Over the past two days, a second letter by an anonymous whistle-blower addressed to Shaktikanta Das, governor of the Reserve Bank of India (RBI) has been doing the rounds of whatsApp groups interested in corporate goings-on.
The letter is dated 22 May 2018 and refers to an earlier letter that was apparently sent to the RBI governor on 8th May. Both letters follow the new trend of corporate insiders using anonymous or pseudonymous letters as an act of vendetta or to vent their frustration with the management.
In the Yes Bank case, we learn that the nominations and remuneration committee has been asked to investigate the matter, although the whistleblower is anonymous. The first letter was discussed at its board meeting on 16th May and the new letter has been circulated to the board, an investigation ordered and the matter is to be placed before the next board meeting in early June.
We further learn from the Bank sources that Brahm Dutt, non-executive chairman of Yes Bank, who is the main target of the first letter, has also provided a detailed explanation of the charges against him to the board. Moneylife has not see the first letter; the second one is mainly about the terms of appointment of the managing director, which are a matter for the regulator and the shareholders to approve. (update, we now have copies of both letters, 31st May 2019)
Many of us are inundated with such letters targeting public and private companies, auditors, regulators, government departments and others. As journalists, we ignore rants and follow up on those that are detailed, specific, have a larger public interest or the facts revealed are verifiable and point to serious malfeasance or criminality. Unfortunately, most letters that we receive contain a string of unverifiable allegations with no details to back them.
The big question is: How should the government as well as large, listed companies and their board of directors respond to such letters?
In October 2018, the government through the ministry of personnel, issued a directive to Central ministries directing them to simply file anonymous as well as pseudonymous complaints, saying there was no need to act on them. The Central Vigilance Commission, quoting certain high court orders has issued similar directions in 2016
A careful reading of the guidelines linked above suggests that government departments cannot initiate action on the basis of anonymous /pseudonymous complaints, but can they abdicate responsibility for even investigating details that suggest large-scale corruption or criminality?
Unfortunately, this is exactly what has been happening and this has inflicted a cost that runs into thousands of crores of rupees on the nation in the recent past and a few lakh crore if one takes into account the criminal nexus between bankers, bureaucrats, politicians and industrialists.
In the absence of a proper statute to protect whistle-blowers, this provides a massive escape route to regulators and corporate managements. Consider the following:
The ICICI whistle-blower was not anonymous and has even posted allegations on a blog that was publicly accessible for over two years. Yet, the board of directors not only refused to investigate the letter, but shamelessly defended the former managing director and CEO (chief executive officer), Chanda Kochhar, for over two years. The RBI and capital market regulator, SEBI (Securities & Exchange Board of India) watched in silence. Numerous other whistle-blowers are now providing information on the Kochhar affair and all these are apparently being investigated by multiple investigation agencies.
The board of directors of Infrastructure leasing and Financial Services (IL&FS) as well as RBI governor Raghuram Rajan chose to ignore letters from several whistle-blowers
all through 2017 and 2018. RC Bhargava of Maruti, a longstanding member of IL&FS board, had considered the pseudonymous letters (written by one Mahesh Inamdar) and decided to treat them as anonymous complaints, although Central government rules simply do not apply to a private entity or conglomerate. IL&FS, with an outstanding debt of nearly Rs100,000 crore, has collapsed and after resolution may inflict a loss of over Rs40,000 crore or more on lenders.
The entire financial system is facing the deleterious consequences of that decision by the board, including innocent investors whose mutual fund and provident fund savings are affected. Interestingly, the Serious Frauds Investigation Office (SFIO) no longer has problems investigating anonymous complaints that were made public by Moneylife against its auditors
Deloitte, Haskins & Sells.
Similarly, while SEBI had initially filed away a letter related to the co-location scam or algo-trading manipulation at the National Stock Exchange (NSE), after Moneylife
, which also got a copy of the letter made it public,
an avalanche of action started, leading to the large-scale changes in the well-entrenched top management. The matter has now led to SEBI indictment
of India’s leading Exchange, after nearly four years.
Finally, there is another category of letters that is merely vengeful targeting of individuals. After the IL&FS debacle, I received a series of such letters targeting senior employees but without any credible information to back it up.
The attempt to use the media for settling personal scores is worrying. Since the potential damage from these letters is huge and corporates are led to believe that all media houses are unscrupulous in their use of such information, it can often cause a huge and needless loss of management time.
For instance, a leading accounting firm was the target of internal sabotage in the form of a whistle-blower letter addressed to me. The letter had extrapolated the example of a company diverting funds (which we intend to write about) into a non-existent accounting scandal in what was a blatant attempt to target one partner.
In fact, there wasn’t even a link between that partner and the account. Also, it is not the auditors' job to act as policemen; they are only supposed to record and report wrongdoing or wrong accounting policies by raising red flags in the audit report.
In short, we need a much better whistle-blower ecosystem with statutory protection for genuine persons to expose wrong-doing in government and corporate India. Until then, ignoring anonymous complaints made in public interest will inflict a heavy cost on the nation.
SEBI must make it mandatory for corporate boards to have every whistle-blower complaint investigated by the audit committee; otherwise, the board will end up acting as groupies of incumbent management to bury wrongdoing. The media also has to examine each letter received and make a judgement whether a complaint is merely mud-slinging or truly has public interest implications.