forward with legitimate concern.
 Chapter 13 (The reality of the Boardroom)

Chairman Role in Corporate Governance -------------------------------------------

Leadership of the Board  Primary duty
 Provides foundation of the board’s
culture & operation
Management of meetings  Conventional view
 Encourages independence of thought
 Handles in an adult way of discussions
that can be tough & testing
Strategic leadership  Setting the company’s strategic direction
 Ensure that board pays appropriate attention
to strategy formulation & policymaking
Linking the board with The relationship between the chairman and the CEO
management is one of the most crucial, most sensitive, and most
subtle relationships in the organization.
 Overseeing the board's relationship with the
CEO
 Fostering communication between the board
and management
 Providing a bridge between the board and
shareholders
Arbitration between board  Playing the role of safety valve
members & others  Selecting an arbitrator
 Setting the ground rules
 Overseeing the proceedings
 Communicating with the parties
 Ensuring that the decision is implemented
 Resolving conflicts quickly and effectively
Being the public face of the  Oversees the company's communications
company strategy
 Addresses shareholders and other
stakeholders
 Represents the company to the media
Board styles and culture of board -----------------------------------------
A type of board of directors that is
characterized by a focus on relationships and
social activities over the board's
responsibilities.
This type of board is often found in privately
held companies or organizations where the
Country Club board board members are friends or associates of the
company's management.
The board members are more concerned with
maintaining good relationships with each other
and with the management than they are with
exercising their oversight responsibilities.
A type of board of directors that is
characterized by a focus on the board's
responsibilities and a commitment to good
corporate governance.
Professional board This type of board is often found in publicly
traded companies or organizations where the
board members are independent of the
company's management.
Board members are more likely to challenge
management and ask tough questions.
A board of directors that does not effectively
exercise its oversight responsibilities.
This type of board typically rubber-stamps
management's decisions without question or
Rubber stamp board challenge.
 The board is dominated by
management.
 The board is not independent.
 The board is not well-informed.
 The board is not motivated.
A board of directors that is composed of
members who represent the interests of
different constituencies or stakeholder groups.
This can include employees, customers,
Representative board members, or the general public. The
composition of the board is determined by the
formal connection of the directors to these
groups.
Representative boards are often found in non-
profit organizations, but they can also be found
in some for-profit organizations.
A rubber stamp board can be harmful to a company in a number of ways. For
example, it can:
 Allow management to make poor decisions that harm the company.
 Increase the risk of fraud or other corporate abuses.
 Make it difficult for shareholders to hold management accountable.
 Damage the company's reputation.