Whistleblowing Policy: An Analysis of Disclosure Level among Malaysian Listed Companies.
IntroductionThe Corporate Governance Blueprint, launched by the Securities Commission Malaysia (SC) in 2011, aspires Malaysian to become the leading business and investment destination among investors. To achieve this Malaysia aims to be distinguished by the quality of its governance. Good governance engenders trust and infuses confidence among investors. Nevertheless, such efforts may go down to drain if issues of fraud and corruption in Malaysia are still at large. According to PwC's latest Global Economic Crime Survey 2016, more companies in Malaysia are involved in bribery and corruption. The survey found that 30 per cent out of 80 Malaysian companies have experienced bribery and corruption in their daily operations, compared to just 19 per cent in 2014. PwC Malaysia's respondents represented 17 industries including government/state-owned enterprises, financial services, energy, utilities and mining and manufacturing. The survey stated that Malaysia now has the second highest reported level of corruption (30 per cent) relative to its three largest trading partners: China (46 per cent), Japan (24 per cent) and Singapore (17 per cent).
The growing concern on these types of corporate fraud and malpractices has sparked the Malaysian government to encourage whistleblowing practices. Whistleblowing is crucial as it can prevent organizations from suffering substantial losses (Near and Miceli, 2016). Studies acknowledged that organizations prefer to see whistleblowing protection through internal channels (Culiberg and Mihelic, 2016; Gao and Brink, 2017) so that wrongdoings can be corrected and prevented in the future and the misconducts in the organizations are not publicized. As such, internal whistleblowing gives an organization the opportunity to deal quickly with a concern without the pressure of external publicity. Unfortunately, legislations in Malaysia do not impose a mandatory requirement for organizations to have an internal whistleblowing channel. Furthermore, Lee and Fargher (2013) stated that there has been relatively little research examining the benefits from the use of whistleblowing channel. Studies acknowledged there are disparities in internal whistleblowing policies across companies (Lee and Fargher, 2013). As such, the purposes of the study are to examine the level of disclosure of whistleblowing policy disclosures among Malaysian listed companies. This is to gain a better understanding on the contents and components of whistleblowing policies currently being reported by these Malaysian companies.
Literature Review
The state of whistleblowing legislations and disclosure requirements in Malaysia
Among the procedures to detect fraud incidence within organization are through the legislation of whistleblowing provisions. In Malaysia, the protection on a whistleblower is covered under the provisions of the Malaysian Anti-Corruption Commission Act 2009, Capital Markets and Services Act 2010, Witness Protection Act 2008 as well as the Whistleblowing Protection Act 2010 (Rachagan and Kuppusamy, 2017). These acts though in some extent provide protections to the would-be whistleblower, they have some loopholes such as, a whistle-blower is only protected when he or she fits into certain condition as stipulated by the acts (The Star, 2012).
Furthermore, these acts do not mandate company to implement their own whistleblowing policy. Para 3.2 of the Malaysian Code of Corporate Governance 2017 (MCCG 2017) guidelines issued by Bursa Malaysia emphasizes the importance of whistleblowing policy in Malaysian public listed companies in which it is to encourage employees to raise any concern on fraud or dysfunctional behavior within their organization (Securities Commision of Malaysia, 2017). A standard guideline for whistleblowing disclosure however, is not available for Malaysian companies. Consequently, many public listed companies do not provide disclosure of their whistleblowing policy and for those who make such disclosures, their disclosure contents vary. Such variation of disclosure may be influenced by the firm attributes that are yet to be explored. Inconsistency of disclosure reflects inconsistency of adopting whistleblowing policy in the companies. As such, adequate disclosure of whistleblowing policy may warrant its effective implementation in the organization.
