Corporate Whistleblowing: Are we there yet?
[This article was originally published by Prachi Dutta in the op-ed section of SCC Online Times, a leading legal reporter.]
The news of Hindenburg Research closing its operations has once again brought to light the crucial role of whistleblowing tips in exposing corporate frauds2 . In India as well, corporate whistleblowing is an important tool to plug financial leaks and ensure wrongdoings are exposed and addressed appropriately, in furtherance of good corporate governance. However, significant efforts still need to be made by all stakeholders to further strengthen the whistleblower framework in India. While internal and special audits have been used for several decades to run a smooth and clean corporate ship, historically, corporate frauds such as IL&FS3 and ICICI Bank-Videocon issue4 in India are largely uncovered as a result of whistleblowing tips.
A whistleblower is someone who has information of wrongdoings and illegal activities in an organization and attempts to bring it to the notice of relevant authorities to address the wrongdoings5 . A sound whistleblower policy adopted by an organization ensures that an active vigil mechanism is in place to detect corporate fraud while also granting adequate protection to whistleblowers.
Whistleblowing also plays a significant role in environmental, social and governance (ESG) integration by uncovering practices that may compromise environmental conservation, social responsibility and equity, or ethical governance which affects all stakeholders. Companies that prioritize a strong vigil mechanism as part of their ESG strategy demonstrate a commitment to accountability, ethical conduct, risk management, stakeholder engagement and long-term sustainability. By bringing the right information to the right people, whistleblowing promotes effective corporate governance and roots out fraud, waste, and abuse while ensuring that sensitive information and activities are protected. This, in turn helps in companies receiving recommendations from proxy advisory firms and better reporting in Business Responsibility and Sustainability Reports.
Indian laws mandate that certain classes of organizations are to implement an active vigil mechanism. The Companies Act, 2013 and the Securities Exchange Bureau of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandate that all listed companies, those which have borrowed money from banks in the excess of INR fifty crores and those which accept deposits from the public must have an active vigil mechanism to report genuine concerns. It is the duty of the board of directors of these organizations to ensure that a whistleblower policy is implemented and the audit committee must oversee the workings of the vigil mechanism. The board must also ensure that whistleblowers do not face victimization from the company for coming forward with complaints.
Due to a stronger reporting mechanism, whistleblower complaints in Indian companies have increased by 8% year-on-year in FY 2024-2025 (according to data collated for BSE-50 companies),6 . However, as per the Ethics and Compliance Initiate, Global Business Ethics Survey (2023), while 90% employees in India who observed misconduct at the workplace reported it, as against the global median of 72%, 74% of these employees face retaliation, as against the global median of 46%. This statistic highlights how crucial it is to ensure that corporate whistleblowers are protected in order to instill a culture of speaking up against wrongdoings.
One of the best and most efficient ways to ensure that an organization enacts an active vigil mechanism is to engage an independent, external ombudsman to address whistleblower complaints. An external ombudsman works on an arms-length basis from the company and ensures that corporate governance and other best practices are followed by the organization while the organization, by engaging an external ombudsman, signals to all stakeholders including investors and market regulators that they are committed toward upholding and creating a system that is fair, transparent and free from influence and bias.
An external ombudsman aids the organisation to examine robustness of its control systems, employee issues and other matters of financial propriety. The ombudsman provides inputs to the organization on how to identify and improve systemic issues and risks which enables the organization to implement policies that enhance its reputation in order to operate effectively; a facet of corporate governance that organizations often miss out by being extremely close to the internal controls.
An issue of disgruntled employees masquerading as whistleblowers as a way of satisfying their personal vendetta is significant and such complaints are of huge nuisance value to the company. An external ombudsman helps in protecting the organization from disgruntled employees and malafide complaints and freeing up precious senior management time by screening and stratifying complaints based on their severity level and risk to the organization, ensuring that corporate attention is focused on the complaints that really matter.
At the heart of a good vigil mechanism is the extent of anonymity and protection afforded to the whistleblower. The death of Mukesh Chandrakar after he reported corruption in constructing of a road in Chhattisgarh7 highlights the fatal price that sometimes whistleblowers pay.
It is imperative that the government must enact legislations in line with the Sarbanes-Oxley Act of 2002, Occupational Safety and Health Act, Whistleblower Protection Enhancement Act of 2012 enacted in the United States and Whistle-Blowers Protection Act, 2014 in India (which only addresses complaints against governmental organization) to protect corporate whistleblowers, especially from retaliation by the organization. In the interregnum, since there is no law to address their protection, appointing an external ombudsman will addresses the issue of protecting whistleblowers by being a buffer to protect the whistleblower from retaliation from the organization. External ombudsmen, who often act in such role to several companies, have their own reputation to protect by being truly independent and keeping information confidential.
It is in the best interests of transparency and good governance that an eco-system is nurtured wherein whistleblowers are encouraged and emboldened to contribute to a clean corporate and business climate.