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Advances in Social Sciences Research Journal – Vol. 10, No. 4

Publication Date: April 25, 2023

DOI:10.14738/assrj.104.14044.

Ahmad, S. A., Sungip, N., Paino, H., Yunos, R., & Hashim, F. (2023). Development of a Crafted Malaysian Whistleblowing Policy

Disclosure Index. Advances in Social Sciences Research Journal, 10(4). 25-33.

Services for Science and Education – United Kingdom

Development of a Crafted Malaysian Whistleblowing Policy

Disclosure Index

Syahrul Ahmar Ahmad

Faculty of Accountancy, Universiti Teknologi MARA,

Cawangan Johor Kampus Segamat

Noraisah Sungip

Faculty of Accountancy, Universiti Teknologi MARA,

Cawangan Selangor Kampus Puncak Alam

Halil Paino

Faculty of Accountancy, Universiti Teknologi MARA,

Cawangan Selangor Kampus Puncak Alam

Rahimah Mohamed Yunos

Faculty of Accountancy, Universiti Teknologi MARA,

Cawangan Johor Kampus Segamat

Fatimah Hashim

Faculty of Accountancy, Universiti Teknologi MARA,

Cawangan Johor Kampus Segamat

ABSTRACT

Though there are legislative provisions to protect whistleblowers, there is still no

specific legislation that mandates the implementation of a standardized

whistleblowing disclosure among Malaysian companies. This has led to

inconsistency of whistleblowing disclosure level among local companies (Ahmad et

al., 2018). This study proposes the development of Whistleblowing Policy

Disclosure Index (WPDI) specifically for the Malaysian listed companies that could

reflect a “best practice” model for establishing sound and comprehensive contents

of whistleblowing policy disclosure. Specifically, the whistleblowing disclosure

index would be developed by using the guidelines issued by the MCCG (2017), OECD

(2011), and the Standards Australia (2003). These three guidelines could pave the

way for the development of effective and comprehensive disclosure of corporate

whistleblowing policy mainly for local scene. Hopefully, this would then assist

regulators to provide effective mechanisms to promote whistleblowing as well as

possibly mandates the compulsory implementation of a standardised internal

whistleblowing procedure in Malaysian companies to ensure greater accountability

and transparency to investors.

Keywords: Corporate governance, Disclosure index, Narratives, Whistleblowing policy

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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 4, April-2023

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INTRODUCTION

Research assessing individuals’ whistleblowing intentions has risen predominantly in recent

years. The studies examined various factors that instigate on individuals’ whistleblowing

intentions (e.g., Ahmad et al., 2014; Alleyne et al., 2019; Brennan & Brennan, 2020; Valentine &

Godkin, 2019). The spectrum of this research has now expanded to the study of companies’

whistleblowing policy disclosure. This new area examines the contents and disclosure

adequacy of companies’ whistleblowing policy for ensuring effective implementation of

corporate governance practices. Having an appropriate internal control mechanisms through

adequate whistleblowing policy disclosure would provide a positive signal to stakeholders that

such company is safeguarding their concerns and interest (Barnett et al., 1993; Rachagan &

Kuppusamy, 2013). As the matter of fact, studies on voluntary disclosure and financial

reporting provided evidence that companies with certain characteristics of good corporate

governance attributes disclose more voluntary information than their counterparts (Chi et al.,

2020; Lu & Wang, 2021). As such, it is expected that companies which possess good corporate

governance practices will have higher tendencies to disclosure adequate whistleblowing policy

contents (Lee & Fargher, 2013).

Lewis (2006) conducted a comprehensive analysis on the details of whistleblowing policy

among companies in the United Kingdom. The study revealed that various users could use the

whistleblowing policies in many forms ranging with concerns for malpractices, fraud, health

and safety issues, harassment, discrimination, bullying, and financial irregularities. A study by

Agnihotri and Bhattacharya (2015) investigated the reasons India, being an emerging market,

differ in their companies’ whistleblowing policy disclosure practices. They found that the

proportion of independent directors and appointment of special officers significantly influence

Indian firms’ disclosure of whistleblowing policies. While another recent study in Indonesia

concurs that having an effective and systematic internal whistleblowing system is important to

uphold good governance and integrity measures among public institutions in Indonesia

(Nurhidayat & Kusumasari, 2018).

This new field of study is beginning to gain more interest in the local front evidently by the work

of Ahmad et al. (2018), Al-absy et al. (2019), and Mohd et al. (2019). Nevertheless, these studies

acknowledged that Malaysian companies do not have a standardized whistleblowing

disclosure. Al-absy et al. (2019) study merely identify whether Malaysian companies presented

their whistleblowing policy via a box-ticking method and did not actually examine the content

disclosure of whistleblowing policies. Their study then applied logic regression analysis to seek

relationship between certain corporate governance attributes and the availability of

whistleblowing policies. An earlier study by Ahmad et al. (2018) investigated the level of

whistleblowing policy disclosure utilizing the Standard Australia (2003) checklist among the

top 50 Malaysian public listed companies. The reason was simply to determine the current

extent of disclosure made by these Malaysian companies. Mohd et al. (2019) study on the other

hand, examine the effects of whistleblowing policy disclosure on the cost of equity among

selected five Asian public listed companies. Interestingly they examined the disclosure of

whistleblowing policies utilising an index developed based on Asian-CG scorecard instead.

Based on the recent outcomes, it is evident that there is no specific benchmark available for

Malaysian companies to guide and promotes appropriate disclosure of whistleblowing policy.