Nevertheless, the MCCG 2017 has emphasized on the needs for listed companies to employ whistleblowing policy. The Guideline stated that whistleblowing policy is an anti-fraud programmed in which the firms take an initiative to implement a system to protect the whistleblower. The guideline highlighted that there should be corporate culture to accept bad news and that the company should encourage its employees to report any forms of discrepancies. Boards of directors have been requested to formalize the ethical code of conduct, one of which is to improve communication and feedback in order to facilitate whistleblowing (Securities Commision of Malaysia, 2017). The duties of the board to implement internal system to facilitate whistleblowing are documented in the MCCG 2017 whereby in Para 3.2 of the guideline stated that "the board establishes, reviews and together with the management implements policies and procedures on whistleblowing" (Securities Commision of Malaysia, 2017, p. 20)
The Minority Shareholders Watchdog Group (MSWG) reported that, more companies have disclosed details of their whistleblowing policy, which increased from 13% in 2014 to 22% in 2015 (Minority Shareholder Watchdog Group, 2015). In addition, number of companies that have detail procedures in dealing with employees' complaint have also increased from 230 in 2014 to 299 companies in 2015. The MSWG findings however indicated that, the implementation of whistleblowing policy by Malaysian listed firms is still at low level. Based on MSWG's report, for the three years (2013, 2014 and 2015), the number of companies who have procedures to deal with employees' complaint and procedures to protect the employees from retaliation had increased. However, they are considered low as the involvement do not even reached 50% of Malaysian listed companies. The report suggests that there are many companies who have not putting the whistleblowing agenda as their main concern. Additionally, there is lack of understanding on how much is the detail of the whistleblowing policy and detail procedures referred to in the MSWG report, as the level of the disclosure were not discussed. The methods of determining the scope of the disclosure were also not provided.
The needs for effective internal whistleblowing policy
Meng and Fook (2011) stated four benefits for having whistleblowing policy in company. First, the policy encourages activity on whistleblowing that helps to prevent fraud within the company at early stage. Secondly, the implementation of the policy may build confidence among the investor as it provides signal to the investor that company are committed in handling fraud and ensure effective corporate governance system. Thirdly, the whistleblowers feel secure that they are protected under the term of the policy, thus do not impede their intention to whistle-blow. Fourthly, the whistleblowing policy signifies the importance of protecting the public interest as any fraud or misconduct is detected at early stage.
Empirical studies showed that companies that provide ethical codes give favorable effects in handling fraud. Companies that have ethical codes in place showed an increased in the number of wrongdoing reports from employees (Barnett, Cochran, and Taylor, 1993), experienced fewer cases of wrongdoing (Somers and Somers, 2001) and employees in companies that adopted ethical codes were perceived as more ethical than those companies without such codes (Adams, Tashchian, Shore, and Adams, 2001). This may suggest that companies that implement a quality whistleblowing policy affect the ethical and reporting behavior among their employees. Nevertheless, to assure an effective implementation of the system is to make it transparent to the employees. The company must disclose detail procedure of the whistleblowing policy to assure that the whistleblower rights are protected and the report is channeled to the right person for immediate action.
Several studies argued that the adoption of ethical codes does not assure its effectiveness if they are merely being regarded as a symbolic side of ethics management where the policies may not actually put into practice (Hassink, De Vries, and Bollen, 2007; Lee and Fargher, 2013; Weaver, Trevino, and Cochran, 1999). In Malaysia context, Rachagan and Kuppusamy (2017) argued that culturing whistleblowing in Malaysia may be difficult due to the following reasons: a) shareholding in Malaysia is highly concentrated to family ownership and state ownership; b) Malaysia has tough corporate law and regulation but enforcement by the regulatory authorities is low. Low enforcement was partly due to high corruption reported in Malaysia reaching 25% in contrast to Hong Kong and Singapore with low or almost none; and c) Malaysian culture who are abound to the attitude of not to confront other people, who belief to maintain harmony, and minority group have little power to influence the majority powerful group. In order to combat fraud in organization and to overcome the unique Malaysian culture as mentioned above, it is important that the board of directors need to demonstrate the high importance of whistleblowing process through sufficient level of disclosures in their annual reports, websites or any form of media. The only way to show that their organization support whistleblowing is they are being transparent on how the process is deal with.
A look into Standards Australia (2003) whistleblowing checklist
The Australian Standard on whistleblowing policy, known as Corporate governance - Whistleblower protection programs for entities (AS 8004-2003), is a standard for the implementation and handling of whistleblowing schemes by private sector organizations which was developed and published by Standards Australia. The objective of this Standard is to provide essential elements for establishing, implementing and managing an effective whistleblower scheme within an entity and provides guidance when using these elements. In general, the Standard outlines the standards for whistleblower protection in Australia. It is a clearly developed standard that provide a recommended checklist of sound whistleblowing disclosures.
