CAN CORPORATE INDIA ACCOMMODATE WHISTLE-BLOWERS?

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj

With globalisation comes the global way of doing business. Whistle-blowing is a side effect of this, and one that has gained prominence in the recent times. In India, whistle-blowing was traditionally not seen as a very conducive activity to be engaged in, even in cases of fraud, health/safety violations and threats to public interest. The reasons - a fear among potential whistle blowers of losing their jobs, being demoted or souring workplace relationships. There is also India’s chronically challenged status with regards to timely justice.

HOW MATURE ARE WE?

There now exists the Whistle Blowers (Protection In Public Interest Disclosures) Bill, which was introduced in 2006. This was formulated to give protection to informing parties against criminal or civil liability, departmental inquiry, demotion, harassment and discrimination. The bill does provide a degree of security to whistle-blowers. However, considering the general lag in legal action and the many inconsistencies in the appeal system, its enactment is not always guaranteed.

Much therefore depends on the code of ethics, if any, being implemented by the company. Ethics are, in fact, the key differentiator today in this and many other respects pertaining to market credibility.

By and large, many Indian businesses, even some of the large ones, are run by families, and loyalty in all circumstances is expected. Where a company is run on a charter based on global best practices - Jones Lang LaSalle and some others number among these - the employee is protected by an inflexible and fair code of corporate ethics. Companies like Jones Lang LaSalle have historically taken impeccable ethics as the only possible standard, considering the fact that India is considered low on the Real Estate Transparency Index to begin with. Thanks to a decade-old global ethics policy that is documented and constantly updated, this company adopts fair practices not only in context with employees but also with vendors, clients and competitors.

THE EFFICACY OF THE LAW

As things stand now, the law would offer a certain degree of protection in cases that have garnered a lot of media coverage and are now in the public eye. The recent Satyam scam would be a case in point.

Overall, the Indian law system still lacks consistency in verdicts on cases of such nature. In my opinion, the legal process in such cases should be expedited by a specially appointed tribune and not by generic judges. As of now, India is not equipped on these fronts, and the employee’s protection in cases of whistle-blowing rests almost entirely on the ethics of the company.

THE ROLE OF CORPORATES

We are not alone in this, of course. The Indian scenario is not very different from that seen in other developing nations, or in Asian economies in general. In these countries, large corporates are often seen as entities whose activities and objectives are at odds with those of the common man. Unless the fraud is extremely large and apparent, the informer is invariably seen as a traitor and is treated accordingly, even if the facts of the case reveal that he or she acted for the greater good.

However, in recent times, whistle-blowing is emerging as an indication of maturing transparency and fairness that many of the leading corporates are embracing. Corporate India has been waking up to the fact of financial irregularities for a while now, and the Satyam affair was just the most prominent in recent times. On the corporate level, individual systems to encourage a positive flow of information on negative trends are now being put in place in many companies that deal with global clients. For instance, Jones Lang LaSalle has a permanently designated Chief Ethics Officer and a team of ethics officers constituted to manage and evolve our Ethics Program. This assures employees as well as all other stakeholders of complete fairness in all dealings. In fact, we run case study-based workshops in our corporate offices worldwide to educate employees regarding ethical behaviour.

This country is still emerging into higher transparency levels, and it may take a while before the ethical parameters being pioneered by such companies are adopted across the board. The required levels of transparency and fair play would require companies to put certain proactive and protective systems into place. The 24x7 online reporting facility - website managed by a professional, independent firm and available for any possible ethics violation – has helped this company to establish and maintain such levels. We believe that the current pressures for accountability and transparency now increasingly being felt by all major corporates in India will eventually necessitate the universal adoption and implementation of similar measures.

India ranks the highest among BRIC nations on parameters of listed vehicles

Moves up on the Jones Lang LaSalle Global Real Estate Transparency Index

New Delhi, India, December 08, 2008 – India’s rating as a destination for real estate investment has steadily improved over the last six years, graduating from a low to a semi transparent level, as per the latest Jones Lang LaSalle - 2008 Real Estate Transparency Index. India scores highest with regard to the presence of listed vehicles. Its greatest challenges lie in the limited provision of high quality market information and investment performance indicators. The result also underline however, the areas of further work and there is still much to do to transform India’s transparency such that it can sit alongside other major world economies.

