What is the Whistleblower Policy?
Whistleblower policy is a set of rules and guidelines for all the stakeholders of a company, be it the employees, contractors, shareholders, vendors or any other person to be followed when they see something illegal or unethical happening within the organization either intentionally or unintentionally and such acts are not in the public interest or undermine the interest of the shareholders.
The above policies are to make the stakeholders aware of what falls within the purview of illegal or unethical practices that need to be reported through the process of whistleblowing. It gives them a complete set of actions they need to take under various situations and also tells them about how to protect themselves in case of facing the wrath of the people involved in the illegal or unethical actions.
These activities might be simple acts of corruption or even serious offenses such as money laundering, and therefore the stakeholders need to be very alert and aware of such activities and report them immediately.
Purpose of the Whistleblower Policy
- Encourage employees: Having a whistleblower policy in place encourages employees to report in good faith if they see and misconduct place because they are made aware that they need to report such instances, and their anonymity will be taken care of.
- Create awareness: Employees are made aware of the possible issues that fall under this category, so it is also for educational purposes. Otherwise, such acts might go unnoticed.
- Guide for stakeholders: The policy contains a stepwise guide of what the employee or any other shareholder needs to do when he sees misconduct happening and whom should he report such instances too. Therefore the resolution is achieved quickly and efficiently. In the absence of such a policy, the stakeholder might not know what he should do to report an incident.
- Corporate Governance: Corporate governanceCorporate GovernanceCorporate governance is a set of rules or practices through which an entity is directed and controlled to increase shareholders wealth by increasing the economic value and is concerned about its relations with various entity stakeholders. is the process in which the interests of staggered shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares. and external stakeholders are protected because they can’t be a part of the day to day activities of the company and therefore are vulnerable to misconduct.
Imperatives of a Whistleblower Policy
One of the most vital aspects of a whistleblower policy is the anonymity clause. A whistleblower needs to be convinced that the act of whistleblowing will not put him in any kind of danger, be it that of losing his job or the faith of his colleagues or even at times a threat to his life or face any legal consequence of his actions. If the whistleblower feels safe, he will report an incident. Otherwise, he will not, and therefore it can defeat the purpose of the policy.
Further, it needs to make the whistleblower aware that under which circumstances he should take an internal action and when he should take external action. At times taking an internal action might lead to tipping off the person performing misconduct, and then he might become alert and lay low for a while to prevent getting caught.
Whistleblower Policy vs. Ethics Policy
Code of Ethics of any company or in general is a much broader term and deals with a lot of other aspects of proper behavior or company stakeholders apart from just those aspects which are dealt with by the whistleblowing policy, and therefore, this policy is a subset of the larger Ethics policy.
For example, in investment bankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc., at times, the clients give gifts to portfolio managersPortfolio ManagersA Portfolio Manager is an executive responsible for making investment decisions & handle investment portfolios for fulfilling the client’s investment-related objectives. Also, he/she works towards maximizing the benefits & minimizing the potential risks for clients. for their good performance. Such gifts can’t be accepted if they exceed the value of the acceptable gifting policy of the investment bank. Even if such gifts are within acceptable limits, they need to be disclosed if they have a significant value. This is to preserve the objectivity of the portfolio managers and prevent them from taking excessive risks.
The act of gifting is not illegal per se. It is just a company policy to not accept them. This doesn’t require an action from the whistleblower.
However, if the portfolio manager passes on insider informationInsider InformationInsider Information is a piece of fact, information or an understanding (M&A, New Contracts, R&D breakthrough, new product launch etc.) which could impact the prices of a listed entity or publicly-traded organizations once disclosed in the public domain. Trading based on such information is considered to be illegal. to his relatives and they profit from it, and then the portfolio manager receives a share in the same, such acts require whistleblowing action.
- Keeps a Check on Misconduct: Having a policy in place leads to all stakeholders being aware of what is misconduct. Further, they have a fear in the mind of being exposed if they perform an act of misconduct because they know that person exposing would not face any threats due to anonymity and so reporting of misconduct would be efficient.
- Quick Reporting and Resolution: In bigger organizations, it is not always possible to monitor all the departments and offices around the globe. Therefore acts of misconduct might go unreported if it is only the duty of the supervisor to monitor them. The policy helps in sharing such responsibility, and whoever finds out about such misconduct can report as soon it comes to their notice, and therefore it can be resolved quickly.
- Anonymity Not Maintained: At times, when the policy is not efficiently in place, then the stakeholders might hesitate in reporting an incident because they have seen in the past that the anonymity is not maintained properly. It is a practical concern, and therefore a person seeing misconduct fears going on the wrong side of those performing such misconduct.
- Disrepute: If the misconduct is huge, then the press comes into the picture and takes a toll on the overall reputation of the company. Therefore at times, there is no action taken.
- Challenges Faced by Whistleblowers: Even though there are legal protections for whistleblowing, some whistleblowers face actions such as being shifted to another office or a department or may have to quit their jobs altogether. Further, at times they find it harder to be employed elsewhere because of their whistleblowing history.
All in all, whistleblowing policy is a must in all organizations, whether big or small, to prevent misconduct and uphold the interests of all the stakeholders, whether internal or external. It needs to uphold anonymity so that it can encourage the whistleblowers to act when they see misconduct.
However, in practicality, whistleblowing is not free from danger as the whistleblower may face challenges such as being laid off or not being able to get a new job or even threats to their lives. Therefore the proper implementation of the policy is highly important.
This has been a guide to what is Whistleblower Policy and its meaning. Here we discuss the purpose and workings of Whistleblower Policy along with advantages and disadvantages. You may learn more about financing from the following articles –