Why the whistleblower law doesn’t extend to the private sector

By S Murlidharan

The Whistleblower Bill, 2011 is obsessed about public servants, who stray away from the straight and narrow, so much so that it forgets what the Vohra Committee of the yore tellingly observed -- corruption in this country takes place thanks to the unholy nexus among politicians-bureaucrats-industrialists. It is amazing that while government and its functionaries are caught by the pincer of Right to Information Act, (RTI) and the whistleblower law, private sector would continue to be left severely alone with neither of these two laws applicable to it. It is possible for a vigilant citizen to bring about the comeuppance of a bureaucrat or politicians by first making an innocent-looking RTI application only to later on use the same to blow the whistle. Indeed the two can be used one after other if not in tandem to cleanse the system or clobber a politician.

To be sure, RTI cannot be made applicable to a private sector company unless it can be proved that it is bankrolled by substantial public money. Indeed a private sector company is not answerable to the public except to a sub-set of it -- shareholders. But pray what is wrong in empowering a vigilant citizen to blow the whistle when he comes across a private sector shenanigan? It would be idle to contend that the auditor of the company is powerful and competent enough to address this problem though admittedly the government has not said so in so many words. However it can be discerned from the Companies Act, 2012 that makes the auditor the lynchpin for ensuring financial and accounting probity and the supreme whistleblower. In fact, the new Companies Act visits the auditor with heavy penalty including incarceration for being slack in blowing the whistle. But this in itself is no justification for reposing complete faith on auditors insofar as reigning in private sector avarice is concerned.

While the auditor is privy to accounting as well as inside information and is eminently in a position to blow the whistle, there may be situations where others can steal a march over him. Sherron Watkins courted immortality when she blew the whistle against Enron Corporation of the USA way back in 2002 when its Chairman Kenneth Lay cooked up the books of accounts in cahoots with the company’s auditors Arthur Anderson and Co. Arthur Anderson was in the doghouse and ultimately blacklisted for performing the ignominious fence-eating-the-crop role. The point is auditors of private sector companies have right from the inception of company form of organization never acquitted themselves creditably. In fact they are in the distinguished company of rating agencies in suffering from credibility crisis for aeon. In the event, it may be too much to expect the private sector auditor to morph into a conscientious whistleblower overnight because at the end of the day he might not be unduly deterred by the heavy penalties if he can plead that he in fact brought about the requisite amount of skills and exactitude into his work -- the standard of care argument de rigueur among professionals when arraigned.

In contrast, public sector auditors including the CAG come out smelling of roses with their bold reports. The CAG functioned like the archetypal whistleblower in all the recent scams, be it 2G, commonwealth, coal or what have you. The leitmotif of all these scams is the same -- exchequer being shortchanged with corresponding benefit to private pockets. It is time we replicated the lessons imbibed from public sector in disciplining the private sector though it is common for market fundamentalists to exhort public sector to take a lesson or two from the more nimble-footed private sector. One of them is never to let management appoint its own auditor which is what is happening now. The new law contemplates rotation of auditors periodically but still the appointment of auditors would be the management’s prerogative though technically shareholders have to approve. Compounding the folly of vesting appointment rights with management is the vesting of right to fix auditors’ remuneration. The two combine to make the auditor supremely supine.

The government department and companies in the event have the RTI activist, the auditor and the putative whistleblower keeping a hawkish eye but sadly none of them have been authorised or empowered to tame private sector greed.

Two examples of private sector whistleblowers relate to the USA which sadly cannot be replicated in India unless the whistleblower protection law is extended to it as well. The spunky Enron woman Sherron Watkins was its finance head whose conscience was sufficiently troubled to expose her employer as well as auditor of the company. Dinesh Thakur was a former employee of Ranbaxy Laboratories who exposed his ex-employer not in India but in the USA perhaps enticed by the irresistible prospect of hitting the pay dirt -- he got $48.5 million from out of the $500 million Ranbaxy had to fork out to the US government for endangering the lives of its people through production of drugs in India in unhygienic conditions.

In India, whistleblowing has always been conspicuous by its absence insofar as activities of the private sector are concerned. Decades ago, Feroze Gandhi, the enfant terrible of the Congress Party caused his father-in-law and the then prime minister Nehru acute embarrassment by accusing the state owned LIC of using its funds to prop up the shares of Mundra. The episode took a political toll---the then finance minister TT Krishnamachari had to resign but Mundra was left unscathed.

Why the whistleblower law doesn’t extend to the private sector

Ashok Khemka. PTI

Fast forward to August 2013. Khemka, wittingly or unwittingly, has blown the whistle also against DLF, the private sector real estate major though both the media and opposition are gunning for Robert Vadra alone, little realising that public servants often rise to the bait thrown by private sector companies. Would the Karnataka mining scam have taken place but for the alleged lead taken by an industrial group? Political heads did roll politically and otherwise but the corporate group seems to be unfazed. Ditto in the coal scam. We demonize politicians completely which may be fine but correspondingly turn a blind eye to the shenanigans of the private sector which is not fine. That is why the 2G scam in public perception is all about the then Communications Minister Raja who incidentally pleads that he is not the sinner but sinned against. That the Unitech group and ADAG are also in the dock is known to very few.

The whistleblower protection law in the making may not be great shakes insofar as rewarding or protecting the whistleblower is concerned. It expects the whistleblower to be armed with documentary evidence at the risk of being cast to the wolves i.e. his name being made public. Just the same, Khemkas of the world must be allowed to blow the whistle against private sector misdeeds as well.

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Updated Date: Aug 18, 2013 09:42:16 IST

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