Jones Lang LaSalle has been measuring real estate transparency since 1999 in an effort to help real estate market participants understand opportunities across the globe. The importance of transparency as a factor in the growth and success of international commercial real estate markets is well accepted and is gaining visibility as the forces of globalization continue to encourage the free flow of capital and corporates across the world. As per their findings, differences in transparency level between the major metros and India’s secondary and tertiary cities are remarkably narrow, particularly when measured against differences within China. The main differences among Tier 1, 2, and 3 cities are in the availability of market information and the transparency of the transaction process. Over the next decade, the research findings predict the increasing transparency via the introduction of sector regulators, professionalism and international best practices in real estate. This is a reassuring factor for investors, amidst the global slowdown, seeking to enter India’s secondary and tertiary cities .

Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, says, “Present consolidation underway has accelerated a welcome transparency into the Indian real estate market. Real estate sector is gaining maturity. The transparency Index helps the investor to asses the risk that can be associated against the expected returns across developing nations. India ranks the highest among BRIC nations in the “Listed vehicles” parameter due to large numbers of listed real estate players that adhere to the stringent guidelines by SEBI.”

The steady improvement in transparency in India has been attributed to various factors including

• Exponential growth in the number of real estate funds (investors) seeking to invest in India in search of higher risk-adjusted returns,
• Rise in the number of international occupiers and developers eager to tap into India’s fast growing economy led by cost effective, skilled labour and higher returns on investment
• Modifying of operating practices and processes of developers to conform to international guidelines and be FDI compliant, in order to compete for available domestic and foreign capital.
• The movement of capital and corporations around the world creating an incentive for governments to streamline bureaucratic practices that hinder foreigners from injecting capital and opening up offices, stores or manufacturing facilities.
• Presence and efficiencies of listed vehicles, primarily due to the presence of the Stock Exchange Board of India (SEBI) that regulates real estate listed securities on the equity market.

Abhishek Kiran Gupta, Head of Operations, Research, Jones Lang LaSalle Meghraj says, “The India Real Estate Transparency Survey not only details the reasons between the historic improvement in transparency from 3.9 in 2004 to 3.34 in 2008, but also looks well into the future to showcase further improvement identifying the key reasons for the same. This is reassuring for investors who are looking at India as a long-term investment destination compared to other nations. The paper appreciates the improvements made by India to move up a tier from low transparency to semi transparency but provides a view and suggests methods to improve further.”

Transparency in 2010 – Opportunities for Improvement

Over the next few years, the survey findings anticipate further improvements in transparency in India’s real estate market. Improvements are expected to be made across the board in all major sub-indices. However, the greatest improvements are expected to be made in the regulatory and legal environment, the availability of investment performance indicators. Projection suggest an improvement by 35–50 basis points which would get the transparency results in the range between 2.8 and 3.0 by 2010, approaching the current transparency levels in Russia and Brazil.
This improvement will be led by a range of factors including the introduction of REITs (Real Estate Investment Trusts) and REMFs (Real Estate Mutual Funds), greater availability of market information, increased foreign investment, improved accounting standards and financial disclosure, the possible introduction of a real estate regulator and advances in the legal and regulatory environment.

Notes to editors

1. The Global Real Estate Transparency Index is jointly compiled by LaSalle Investment Management and Jones Lang LaSalle and covers 82 countries, territories and administrative regions on six continents. It is compiled from a transparency survey that assesses five key attributes of real estate transparency – investment performance measurement, market fundamentals information, standardized and efficient reporting of listed vehicles, legal and regulatory environment, and open and fair transaction process. The scores range between one and five, with one being the highest level of transparency and five being opaque. Countries are grouped into the following broad bands: Highly Transparent (Tier 1), Transparent (Tier 2), Semi-Transparent (Tier 3), Low Transparency (Tier 4) and Opaque (Tier 5).

2. LaSalle Investment Management and Jones Lang LaSalle take a broader approach to transparency than equating ‘low transparency’ with ‘corruption’. The presence or absence of corruption is only one component of real estate transparency. Other components include consistently applied and interpreted laws and regulations, the respect of private property rights, the access to and time series of investment performance indices and market fundamentals data, and ethical standards of professionals in the commercial real estate market.