The importance of a ‘whistle-blower’ has assumed greater significance post regulators’ recent crackdown on suspected transactions relating to ‘money laundering’ and ‘terror financing’.

Under the ‘Competition (Reward Payment to Informants) Regulation, 2014’ the Competition Commission of Pakistan (CCP) announced rewards ranging from Rs200,000 to Rs2 million to any individual furnishing information about a company’s prohibited activities, including involvement in anti-competition practices and cartelisation. Yet, instead of a reward, most whistle-blowers are likely to be shown the door by their employers.

Earlier, the government had announced a ‘whistle-blower scheme’ in budget 2015-16 and added the same to the relevant sales and income tax laws. However, due to non-formulation of rules, these laws could not be enforced.

Whistle blowing is a high-risk adventure

In corporations, the management promises secrecy, but potential whistle-blowers know that if identified, they will have to endure a hostile work environment and face the threat of reprisal at the hands of the organisation or group they have accused. To avoid trouble, most well-meaning and knowledgeable people prefer to look the other way and maintain a stony silence.

An official of the Securities and Exchange Commission of Pakistan (SECP) said that “the surveillance, supervision and enforcement department of the regulator’s ‘Securities Market’ division monitors, inspects and investigates market participants (and listed companies)”.

Last year the SECP put up a draft of the Whistle-blowing Regulat­ions 2017 on its website seeking public comments; but the draft was later withdrawn.

When asked about the reason for this change of mind Zafar Hijazi, then-chairman SECP, excused himself from answering the question. But a person who at the time was in the decision-making body said “A similar bill titled ‘Public Interest Disclosure Bill 2017’ was earlier passed by the National Assembly which was why the draft was scrapped.”

While that may have been the case, it is also on record that the Lahore Chamber of Commerce and Industry (LCCI) was up in arms against the Whistle-Blowing Regulations 2017. In a consultative session, the Chamber’s officials had expressed ‘immense reservations’ about the law stating that its implementation would deteriorate the business environment.

“Such provision will encourage employees to blackmail the corporate sector for vested interests and will provide the SECP with an excuse to interrogate and harass businessmen” objected the leading lights of the Chamber and suggested that the regulations should initially be implemented in government-owned public companies only.

Internationally, the 2013 Transparency International’s principles for whistle-blower legislation, 2011 and OECD guidelines for multinational enterprises set out codes for whistle-blowing. But these international laws came ages after the world awakened to the importance of employees ‘speaking up’ or ‘raising concerns’.

An famous example is that of the Enron Corporation, the seventh largest company in the US in 2001, which sank in a sea of financial crises because the company’s ex-chairman Kenneth Lay brushed off then-company Vice President Sherron Watkins’ warning that an ‘elaborate accounting fraud’ was being perpetrated in the company. The domino impact of Enron’s fall pitched the entire corporate world in an unprecedented crisis.

While an employee’s reluctance to speak up regarding an employer’s questionable practices is understandable, it should be the fiduciary duty of non-executive/nominee directors to act as whistle-blowers and point out any violations committed by company management. However, a non-executive director who would venture to go against the executive directors would not be the sharpest tool in the shed, for the law that applies to the appointment of statutory auditors by companies also applies to non-executive directors.

An auditor who insists on issuing a ‘qualified report’ where serious irregularities are noticed, runs the risk of losing their job for they are employed by the company Board. Similarly, a non-executive director may debate and disagree with the way the company conducts some of its business operations, but such discussions would be behind closed doors. Not too many non-executive directors are likely to jeopardise their fat meeting packages in speaking up for the right.

Published in Dawn, The Business and Finance Weekly, September 17th, 2018