The age of the whistle-blower
Companies around the world have auditors, stock exchanges, boards, regulators, revenue and sundry enforcement authorities to monitor various aspects of their functioning. None of these have done much to prevent fraud — remember Barings, Enron-Arthur Andersen, WorldCom, Kmart, to name some signature global cases from the late nineties and early noughties? The past two decades has seen the emergence of a new type of scrutineer: The whistle-blower, a species India Inc has discovered lately. Can they change the dynamics of corporate governance?
Certainly, the power of the whistle-blower has been acknowledged in the governance structures of the more enlightened corporations. Most of the larger Indian IT firms and banks (including ICICI Bank!) have incorporated whistle-blower policies in their codes of conduct for employees, framing it as a responsibility and enjoining them to report workplace irregularities to designated authorities. This mode of incorporation is, no doubt, intended to keep potential scandals within the ambit of the organisation.
Unlike the array of agencies that monitor corporate performance within expected paradigms, the whistleblower is an unpredictable entity. She can emerge from within as a conscientious employee who has signed on to the code of conduct or from outside the organisation as a stakeholder, a supplier, say, or an investor. Cue the current ructions at ICICI Bank, involving its CEO Chanda Kochhar and allegations of conflict of interest over her husband’s business deals. They came in the public domain after a whistle-blower highlighted them as far back as 2016 and wrote to everyone from the Prime Minister’s Office downward.
Arvind Gupta, the whistle blower, was not a disgruntled employee but a long-time investor in the Videocon Group who said he was puzzled by an odd series of transactions and transfers between Deepak Kochhar’s companies and Venugopal Dhoot of Videocon. Far from accessing insider info, he studied documents in the public domain to make his case – which no one took much notice of until recently. Why did he take it upon himself to do this? The motive is unclear. But the controversy overwhelming India’s largest private sector bank has highlighted governance weaknesses that it will be forced to address sooner rather than later (the board’s current stance of injured innocence hasn’t been convincing).
Internal whistle-blowers don’t necessarily contain the reputational damage either. Recall the case of Dinesh Thakur, who revealed how his former employer Ranbaxy basically fudged — often in the crudest possible way — drug safety tests. Mr Thakur’s revelations — which came soon after Ranbaxy’s Delhi-based promoters had sold the company to Japan’s Daiichi Sankyo in the largest Indian pharma deal at the time — invited wrath and accelerated inspections from the US Federal Drug Administration not just on Ranbaxy but on the entire Indian pharma industry.
Mr Thakur’s conscientiousness paid off — literally, he won $48 million as part of the award from the US which fined Ranbaxy $500 million. It is worth pointing out that the Indian drug regulator has been less appreciative of his revelations about similar shenanigans in the domestic market. The scandal did India’s business reputation no favours: A disgruntled Daiichi later sold Ranbaxy to Sun Pharma.
Perhaps no Indian company has borne the impact of the age of the whistle-blower as Infosys, which, incidentally, has had a policy in place since 2003. In 2013, a US employee revealed a visa fraud, which spurred a federal investigation and later a settlement (from which he was rewarded). Since 2016, Infosys has been struggling with another controversy involving the purchase of an Israeli company by the then CEO Vishal Sikka. The decision to sell the company under a new CEO appears not to have assuaged Mr Anonymous, who does not appear to be motivated by money. He has recently demanded a probe into the deal by the stock exchange regulator.
These three signature cases should not raise hopes, however, for more accountable corporate governance in India. Note that all three involve widely-held, professionally-run companies with global investors and customers. But Indian business remains overwhelmingly family-managed, a structure that scarcely encourages employees to speak truth to power, as we witnessed in the case of the Tata group.
It may be too much to expect voluntary transparency from India Inc when government-owned companies remain closed to public scrutiny. The earliest of Indian whistle-blowers, a mid-level employee in State Bank of India who revealed Harshad Mehta’s financial gymnastics in the early nineties, didn’t earn much gratitude from anyone. Later whistle-blowers paid for their conscientiousness with their lives (the tragic case of Shanmugam Manjunath of Indian Oil Corporation is a cautionary tale). A whistle-blower protection Act has been passed by Parliament but is yet to be operationalised. Its steady dilution also suggests anyone who decides to be a conscientious objector about government institutions and projects are unlikely to enjoy any rewards. If the record of public whistle-blowers is anything to go by, they need to fear for their lives.