Chapter 7 Blowing the Whistle Chapter Summary This chapter examines how employees who find evidence of unethical conduct in their companies go about bringing that information to the attention of the companies’ senior management or the appropriate regulatory authorities. This chapter explores ethical and unethical means of whistle-blowing. Whistle blowing came to its height in 2002 with the Sarbanes-Oxley Act and there are internal policies to address the needs of whistle-blowers. Further, it explores an individual’s duty to respond as well as the risks they face by making the choice to act. Learning Outcomes After studying this chapter, the student should be able to: 1. Explain the term whistle-blower, and distinguish between internal and external whistle- blowing. 2. Understand the different motivations of a whistle-blower. 3. Evaluate the possible consequences of ignoring the concerns of a whistle-blower. 4. Recommend how to build internal policies to address the needs of whistle-blowers. 5. Analyze the possible risks involved in becoming a whistle-blower. Extended Chapter Outline Frontline Focus “Good Money” Questions 1. If Ben decides to raise concerns about the product quality of the Benfield Voyagers, he will become a whistle-blower. The difference between internal and external whistle-blowing is explained on page 140. Which approach should Ben follow if he does decide to raise his concerns? Students’ answers may vary. The right thing for Ben to do if he decides to raise his concerns is to take the issue to his immediate supervisors. After speaking through the chain of command within his organization if Ben feels his concerns are not being addressed and that they are true concerns for himself and for the community, Ben should consider switching to a form of external whistle-blowing. By involving the media the issue of the quality of tires will be made public and thus the community will have all of the information they need to make an informed decision about what type of tire they wish to purchase. 2. The five conditions that must exist for whistle-blowing to be ethical are outlined on pages 140–141. Has Rick given Ben enough information to be concerned about the Benfield Voyagers? Students’ answers may vary. Rick, a knowledgeable experienced professional in the field, has given Ben information to suggest an extreme cut in the quality of the tires which could lead to harming a member of the public if the tires do not perform as they should, thus meeting the first condition of ethical whistle-blowing. Ben needs to make sure when he decides to address the issue that he clearly expresses why he feels this brand of tires could in fact be a dangerous choice for consumers. If Ben’s boss John does not take immediate action, Ben should not run right to the press. Ben should make sure he exhausts all efforts to solve the issue internally. Ben may want to get documented statements from other tire professionals who agree with Rick to ensure that when he addresses the situation he has substantial evidence that the tires may not be of decent quality. Finally, Ben must weigh the chances of succeeding and failing. He must determine if exposing these tires as dangerous will benefit both the public and the company or if he is misunderstanding the severity of the issue. 3. What should Ben do now? Students’ answers may vary. Ben needs to do some research to see if the Voyager tire is of low enough quality to cause concern. If Ben does find that the tire could cause harm, he should address his concerns with his immediate supervisor. Based on evidence, we can assume his supervisor will not agree, in which case Ben should continue up the corporate ladder to address his concerns. If evidence shows that these tires are of a quality that could become dangerous and the company refuses to act, Ben should then consider taking the next step and alert the media. Learning Outcome 1: Explain the Term Whistle-Blower, and Distinguish Between Internal and External Whistle-Blowing. • A whistle-blower is an employee who discovers corporate misconduct and chooses to bring it to the attention of others. • Internal whistle-blowing happens when an employee discovering corporate misconduct, brings it to the attention of his or her supervisor, who then follows established procedures to address the misconduct within the organization. • External whistle-blowing happens when an employee discovering corporate misconduct, chooses to bring it to the attention of law enforcement agencies and/or the media. Learning Outcome 2: Understand the Different Motivations of a Whistle-Blower. • Whistle-blowers are said to provide an invaluable service to their organizations and the general public. • The discovery of illegal activities before the situation is revealed in the media could potentially save organizations millions of dollars in fines and lost revenue from the inevitable damage to their corporate reputations. • The discovery of potential harm to consumers offers immeasurable benefit to the general public. o From this perspective, it is easy to see why the media often applaud whistle-blowers as models of honor and integrity at a time when integrity in the business world seems to be in very short