Table 1: Suggested checklist on whistleblowing disclosure by Standards
Australia (2003)
Description of items disclosed
1. A statement of the entity's commitment to culture of high
corporate compliance and ethical
behavior
2. Commitment to regularly review the policy
3. Provision of training
4. Scope applies to employees (including contractors and consultants)
5. Scope applies to non-employees (customers, general public)
6. Guidelines on reportable issues
7. Guidelines on who to report to
8. Guidelines on how to report
9. A statement that report will be treated as confidential
10. A statement that different individuals will receive and
investigate the report
11. A statement on how the report will be handled
12. A statement on whether whistle-blower will be notified on
commencement of investigation
13. A statement on whether whistle-blower will be notified on
whistle-blowing progress
14. A guarantee that whistle-blowers will receive feedback
15. Appointment of a welfare/whistle-blowing protection officer
16. No retaliation by company, if report made in good faith
17. A statement that protection is given
18. Description of the specific protection given from and the actions
that will be taken
a. Definition of term
b. List out different forms of misconduct
c. Who is handling the matter
d. Action subsequent to report (upon investigation)
A study by Lee and Fargher (2013) used this disclosure checklist as provided by Standards Australia (2003) to identify for every item of the checklist, how much have the Australian listed firms incorporated and disclosed in their whistleblowing policy. Apart from examining the level of disclosure checklist, their study also examined the effects of firm attributes and corporate governance mechanisms of these Australian listed firms. They found that the higher the proportion of external directors in audit committee, existence of concentrated shareholders and the presence of organizational support in whistleblowing were associated with higher level of whistleblowing disclosure.
Research Methodology
Sample companies
The study is part of a bigger project and for the time being examined top 50 Malaysian listed companies measured by market capitalization. It is a cross sectional analysis involving companies ending their financial year ends in 2017.
Data collection method
This study used content analysis approach to identify the disclosure level of whistleblowing policies among Malaysian firms. Disclosures are sourced from the corporate websites of the companies and their corporate governance statements in their annual reports. Disclosure of the whistleblowing policies will be assessed based on checklist recommended by Standards Australia (2003), consistent with the study of Lee and Fargher (2013). As mentioned earlier, this a clearly developed standard that provide a recommended checklist of sound whistleblowing disclosures. On the contrary, there is no standardized checklist of whistleblowing disclosures provided for Malaysian companies. The checklist will apply to each company to determine the extent of their whistleblowing disclosures level. Company that has greater extent of disclosure indicates that it has sound whistleblowing system in place. Table 1 described earlier presents the suggested checklist as per the Standards Australia (2003). For each disclosure item, the existence of the disclosure will be coded '1' if present and '0' otherwise. The primary measure of disclosure score is the count of items disclosed.
Findings and Discussion
Frequencies of items disclosed in whistleblowing policies among Malaysian listed firms are provided in Table 2. The table disclosed that although the current sample is limited to top 50 listed companies in Malaysia, they do not provide comprehensive disclosure in the whistleblowing policies. Despite adequate disclosure (more than 50%) being provided by these firms in 10 out of overall 22 items, 12 other disclosure items were found to fall below 50% on adequate disclosure components (refer the shaded color).
Table 3 presented the number of items indicated and disclosed by each company in their whistleblowing policies. It calculated the number of items out of the total 22 as suggested by Standards Australia (2003). The median of disclosure level is 10. From the total of 50 top companies, 29 have lower disclosure level (lower than 10 median). This result conforms to MWSG findings that the implementation of whistleblowing policy in Malaysian listed firms is at a lower level. The highest amount of disclosure is from Bursa Malaysia Berhad with 21 items out of the total 22. This is not surprising as Bursa Malaysia is the regulatory agency for listed companies which could indicate that they are portraying good examples to others.
