A tool to good corporate governance

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Mechanism for Whistle Blowing

Safeguards & Reach

“Corporate governance is…

…the application of best management practices, compliance of law in letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders”

Institute of Company Secretaries of India

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Corporate Governance - The basic Framework

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Output – Input = Wealth Created ?

Sustainability

Happiness andProsperity of all

Stakeholders

Reinvestment

Distribu- tion

Research and DevelopmentHR DevelopmentInfrastructureRisk Management

SUPPLIERS Adequate ReturnsHUMAN ASSETS Adequate RemunerationCUSTOMERS Affordable PricesPUBLIC Payment of Taxes and Partnership in National Development Projects

Wealth Creation Wealth Management Wealth Sharing

EnhancedCapabilities

Best Management Practices are Vital Here Law and Ethics are Vital Here

Corporate Governance Value Chain

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“Corporate Governance is not related to investors only, though they are most important Beneficiary.”

The Stakeholders

The Stakeholders’ Value Chain

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SUPPLIERS CUSTOMERSHUMAN RESOURCE

Supply Funds, Materials and Services

Value Addition and Management of Resources

Give Opportunity to Co. to Satisfy their Needs

Adequate Returns for Funds, Material and Services Supplied

Adequate Salary and Security for leading a Happy Life

Best Quality Products and Customer Care at Minimum Prices

ROLE OF STAKEHOLDERS

EXPECTATIONS OF STAKEHOLDERS

Potential Suppliers, Human Resources and Customers

Biological, Economic and Cultural EnvironmentPUBLIC

PUBLIC EXPECTS PARTNERHIP FOR SUSTAINABLE DEVELOPMENT

An indispensible ingredient of ensuring Good Corporate Governance in Spirits

Whistle BlowingThe Internal Regulator

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Whistle Blowing … the key concerns

• Reporting and investigation of allegations of suspected improper activities/unethical practices by a Whistle Blower.

• A whistle-blower is a member or former member of an organization and not an outsider.

• The information revealed is non-public and not already known.

• The information concerns significant misconduct by the organization or some of its members.

7Cont…

Whistle Blowing … the key concerns

• The information is revealed outside the normal channels of corporate communication with the organization, to a designated Independent person .

• The information is revealed voluntarily and not by a legal mandate.

• The information is revealed as a moral act or protest in order to correct some perceived wrong.

• Maintaining confidentiality in identity of Whistle Blower and his security are the key areas of concern and encouragement.

Area of Whistle Blowing

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Whistleblowers may make their allegations

Area of Whistle Blowing

The Subjects of Concern

Focal Areas for a person before whistle Blowing?

1. Is the situation of sufficient moral importance to justify whistle-blowing?

2. Do you have all the facts and do you properly understand their significance?

3. Have all internal channels and steps short of whistle-blowing been exhausted?

4. What is the best way to blow the whistle?

5. What is my responsibility in view of my role within the organization?

6. What are the chances for success?

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Legal Provisions governing Whistle Blower in India

The law that a government enacts to protect such persons who

help expose corruption is called a whistleblower protection

law.

At present India Statues does not make the Establishment of

Whistle Blower Mechanism Mandatory nor is there any law

for protection of whistleblowers in India.

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Initiatives towards Whistle Blowing

Reference of Whistle Blower in Indian Statues

Committees recommending Whistle Blowing as an element of Corporate Governance

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Committee Year

Confederation of Indian Industry code on corporate governance

1998

Kumar Mangalam Birla Committee 1999

Naresh Chandra Committee 2002

N. R Narayana Murthy 2003

What does the Listing Agreement provides for Whistle Blowing?

• Provides for establishment of mechanism of whistle blowing

• Adequate safeguards to be established

• Proper communication of mechanism

• Power of audit committee to ensure proper functioning

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RECOMMENDATIONS ON WHISTLE BLOWER BY THE CORPORATE GOVERNANCE

VOLUNTARY GUIDELINES2009

• Institution of a mechanism for employees

• Establishment of adequate safeguards against victimization of employees

• Direct access to the Chairperson of the Audit Committee

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Do other countries have similar laws to protect whistle blowers?

Several Countries have initiated towards or are initiating towards

WHISTLE BLOWER PROTECTION LAW. The Level of Whistle Blower

Protection however, differ from Country to Country.

Some of the Countries which have formulated such law are:-

• US

• UK

• Norway

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Instrument of effecting Whistle Blowing

An effective Whistle Blower Policy

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The Aims of the Policy

• To raise confidence of Stakeholder.

• To pluck the in ethical/improper practices misconduct,

• To lay proper mechanism of systems

• To establish confidentiality/security maintenance system

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Whistle Blowing in India Inc.

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Components of an effective whistle-blowing policy

Procedural Aspects of Whistle Blowing

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Providing confidence to person to blow the whistle

Mechanism to aid anonymous reporting - email, telephone numbers.

Independent Ombudsman or Chairman of Audit Committee for handling such information

Whistle Blower need not inform the supervisors

Ensuring confidentiality and security of the Whistle Blower

Specifying specific flow of work to Audit teams –internal and external

Review and affirmation of process by Board/Audit Committee

How to encourage Whistle Blowing

• Management addressing to organization to provide confidence

• Ensuring confidentiality of Whistle Blower by Providing

anonymous Telephone facility for communication or e-mail ID.

• Providing Security of the whistle blower.

• Management positive participation.

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Risks involved in the process

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Some of the Biggest Corporate Collapse

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The fate of millions to stakeholders could have been protected if the Whistle Blower was effective…

Whistle Blower…

The Actual Reward!!!

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The Satyendra Dubey Fate …(2003)

The National Highways Authority of

India (NHAI) engineer Satyendra Dubey

was killed after he wrote a letter to the

office of then PM A B Vajpayee

detailing corruption in the construction

of highways.

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History Repeated in the Manjunath Shanmugham Incident (2005)

Manjunath Shanmugham, an IIM

graduate and a sales manager of

the IOC, was murdered on Nov 19,

2005 for exposing the racket of

adulteration of petrol and the mafia

behind it.

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Other Setbacks to Whistle Blowing

The Jayaraman, Incident…(2008)

The mark sheet forgery racket in Pondicherry University was found murdered on May 20, 2008.

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The Bombay Stock Exchange Scandal… (2001)

Whistle Blowing - The missing links

• Ineffective mechanism • Failure to Impart Proper confidence• Lack of Independent ombudsmen • Non maintainability of whistle blower confidentiality • Ineffective Security of whistle blower • Improper Inquiry and investigation procedure • Inappropriate punishment• The Fear of Isolation

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Recommendations

• Whistleblower policy be made mandatory, with clear cut guidelines

for prosecuting intimidation of or retaliation against the complainant

• Inclusion of other stakeholders, such as vendors, shareholders and

customers, in the list of eligible complainants

• Strict assurance on maintenance of confidentiality

• Fast and Time bound disposal of cases

• Imposition of fines/ penalties for frivolous or mischievous complaints

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Thank You Pavan Kumar Vijay Managing Director

Corporate Professionals (India) Pvt. Ltd.D – 28, South Ext- I,New Delhi 1100049

Tel: +91.11.40622200,Fax: +91.11.40622201

Email: info@indiacp.com

Visit us at:www.corporateprofessionals.com

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