supply. o However, in contrast to the general perception that whistle-blowers are brave men and women putting their careers and personal lives at risk to do the right thing, some people often criticize whistle-blowers as informers, “sneaks,” spies, or “squealers” who have in some way breached the trust and loyalty they owe to their employers. • Whistle-blowing is appropriate—ethical—under five conditions: o When the company, through a product or decision, will cause serious and considerable harm to the public or break existing laws, the employee should report the organization. o When the employee identifies a serious threat of harm, he or she should report it and state his or her moral concern. o When the employee’s immediate supervisor does not act, the employee should exhaust the internal procedures and chain of command to the board of directors. o The employee must have documented evidence that is convincing, to a reasonable, impartial observer that his or her view of the situation is accurate, and evidence that the firm’s practice, product, or policy seriously threatens and puts in danger the public or product user. o The employee must have valid reasons to believe that revealing the wrongdoing to the public will result in the changes necessary to remedy the situation. • If there is evidence that the employee is motivated by the opportunity for financial gain or media attention or that the employee is carrying out an individual vendetta against the company, then the legitimacy of the act of whistle-blowing must be questioned. • A qui tam lawsuit is a lawsuit brought on behalf of the federal government by a whistle- blower under the False Claims Act of 1863, also known as “Lincoln’s Law.” o Qui tam is an abbreviation for a longer Latin phrase that establishes the whistle-blower as a deputized petitioner for the government in the case. o Originally enacted during the Civil War in 1863 to protect the government against fraudulent defense contractors, the act was strengthened as recently as 1986 to make it easier and safer for whistle-blowers to come forward. • Whether the motivation to speak out and reveal the questionable behavior comes from a personal ethical decision or the potential for a substantial financial windfall, the key point is that one had better be very sure of one’s facts and one’s evidence had better be irrefutable before crossing that line. • Since examples of internal whistle-blowing rarely receive media attention, it is impossible to track the history of such actions. o However, external whistleblowing is a 20th-century phenomenon. o One of the first instances of the use of the term whistle-blower occurred in 1963. o Public awareness of whistle-blowers reached a peak in 2002. Learning Outcome 3: Evaluate the Possible Consequences of Ignoring the Concerns of a Whistle-Blower. • Employees are becoming increasingly willing to respond to any questionable behavior they observe in the workplace. o The choice for an employer is to ignore them and face public embarrassment and potentially ruinous financial penalties, or to create an internal system that allows whistle-blowers to be heard and responded to before the issue escalates to an external whistle-blowing case. ➢ Responding to whistle-blowers in this context means addressing their concerns, and not, firing them. • Prior to 2002, legal protection for whistle-blowers existed only through legislation that encouraged the moral behavior of employees who felt themselves compelled to speak out, without offering any safeguards against retaliation aimed at them. • As far back as the False Claims Act of 1863, designed to prevent profiteering from the Civil War, the government has been willing to split up to 50 percent of the recovered amount with the person filing the petition—a potentially lucrative bargain—but it offered no specific prohibitions against retaliatory behavior. o The Whistleblower Protection Act of 1989 addressed the issue of retaliation against federal employees who bring accusations of unethical behavior. ➢ The act imposed specific performance deadlines in processing whistle-blower complaints and guaranteed the anonymity of the whistle-blower unless revealing the name would prevent criminal activity or protect public safety. ➢ The act also required payment of any portion of the settlement to which the whistle-blower would be entitled, even if the case were still working its way through the appeals process. • The Whistleblower Protection Act of 1989 applied only to federal employees. • Not until the Sarbanes- Oxley Act of 2002 (also known as the Corporate and Criminal Fraud Accountability Act, and most commonly abbreviated to SOX) did Congress take an integrated approach to the matter of whistle-blowing by both prohibiting retaliation against whistle- blowers and encouraging the act of whistle-blowing itself. • The Dodd-Frank Wall Street Reform and Protection Act of 2010 introduced a new reward program for whistle-blowers who report securities law violations to the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). o The legislation stipulates that if more than $1 million is collected, the whistle-blower is entitled to between 10 and 30 percent of the monies collected, in