Corporate misconduct is difficult to detect and prove. This is because it is often hidden by a complicated web of transactions, misleading corporate records and convoluted company group structures. This is why corporate whistleblowers whose positions give them an inside track on misconduct are so important in exposing corporate crime and corruption.
But whistleblowers risk personal and financial risk by coming out. Whistleblower protection in South Africa lags behind international standards and inadequately protects whistleblowers in some respects.
Given South Africa’s high levels of corporate corruption, whistleblowers deserve high levels of protection. Despite some protections given to whistleblowers, the reporting rates of wrongdoing are low. The main reasons for this are a fear of being victimised and a fear of losing one’s job. The low levels of reports of wrongdoing and the widespread victimisation of whistleblowers are proof of the weak protection South Africa offers corporate whistleblowers.
I have conducted research on the protection of corporate whistleblowers in South Africa compared to international jurisdictions, such as Australia. In my research I found that section 159 of the Companies Act does not go far enough in protecting corporate whistleblowers. It is defective and must be urgently reformed.
The regulation of corporate whistleblowing
Whistleblowing in private and public sector companies, including state-owned entities, is regulated by Section 159 of the Companies Act of 2008.
It protects corporate whistleblowers who disclose wrongdoing by the company or a director or prescribed officer. But to be protected, the whistleblower must act in good faith and must reasonably believe that there was wrongdoing.
The wrongdoing could relate to breaches of the Companies Act or other legislation, a failure to comply with the law, any acts that endanger the health and safety of a person or harm the environment, or unfair discrimination.
The disclosure of wrongdoing must be made to specific persons. These include the Companies and Intellectual Property Commission, the Companies Tribunal, a director, a prescribed officer, a company secretary, an auditor, a legal advisor, the board or a committee of the company.
The corporate whistleblowers who are protected by the Companies Act include shareholders, directors, company secretaries, prescribed officers, registered trade unions, and suppliers of goods or services to a company and their employees.
The protections given to whistleblowers
The Companies Act provides three protections to whistleblowers.
First, they get qualified privileges for their disclosure. This means that they cannot be sued for defamation for what they said unless they acted with malice or an improper motive.
Secondly, they are immune from civil, criminal or administrative liability for their disclosure. This means that they are protected from liability for making the disclosure of wrongdoing. But they are not immune from liability for their own conduct that may have been revealed by the disclosure.
Thirdly, whistleblowers may claim compensation for any damages they suffer if anyone harms them or threatens to harm them.
As discussed below, these protections to whistleblowers need to be broadened and strengthened.
South Africa has a patchwork of statutes regulating whistleblowing. Both the Companies Act and the Protected Disclosures Act of 2000 govern whistleblowing by employees in companies.
This means that employees in companies must consult both the Companies Act and the Protected Disclosures Act when disclosing wrongdoing. This can be challenging for employees because of the different requirements under each statute that must be met before they will be protected for blowing the whistle.
Added to this, is that there are several other statutes in South Africa that govern whistleblowing. These include the Constitution, the Labour Relations Act, the Prevention and Combating of Corrupt Activities Act and the National Environmental Management Act, to name a few.
This creates a confusing web for whistleblowers to navigate and results in inconsistent protection.
In my view, South Africa should have one consolidated legislative framework governing whistleblowing. This will make whistleblower laws clear and consistent. It will also make them more accessible and visible.
Protection can also be broadened, as I’ve suggested, by protecting a corporate whistleblower for three years after they’ve left a company. The three-year limit will encourage whistleblowers to disclose the wrongdoing within a reasonable time after leaving their positions. In addition, any evidence will still be accessible.
In addition, there must be better protection for whistleblowers from victimisation, which should be a criminal offence under the Companies Act.
Whistleblowers should be allowed to claim compensation from anyone who causes them harm – physically as well as psychologically. There have been many reports of whistleblowers who have been ostracised, suffered panic attacks, depression, post-traumatic stress disorder or anxiety after exposing corporate corruption.
In South Africa, it is vital to provide physical protection to whistleblowers. There have been several reports of intimidation of whistleblowers. Some whistleblowers had to flee South Africa because they feared for their safety. Another whistleblower was assassinated after exposing corruption linked to COVID-19 personal protective equipment.
It has been reported that former Eskom CEO Andre de Ruyter may be at personal risk. He effectively became a whistleblower at Eskom after a television interview. In the interview, De Ruyter alleged that there is rampant corruption at Eskom and that a senior ANC minister is involved in criminal activities at the power utility with the knowledge of other senior party leaders.
The ANC has denied this and served court papers on De Ruyter that required him to provide evidence within seven days to back up his allegations of corruption.
Once whistleblowers disclose their identity, it should be mandatory for adequate physical protection to be provided to them and their families.
Whistleblowers should be given the choice to make disclosures confidentially or anonymously under the Companies Act. Their identity should also be protected in court matters.
The Companies Act does not give financial incentives to whistleblowers for making disclosures that lead to successful resolutions of matters. Financial rewards are controversial. They encourage whistleblowers to speak up about corruption and reduce the financial risks they face. But they also raise moral and ethical concerns and may encourage false reports.
In my view, corporate whistleblowers should be rewarded for disclosures they make that lead to successful resolutions. In my research, I found that the benefits of financial rewards may outweigh the misgivings about it given the very high level of corporate corruption in South Africa.
Whistleblowers are not traitors but courageous people who choose to take action against wrongdoing rather than taking the easy route and keeping quiet. An urgent review of the Companies Act is needed to strengthen the protection of corporate whistleblowers, and to promote a culture of accountability and integrity, which is currently lacking in South Africa.
Rehana Cassim, Professor in Company Law, University of South Africa
This article is republished from The Conversation under a Creative Commons license. Read the original article.