Could a whistleblower have made a difference at Satyam?

US securities regulators have approved a nearly $50,000 reward for a whistleblower who turned over documents and other information to help stop a multi-million dollar fraud, the first award in a new programme to encourage people to tell regulators about securities fraud.

The tipster will receive 30 percent of the $150,000 collected so far, out of more than $1 million in sanctions imposed, the maximum award percentage allowed under new whistleblower rules required by the 2010 Dodd-Frank financial oversight law and finalised by the Securities and Exchange Commission (SEC) last year.

In India, a Satyam insider is said to have hinted at the $1billion accounting fraud at the company. A person who used the pseudonym of Jose Abraham, and who claimed to be a former senior executive in Satyam, apparently was an early whistleblower, according to this this Economic Times report. His email to a Satyam board member led to a sequence of events which ended with B Ramalinga Raju's confessing to the financial crime.

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Since depending solely on auditors or the board is not sufficient, a well-defined 'whistleblower' policy is vital to good corporate governance. Unlike the US, it is still not mandatory for listed companies in India to implement the whistleblower policy.

The new Companies Bill will make them mandatory, but again only for listed companies.

[caption id="attachment_426670" align="alignleft" width="380"] In India the trial of Raju is nowhere near completion. Reuters[/caption]

Moreover, the current laws do not guarantee protection of the whistleblower's identity. Some have paid with their lives. The examples include the murders of whistleblowers Satyendra Dubey and S Manjunath.

The US regulator has received about eight tips per day since the programme started in August 2011, the SEC said. Perhaps monetary rewards could be a starting point in India too?

However, governance cannot depend only on whistleblowers. According to a report in Financial Express around that time, Satyam was one of the few companies to have a whistleblower policy in place 2005-06, but apparently nothing much came of it to prevent the scam.

Corporate governance is about building an entire internal culture of ethics and an external regulatory environment where punishment for wrongdoers is swift and certain. Three-and-a-half years after the Satyam scam, the SEC has managed to penalise Satyam for defrauding shareholders in the US, but in India the trial of Raju is nowhere near completion. As for shareholders, forget it.