Whistle Blowing

Since the Enron incident, whistle blowing has become a controversial topic in corporate governance. With whistle blowing arrangement, staff of an organization should be encouraged to report any serious malpractices that they observe, first to their supervisors within the organization and, if that way is not feasible, to external authorities.

This arrangement would alert senior management to malpractices committed by lower levels of the organization, the board to malpractices committed by senior management, and even the outside stakeholders (e.g. shareholders, creditors, regulators, etc.) to malpractices committed by the board.

So how should the whistle blowing policy of an organization be formulated? The UK Corporate Governance Committee of the Commerce & Industry Group (the Law Society’s recognised body for in-house lawyers) has just published a report which seeks to provide such guidance to in-house lawyers on corporate governance.

This report, "Blowing the Whistle", aims to:

• provide an overview of the law on whistleblowing, including: whether employees have a legal obligation to blow the whistle; and if they do so, what protection the law provides them with against victimization or other detrimental treatment by their organizations;
• provide some guidance on how to help their organization to implement a good whistle blowing policy;
• examine the in-house lawyer’s own position as a whistle blower, especially: whether they have a greater legal or ethical obligation to blow the whistle than other staff members? how effectively will the law protect them if they blow the whistle? how should the extent of such legal protection affect their decision whether to blow the whistle? and
• identify gaps in the law protecting whistle blowers.

The report finds that there are some gaps in the law to protect the whistle blowers. In some cases in-house lawyers may have greater obligations than other staff to blow the whistle, but may have less (or no) protection. Compliance officers and money-laundering reporting officers are particularly exposed, because they may have to make disclosures outside of their organisations, and this was not contemplated when the whistle blowing legislation was drafted.

Perhaps owing to cultural differences, whistle blowing is not a phenomenon in Chinese societies. In-house lawyers and compliance officers usually choose to quit for self-protection after identifying serious malpractices within the organization.