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Whistleblowing: Developments and Implementation Issues Institute of Internal Auditors Annual Conference, 7 October 2005 Whistleblowing: Developments and Implementation Issues Institute of Internal Auditors Annual Conference, 7 October 2005 A/P Mak Yuen Teen Co-Director, Corporate Governance and Financial Reporting Centre Powerpoints downloadable from www. cgfrc. nus. edu. sg

Introduction Introduction "For those who argue that employees owe strict loyalty to the company, whistleblowing seems to be an act of extreme disloyalty. It puts at risk the reputation of the firm. But this seems to be based on a narrow view of loyalty as if it demands that we do whatever the company or another individual believes to be in their best interest. . . Loyalty cannot imply that we should not report the unethical conduct of others. . . This may imply for an employee that he or she is most loyal when trying to prevent something that could lead to harm for customers, shareholders, or the general public. If there is no proper response internally, or if by the nature of the case, it is not possible to find an internal remedy, then it would seem ethically correct to blow the whistle. In fact, sometimes there can be a duty to do so. It would be obligatory for an employee to blow the whistle when the level of harm to others is serious, and the employee has clear evidence of the unethical practice that has led to this. This could, for example, be in terms of product safety or severe financial hardship for others. “ Michael Walsh, "Whistleblowing: betrayal or public duty? , " http: //www. erc. org. au

Introduction Introduction "If you have God, the law, the press and the facts on your side, you have a 50% chance of defeating the bureaucracy“ As quoted in Joanna Gualtieri, "When the whistle blows, " Corporate Governance Quarterly, Spring 2005.

Introduction • A broad definition of whistleblower: – “one who reveals wrongdoing within an Introduction • A broad definition of whistleblower: – “one who reveals wrongdoing within an organization to the public or to those in positions of authority ” (Answers. com)

Introduction • Whistleblowing arrangements increasingly seen to be an important component of the corporate Introduction • Whistleblowing arrangements increasingly seen to be an important component of the corporate governance framework of an organisation • Why? Surveys and recent corporate scandals show that more frauds are uncovered through reports made by whistleblowers than through activities such as internal audits

Introduction • The importance of whistleblowing is increasingly recognised: – legislation to protect whistleblowers Introduction • The importance of whistleblowing is increasingly recognised: – legislation to protect whistleblowers (e. g. , Public Interest Disclosure Act 1998 in U. K. ; Sarbanes-Oxley Act 2002; Securities Industry Act amendments in Malaysia) – legislative provisions mandating whistleblowing by certain individuals (e. g. , the auditor under Singapore and Malaysia Companies Act; auditor under Malaysia Securities Industry Act)

Introduction – rewards for whistleblowers by government agencies or other organisations (e. g. , Introduction – rewards for whistleblowers by government agencies or other organisations (e. g. , IRAS, Business Software Alliance) – corporate governance codes (e. g. , U. K. , Australia, Singapore) – companies’ codes of ethics/conduct encouraging or even imposing a duty on employees to report breaches

Corporate Governance Codes and Whistleblowing • The AC should review arrangements by which staff Corporate Governance Codes and Whistleblowing • The AC should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The AC’s objective should be to ensure that arrangements are in place for the independent investigation of such matters and for appropriate follow up action. (Revised Singapore Code, Guideline 11. 7)

Codes of Conduct and Whistleblowing Source: BP Code of Conduct Codes of Conduct and Whistleblowing Source: BP Code of Conduct

Codes of Conduct and Whistleblowing Source: BP’s Code of Conduct Source: Qantas Code of Codes of Conduct and Whistleblowing Source: BP’s Code of Conduct Source: Qantas Code of Conduct

Directors’ Duties and Whistleblowing S. 157. —(1) A director shall at all times act Directors’ Duties and Whistleblowing S. 157. —(1) A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. S. 157 C(1) - Use of information and advice

Directors’ Duties and Whistleblowing S. 157 C(2) - Subsection (1) shall apply to a Directors’ Duties and Whistleblowing S. 157 C(2) - Subsection (1) shall apply to a director only if the director — – (a) acts in good faith; – (b) makes proper inquiry where the need for inquiry is indicated by the circumstances; and – (c) has no knowledge that such reliance is unwarranted.

Proposed SGX Rule Changes • Proposed change to SGX Listing Rule 705: directors to Proposed SGX Rule Changes • Proposed change to SGX Listing Rule 705: directors to provide confirmation that, to the best of their knowledge, nothing has come to the attention of the board of directors which may render the interim financial results to be false or misleading. • Proposed change to SGX Listing Rule 710: …nothing has come to the attention of the Board and CEO with regards to internal controls that would have a materially adverse effect on their company

Key Considerations in Implementing Whistleblowing • How to submit complaints and who to submit Key Considerations in Implementing Whistleblowing • How to submit complaints and who to submit to (e. g. , legal/compliance, audit committee, external hotlines) • Improprieties which are covered (accounting irregularities, theft, fraud, corruption/dishonesty, harassment, unethical behaviour, improper conduct, workplace safety hazards, breaches of legislation) • Investigation, follow up and reporting procedures

Key Considerations in Implementing Whistleblowing • Types of prohibited reprisals (e. g. , discrimination, Key Considerations in Implementing Whistleblowing • Types of prohibited reprisals (e. g. , discrimination, harassment, intimidation, demotion, termination, etc. ) • Policy regarding whistleblower’s immunity from disciplinary proceedings and civil/defamation claims

Whistleblowing: A Case Study Sequence of events: • Former manager informed Board Chairman about Whistleblowing: A Case Study Sequence of events: • Former manager informed Board Chairman about alleged wrongdoings involving potentially serious conflict of interest involving CEO. Alleged that she was “forced out” of company when she raised questions. Substantial evidence which appear to support her allegations was provided.

Whistleblowing: A Case Study • Board agreed that the matter needs to be thoroughly Whistleblowing: A Case Study • Board agreed that the matter needs to be thoroughly investigated and appointed an Investigations Committee (IC) to oversee investigations, and to report and make recommendations to the Board - range of initial reactions from Board members - does duty of care compel the board to do a proper investigation? - “doing the right thing” • Board also approved appointment of an accounting firm to do an independent investigation and to report to IC • Whistleblower was informed that her allegations will be investigated

Whistleblowing: A Case Study • IC interviewed the CEO – need to be handled Whistleblowing: A Case Study • IC interviewed the CEO – need to be handled sensitively to ensure natural justice is served – Board may need to work with CEO again if allegations untrue – need to decide status of CEO while investigations were proceeding (and contingency plans if necessary) • Chairman briefed Heads (CEO allowed to continue working) before accounting firm commenced investigations

Whistleblowing: A Case Study • IC and accounting firm prepared reports and presented findings Whistleblowing: A Case Study • IC and accounting firm prepared reports and presented findings to the Board • Board approved list of questions prepared by IC, based on the findings, for CEO to address • Second legal opinion sought in terms of actions that could be taken

Whistleblowing: A Case Study • Special Board meeting was held to consider responses and Whistleblowing: A Case Study • Special Board meeting was held to consider responses and make decisions on actions to take if any (plan A, plan B, etc. ) • what kinds of breach, if any (law? employment contract/code of conduct? good governance and management practices? ) • Board communicated findings and CEO resigned • Interim management team appointed • Whistleblower informed that CEO had resigned and case is closed

Whistleblowing: A Case Study Some follow-up issues: Hire back the whistleblower? Review core values Whistleblowing: A Case Study Some follow-up issues: Hire back the whistleblower? Review core values of company Review corporate governance and Code of Conduct Put in proper whistleblowing arrangements?