Conclusions
As Malaysia is striving toward achieving higher standard of corporate governance practices, disclosing sound whistleblowing policy should be viewed as a tool to further enhance corporate governance in Malaysian corporations. Higher level of disclosure will increase employee's confidence, understand their rights and feel secured. The outsiders will view the organization as an entity that are transparent and have proper procedure in place and hence less worry of concealed fraud. It means that, organizations need to build up a culture to encourage their employees to report any forms of corporate wrongdoing. The whistleblowing policy must be in place before it can be disclosed. A mandatory or comprehensive checklist specifically tailored for Malaysian companies could encourage and act as a guidance for companies to strengthen their whistleblowing policy. As such, the findings of this study that reflected low level of whistleblowing disclosure could indicated that implementing such requirement is indeed necessary.
Furthermore, future study should also be conducted to examine the effects of disclosure level of whistleblowing policy with the firms' corporate governance attributes. This is consistent with the studies by Lee and Fargher (2013) and Agnihotri and Bhattacharya (2015). It was argued that corporate governance mechanisms promote higher level of disclosure. To our knowledge, no study of similar scope has been carried out on Malaysian listed firms. Nevertheless, previous studies that investigated corporate governance structure and their firms attributes could be utilize in future studies to examine the impact they may have on the whistleblowing disclosure of the Malaysian company.
References
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Agnihotri, A. and Bhattacharya, S. (2015). Whistleblowing policy disclosure: Evidence from an Indian emerging market. Corporate Governance: The International Journal of Business in Society, 15(5), 678-692.
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Syahrul Ahmar Ahmad (*)
Faculty of Accountancy, Universiti Teknologi MARA Johor, Malaysia
Email: syahrul.ahmar@johor.uitm.edu.my
Rahimah Mohamed Yunos
Faculty of Accountancy, Universiti Teknologi MARA Johor, Malaysia
Juyati Mohd Amin
Faculty of Accountancy, Universiti Teknologi MARA Johor, Malaysia
(*) Corresponding Author
Table 1. List of Empirical Variables.
Section Variables
Section A Demography profile
Section B Resources availability
* Employees' Skills and
Ability
* Financial Management
Training
* Financial Support
* Technology Support
Section C Cash management
Section D Financial sustainability
Section Measures
Section A Types of services, fully prepare and maintain
accounting transactions in accounting records, the
person who handles the accounting records
Section B Basic skills, ability, experience
Training received, wide exposure, continuous
training
Business fund, allocation of fund, financial support
from government.
Computer assistance, software, knowledge using
computerized accounting systems and sufficient
technology support.
Section C Bank account, cash shortage, surplus, cash budget
and separation duties
Section D Profitability, liquidity, budget, expenditure, stock
turnover, number of customer, cash flow.
Table 2: Validity and Reliability for Construct
Constructs Items Loadings AVE
Cash management CFP1 0.622 0.503
practices CFP2 0.368
CFP3 0.475
CFP4 0.663
CFP5 0.615
CFP6 0.750
CFP7 0.720
CFP8 0.682
CFP9 0.688
CFP10 0.023
CFP11 0.430
Financial sustainability F1 0.699 0.505
F2 0.731
F3 0.764
F4 0.830
F5 0.652
F6 0.645
F7 0.618
Employees' accounting SA1 0.719 0.571
skills and ability SA2 0.770
SA3 0.821
SA4 0.710
Financial management TS1 0.871 0.704
trainings TS2 0.839
TS3 0.784
TS4 0.860
Financial support FS1 0.770 0.527
FS2 0.658
FS3 0.662
FS4 TE1 0.805
0.877
Technological Support 0.799
TE2 0.933
TE3 0.882
TE4 0.883
Constructs Cronbach's Composite
Alpha Reliability
Cash management 0.82 0.866
practices
Financial sustainability 0.818 0.866
Employees' accounting 0.749 0.841
skills and ability
Financial management 0.86 0.905
trainings
Financial support 0.698 0.815
Technological Support 0.916 0.94
Table 3: Discriminant Validity
Constructs CFP Fin.Sus SA TS FS TE
CFP 0.709
Fin. Sus 0.490 0.711
SA 0.408 0.503 0.756
TS 0.443 0.285 0.140 0.839
FS 0.433 0.500 0.384 0.371 0.726
TE 0.312 0.266 0.182 0.404 0.409 0.894
Where: CFP is cash management practices, Fin. Sus. is financial
sustainability, SA is employees' accounting skills and ability, FS is
financial support, TS is financial management trainings, and TE is
technological support.
