India Inc's missing whistle-blowers

The latest whistle-blower revelations of multiple shenanigans at global ride-hailing app Uber, coming thick and fast after serial exposes of various dodgy practices at Facebook, Apple, Amazon, Netflix, Google in the recent past raises uncomfortable questions about India Inc. If the FAANGs, Twitter and Uber can be guilty of multiple and diverse transgressions what’s happening in Indian corporations?  

It can be nobody’s case that India’s largely family-owned and —managed private sector is a beacon of transparency or best corporate governance practices, bolstered as it is by an informal omerta among employees, managements and even boards. In fact, in the light of the flood of insider revelations in western corporations, the lack of whistle-blowers in Indian corporations is striking. Domestic corporate scandals of recent vintage, such as Global Trust, Satyam, IL&FS or YES Bank, to name a few, have all been the result of implosions rather than employee revelations.

One prominent whistle-blower incident involving a deal concluded by Infosys was treated with such extreme confidentiality that it is impossible to tell whether it was handled well or badly. After many public complaints by one former founder, the controversy resulted in the departure of the IT giant’s first non-founder CEO and the return of another founder as non-executive chairman, who has been there ever since. In another involving Ranbaxy, the whistle-blower was a US citizen, therefore safely distant from punitive action by Indian employers. More to the point, he worked with the US regulatory authorities and walked away with $48 million as his share of an eventual settlement, pointing to at least one hazard Indian companies with international operations may face.

Many more revelations could well have emerged in India Inc had whistle-blowers enjoyed similar protections as they do in the US. One equivalent index in India would be the flood of complaints that wash through Indian corporations after laws against sexual harassment in the workplace were put in place and strengthened. It’s not a perfect system yet and there are probably many victims of workplace sexual harassment who choose to remain silent. But the fact that a growing number of women feel encouraged enough by a relatively robust legal environment to lodge complaints against their bosses and colleagues suggests that whistle-blowers might do the same if they had the weight of law to protect them.

As yet, though, that’s not been the case. In fact, the few whistle-blowers in the public sector who have revealed fraud —Satyendra Dubey from the Indian Engineering Services and Shanmugam Manjunath of Indian Oil Corporation, to name just two —met tragically violent ends. After these and other similar tragedies, Parliament did actually pass a Whistle Blowers Protection Act in 2014 but it was limited to public servants not private companies. In any case, it was never notified.

For the private sector, there is a lengthy section in the Companies Act that requires every listed company that has borrowed more than Rs 50 crore from banks or public financial institutions to set up a vigil mechanism for employees and directors to report “genuine” concerns and grievances. This mechanism, it decrees, must also provide “adequate” safeguards against victimising the whistle-blower (principally by keeping his or her identity confidential). The reporting mechanism in this case is the Audit Committee.

The problem here is easy to spot; as with the rules governing sexual harassment, the reporting structure is subordinate to the management. So who guards the guards, so to speak? The sexual harassment committee has the safety net (from the victim’s point of views) of an external member. This is not the case for a whistle-blower. He or she is completely prey to the management’s whims. In 2019, the Securities and Exchange Board of India understood this dilemma and tweaked the regulation to enable employees to report insider trading violations directly to it instead of routing them through the company’s internal mechanism. In 2021, it raised the reward payable to whistle-blowers generously from Rs 1 crore to Rs 10 crore.

But both this rule and the Companies Act cover listed companies. Unlisted companies — and that includes Unicorns, myriad wannabe Unicorns and those millions in the small and medium enterprise sector — remain outside the purview of any whistle-blower rules. It could be argued that whistle-blowers in such companies always have recourse to the law. In reality, that’s a non-solution, given both the prohibitive cost and time that India’s tortuous legal system involves.

The need for an effective policy that offers meaningful universal protection to whistle-blowers is not just a case of abstract good governance. It can act as a check and balance and an early warning system for potential crises, such as the one at IL&FS that sent the non-banking finance industry into a tailspin. It may not create an ethical transformation in Indian management — it hasn’t in the US — but it will certainly keep CXOs on their toes.