Consequently, many public listed companies do not provide disclosure of their whistleblowing

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Ahmad, S. A., Sungip, N., Paino, H., Yunos, R., & Hashim, F. (2023). Development of a Crafted Malaysian Whistleblowing Policy Disclosure Index.

Advances in Social Sciences Research Journal, 10(4). 25-33.

URL: http://dx.doi.org/10.14738/assrj.104.14044

policy and for those who make such disclosures, their disclosure contents vary (Ahmad et al.,

2018). Inconsistency of disclosure may then reflect inconsistency for adopting whistleblowing

sound policy in the companies. As such, the study proposes the development of Whistleblowing

Policy Disclosure Index (WPDI) specifically for the Malaysian listed companies. Such approach

could be regarded as a “best practice” model for establishing sound and comprehensive

contents of whistleblowing policy disclosure.

LITERATURE REVIEW

The State of Whistleblowing Legislations and Disclosure Requirements in Malaysia

In Malaysia, the protection for 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 &

Kuppusamy, 2013). Despite having these legislations, protection to the would-be whistleblower

is limited, where the whistleblower will only be protected should the person fits into certain

condition as stipulated by the acts (The Star, 2012). Furthermore, none of these legislations

mandated Malaysian companies to disclose whistleblowing policy. Consequently, some

companies do not provide such disclosure while, for those who do, their disclosure contents

vary among them. As such, a standardized and adequate disclosure of whistleblowing policy is

warranted to ensure effective implementation of internal control mechanisms within the

organization.

The latest edition of Malaysian Code on Corporate Governance (MCCG) in 2021 spelt out the

board of directors' responsibilities to promote desirable conduct of business and maintain a

strong corporate culture that incorporates integrity, transparency, and justice. The regulation

also requires the board to establish a Code of Conduct and Ethics for the company, including

the setting up, review, and implementation of whistleblowing policy (Securities Commission of

Malaysia, 2021). Additionally, the board is also required to guarantee that their whistleblowing

policies enable genuine concerns to be treated and investigated objectively. It paves the way

for individuals to report in confidence about unlawful, immoral, or dubious practices without

the risk of retaliation. Given the developments in the corporate landscape, the general duties,

and responsibilities of the board of directors in encouraging whistleblowing have evolved

significantly over the years, along with periodic revisions of the MCCG.

Furthermore, the Minority Shareholders Watchdog Group (MSWG) released their annual

extensive assessments into the corporate governance disclosures and practices of Malaysian- listed companies. Their recent report indicated that more companies have disclosed their

whistleblowing policy with an increased to 94% in 2018 as compared to 84% in 2017 (Minority

Shareholder Watchdog Group, 2018). This is considered as a significant improvement in terms

of participation of Malaysian companies to provide their whistleblowing policy to the public.

The MSWG findings however indicated that, the implementation of whistleblowing policy by

Malaysian listed firms is purely voluntarily and there are still companies who have not putting

the whistleblowing disclosure as their main concern. The biggest concern is whether the

presence of such disclosure is merely a symbolic in nature without reassuring the effectiveness

and the adequacy of its contents.

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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 4, April-2023

Services for Science and Education – United Kingdom

The Needs for Effective Internal Whistleblowing Policy

Whistleblowing is essential a mechanism to regulate, monitor and to protect organizations

against corruption and fraud (Said et al., 2018). Meng and Fook (2011) highlighted four

advantages for companies for having internal whistleblowing policy. First, it enables the

company to prevent fraud at an early stage. Secondly, the policy may signal to investors that

the company are committed in mitigating malpractices and fraud to ensure effective corporate

governance system. Third, the whistleblowers are guaranteed of their safety and this would

encourage them to report internally. Finally, 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 favourable effects in

handling fraud. Companies that have ethical codes in place showed an increased in the number

of wrongdoing reports from employees (Barnett et al., 1993), experienced fewer cases of

wrongdoing (Somers & Somers, 2001) and employees in companies that adopted ethical codes

were perceived as more ethical than those companies without such codes (Adams et al., 2001).

This may suggest that companies that implement a quality whistleblowing policy affect the

ethical and reporting behaviour 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 channelled to the right person for immediate action. Despite

having the necessary internal control mechanisms, some studies argued companies may simply

regard it as a symbolic side of ethics management where the policies may not actually put into

practice (Hassink et al., 2007; Weaver et al., 1999).

Sources for the Development of Malaysian Whistleblowing Policy Disclosure Index

(WPDI)

Malaysian Code of Corporate Governance 2021 (MCCG 2021):

The Malaysian Code of Corporate Governance 2021 (MCCG 2021) 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. The MCCG reflects global principles and internationally

recognised practices of corporate governance which are above and beyond the minimum

required by statute, regulations or those prescribed by Bursa Malaysia (Securities Commission

of Malaysia, 2021). Specifically, the MCCG stated that whistleblowing policy is an anti-fraud

measures in which the firms take an initiative to implement an internal system to protect the

whistleblower. The guideline highlighted that Malaysian companies need to instill a culture

that is receptive to bad news and encourage their employees to willingly report any forms of

discrepancies.

Despite the absence of a standardize measure of what could be constituted as an appropriate

whistleblowing policy, the MCCG (2021) provided these three areas that could be reflected by

Board of directors in incorporating a formal ethical code of conduct to facilitate internal

mechanisms for whistleblowing. The three general areas are:

Practice 3.2 of the guideline (page 24) stated that “the board establishes, reviews and together

with the management implements policies and procedures on whistleblowing”