Table 4: Structural Estimates (Hypotheses Testing)
Hypotheses Beta Standard Error 0.075
H1 SA -> CFP 0.212
H2 TS -> CFP 0.303 0.055
H3 FS -> CFP 0.276 0.092
H4 TE -> CFP 0.078 0.062
H5 CFP -> Fin.Sus 0.112 0.104
H6 SA -> Fin.Sus 0.139 0.056
H7 TS -> Fin.Sus 0.133 0.060
H8 FS -> Fin.Sus 0.280 0.082
H9 TE -> Fin.Sus 0.221 0.064
T Statistics 2.831 Decision
H1 Supported
H2 5.489 Supported
H3 2.987 Supported
H4 1.267 Not Supported
H5 1.076 Not Supported
H6 2.457 Supported
H7 2.211 Supported
H8 3.411 Supported
H9 3.430 Supported
Table 2: Frequency of items disclosed in whistleblowing policies
Disclosure items Frequency of
items reported
No. %
1. A statement of the entity's commitment to
culture of high corporate 44 88
compliance and ethical behavior
2. Commitment to regularly review the policy 7 14
3. Provision of training 3 6
4. Scope applies to employees (including
contractors and consultants) 45 90
5. Scope applies to non-employees
(customers, general public) 38 76
6. Guidelines on reportable issues 43 86
7. Guidelines on who to report to 40 80
8. Guidelines on how to report 41 82
9. A statement that report will be
treated as confidential 35 70
10. A statement that different
individuals will receive and investigate the 11 22
report
11. A statement on how the report will be handled 14 28
12. A statement on whether
whistle-blower will be notified on 7 14
commencement of investigation
13. A statement on whether whistle-blower
will be notified on whistle- 6 12
blowing progress
14. A guarantee that whistle-blowers
will receive feedback 9 18
15. Appointment of a welfare/whistle-blowing
protection officer 0 0
16. No retaliation by company, if report
made in good faith 28 56
17. A statement that protection is given 31 62
18. Description of the specific protection
given from and the actions that 7 14
will be taken
a. Definition of term 7 14
b. List out different forms of misconduct 32 64
c. Who is handling the matter 15 30
d. Action subsequent to report 7 14
Table 3: Frequency of items disclosed in whistleblowing policies across
the companies
No Companies Total Dis- No Companies Total Disclo-
Items closure Items sure
Dis- Level Dis- Level
closed closed
1 AEON CO. 12 H 26 MAGNUM 3 L
2 AEON CREDIT 9 L 27 MAH SING 3 L
3 AFFIN BANK 9 L 28 MALAKOFF 17 H
4 ALLIANCE BANK 7 L 29 MRCB 18 H
5 BERJAYA 0 L 30 MMC 10 L
SPORTS
6 BIMB HOLDINGS 16 H 31 MSM 9 L
7 BINTULU PORT 10 L 32 MY E.G. 13 H
8 BOUSTEAD 7 L 33 ORIENTAL 10 L
HLDGS
9 BOUSTEAD 7 L 34 PADINI 12 H
PLANT
10 BUMI ARMADA 7 L 35 PAVILION REIT 0 L
11 BURSA 21 H 36 POS MALAYSIA 10 L
12 CAHYA MATA 13 H 37 SAPURA 12 H
13 CARLSBERG 4 L 38 SCIENTEX 0 L
14 DRB-HICOM 9 L 39 SERBA DINAMIK 0 L
15 DUTCH LADY 17 H 40 SHANGRI-LA 12 H
HOTELS
16 ECO WORLD 12 H 41 SUNWAY REIT 13 H
17 FGV 8 L 42 SYKT TAKAFUL 9 L
18 GAS MALAYSIA 3 L 43 TIME DOTCOM 4 L
19 HEINEKEN 18 H 44 UEM SUNRISE 14 H
20 HONG LEONG 10 L 45 UNITED PLANT 11 H
21 IGB REIT 7 L 46 UOA DEV 2 L
22 IJM 13 H 47 V.S. INDUSTRY 11 H
23 KOSSAN 9 L 48 VITROX 11 H
24 KPJ 11 H 49 YINSON 14 H
25 LPI 8 L 50 YTL POWER 5 L
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