Transcript The Challenges of Whistleblowing Implementation

Whistleblowing: Developments
and Implementation Issues
Institute of Internal
Auditors Annual
Conference, 7
October 2005
A/P Mak Yuen Teen
Co-Director, Corporate
Governance and
Financial Reporting
Centre
Powerpoints downloadable from www.cgfrc.nus.edu.sg
Introduction
"For those who argue that employees owe strict loyalty to the company,
whistleblowing seems to be an act of extreme disloyalty. It puts at risk
the reputation of the firm. But this seems to be based on a narrow view
of loyalty as if it demands that we do whatever the company or another
individual believes to be in their best interest...Loyalty cannot imply that
we should not report the unethical conduct of others... This may imply
for an employee that he or she is most loyal when trying to prevent
something that could lead to harm for customers, shareholders, or the
general public. If there is no proper response internally, or if by the
nature of the case, it is not possible to find an internal remedy, then it
would seem ethically correct to blow the whistle. In fact, sometimes
there can be a duty to do so. It would be obligatory for an employee to
blow the whistle when the level of harm to others is serious, and the
employee has clear evidence of the unethical practice that has led to
this. This could, for example, be in terms of product safety or severe
financial hardship for others.“
Michael Walsh, "Whistleblowing: betrayal or public duty?," http://www.erc.org.au
Introduction
"If you have God, the law, the press and the facts
on your side, you have a 50% chance of defeating
the bureaucracy“
As quoted in Joanna Gualtieri, "When the whistle blows,"
Corporate Governance Quarterly, Spring 2005.
Introduction
• A broad definition of whistleblower:
– “one who reveals wrongdoing within an
organization to the public or to those in
positions of authority ” (Answers.com)
Introduction
• Whistleblowing arrangements increasingly
seen to be an important component of the
corporate governance framework of an
organisation
• Why? Surveys and recent corporate
scandals show that more frauds are
uncovered through reports made by
whistleblowers than through activities such
as internal audits
Introduction
• The importance of whistleblowing is
increasingly recognised:
– legislation to protect whistleblowers (e.g.,
Public Interest Disclosure Act 1998 in U.K.;
Sarbanes-Oxley Act 2002; Securities Industry
Act amendments in Malaysia)
– legislative provisions mandating
whistleblowing by certain individuals (e.g., the
auditor under Singapore and Malaysia
Companies Act; auditor under Malaysia
Securities Industry Act)
Introduction
– rewards for whistleblowers by government
agencies or other organisations (e.g., IRAS,
Business Software Alliance)
– corporate governance codes (e.g., U.K.,
Australia, Singapore)
– companies’ codes of ethics/conduct
encouraging or even imposing a duty on
employees to report breaches
Corporate Governance
Codes and Whistleblowing
• The AC should review arrangements by which
staff of the company may, in confidence, raise
concerns about possible improprieties in
matters of financial reporting or other matters.
The AC’s objective should be to ensure that
arrangements are in place for the independent
investigation of such matters and for
appropriate follow up action.
(Revised Singapore Code, Guideline 11.7)
Codes of Conduct and
Whistleblowing
Source: BP Code of Conduct
Codes of Conduct and
Whistleblowing
Source: BP’s Code of Conduct
Source: Qantas Code of Conduct
Directors’ Duties and
Whistleblowing
S.157. —(1) A director shall at all times act
honestly and use reasonable diligence in the
discharge of the duties of his office.
S. 157C(1) - Use of information and advice
Directors’ Duties and
Whistleblowing
S. 157C(2) - Subsection (1) shall apply to a director
only if the director —
– (a) acts in good faith;
– (b) makes proper inquiry where the need for inquiry is
indicated by the circumstances; and
– (c) has no knowledge that such reliance is
unwarranted.
Proposed SGX Rule
Changes
• Proposed change to SGX Listing Rule 705:
directors to provide confirmation that, to the best
of their knowledge, nothing has come to the
attention of the board of directors which may
render the interim financial results to be false or
misleading.
• Proposed change to SGX Listing Rule 710:
…nothing has come to the attention of the Board
and CEO with regards to internal controls that
would have a materially adverse effect on their
company
Key Considerations in
Implementing
Whistleblowing
• How to submit complaints and who to submit to
(e.g., legal/compliance, audit committee,
external hotlines)
• Improprieties which are covered (accounting
irregularities, theft, fraud, corruption/dishonesty,
harassment, unethical behaviour, improper
conduct, workplace safety hazards, breaches of
legislation)
• Investigation, follow up and reporting procedures
Key Considerations in
Implementing
Whistleblowing
• Types of prohibited reprisals (e.g.,
discrimination, harassment, intimidation,
demotion, termination, etc.)
• Policy regarding whistleblower’s immunity from
disciplinary proceedings and civil/defamation
claims
Whistleblowing: A Case
Study
Sequence of events:
• Former manager informed Board Chairman about
alleged wrongdoings involving potentially serious
conflict of interest involving CEO. Alleged that she was
“forced out” of company when she raised questions.
Substantial evidence which appear to support her
allegations was provided.
Whistleblowing: A Case
Study
• Board agreed that the matter needs to be thoroughly
investigated and appointed an Investigations
Committee (IC) to oversee investigations, and to
report and make recommendations to the Board
- range of initial reactions from Board members
- does duty of care compel the board to do a proper
investigation?
- “doing the right thing”
• Board also approved appointment of an accounting
firm to do an independent investigation and to report
to IC
• Whistleblower was informed that her allegations will
be investigated
Whistleblowing: A Case
Study
• IC interviewed the CEO
– need to be handled sensitively to ensure natural justice is served
– Board may need to work with CEO again if allegations untrue
– need to decide status of CEO while investigations were
proceeding (and contingency plans if necessary)
• Chairman briefed Heads (CEO allowed to continue
working) before accounting firm commenced
investigations
Whistleblowing: A Case
Study
• IC and accounting firm prepared reports and
presented findings to the Board
• Board approved list of questions prepared by IC,
based on the findings, for CEO to address
• Second legal opinion sought in terms of actions that
could be taken
Whistleblowing: A Case
Study
• Special Board meeting was held to consider
responses and make decisions on actions to take if
any (plan A, plan B, etc.)
• what kinds of breach, if any (law? employment contract/code
of conduct? good governance and management practices?)
• Board communicated findings and CEO resigned
• Interim management team appointed
• Whistleblower informed that CEO had resigned and
case is closed
Whistleblowing: A Case
Study
Some follow-up issues:
Hire back the whistleblower?
Review core values of company
Review corporate governance and Code of
Conduct
Put in proper whistleblowing
arrangements?