addition to a clear entitlement to job and confidentiality protection. o The SEC’s new “Office of the Whistleblower” was created in August 2011 and received 2,700 tips in its first year. Learning Outcome 4: Recommend How to Build Internal Policies to Address the Needs of Whistle-Blowers. • Given the new legal environment surrounding whistle-blowers, all employers would be wise to put the following mechanisms in place: o A well-defined process to document how such complaints are handled—a nominated contact person, clearly identified authority to respond to the complaints, firm assurances of confidentiality, and nonretaliation against the employee. o An employee hotline to file such complaints, again with firm assurances of confidentiality and nonretaliation to the employee. o A prompt and thorough investigation of all complaints. o A detailed report of all investigations, documenting all corporate officers involved and all action taken. • A whistle-blower hotline is a telephone line by which employees can leave messages to alert a company of suspected misconduct without revealing their identity. Learning Outcome 5: Analyze the Possible Risks Involved in Becoming a Whistle-Blower. • The perceived bravery and honor in doing the right thing by speaking out against corporate wrongdoing at personal risk to one’s career and financial stability adds a gloss to the act of whistle-blowing that is undeserved. • The fact that an employee is left with no option but to go public with information should be seen as evidence that the organization has failed to address the situation internally for the long-term improvement of the corporation and all of its stakeholders. o Becoming a whistle-blower and taking the story public should be seen as the last resort rather than the first. o The fallout of unceasing media attention and the often terminal damage to the reputation and long-term economic viability of the company should be enough of a threat to force even the most stubborn executive team to the table with a commitment to fix whatever has been broken. o Regrettably, the majority of executives choose to either bury the information and hire the biggest legal gunslinger they can find to discredit the evidence or, tie their employees in such restrictive confidentiality agreements that speaking out exposes the employee to extreme financial risk, which managers hope will prompt the employee to “keep his or her mouth shut.” • A study of 233 whistle-blowers by Donald Soeken of St. Elizabeth’s Hospital in Washington, DC, found that the average whistle-blower was a man in his forties with a strong conscience and high moral values. o After blowing the whistle on fraud: ➢ 90 percent of the whistle-blowers were fired or demoted ➢ 27 percent faced lawsuits ➢ 26 percent had to seek psychiatric or physical care ➢ 25 percent suffered alcohol abuse ➢ 17 percent lost their homes ➢ 15 percent got divorced ➢ 10 percent attempted suicide ➢ 8 percent were bankrupted o But in spite of all this, only 16 percent said they wouldn’t blow the whistle again. Life Skills Making Difficult Decisions Many individuals, such as Jeffrey Wigand, Sherron Watkins, Christine Casey, and David Welch, have come across situations in their business lives where they observe is in direct conflict to their ethical standards, and they find themselves unable to simply look the other way. What would you do in this situation? Would you ignore it? Could you live with that decision? What if there was a negative impact on the company as a result of your actions? The consequences for you, your immediate family, your co-workers, and all the other stakeholders in the organization represent an equally important part of that decision. Now you can see why whistle-blowers face such emotional turmoil before, during, and after what is probably one of the toughest decisions of their lives. If you find yourself in such a situation, don’t make the decision alone. Talk to people you can trust, and let them help you review all the issues and all the potential consequences of the decision you are about to make. Progress ✓ Questions 1. What is a whistle-blower? A whistle-blower is an employee who discovers corporate misconduct and chooses to bring it to the attention of others. 2. What is internal whistle-blowing? Internal whistle-blowing occurs when an employee on discovering corporate misconduct, brings it to the attention of his or her supervisor, who then follows established procedures to address the misconduct within the organization. 3. What is external whistle-blowing? External whistle-blowing occurs when an employee discovers corporate misconduct and chooses to bring it to the attention of law-enforcement agencies and/or the media. 4. Is whistle-blowing a good thing? Students’ answers will vary. Some students may argue that many individuals, especially the media believe that whistle-blowing is a good thing, not only because it can save an organization millions of dollars, but because it can often prevent substantial harm to consumers. However, others may argue that whistle-blowers are motivated by money or have egos and a “troublemaker” personality. Also, some feel that whistle-blowers are “sneaks” or “squealers” who have broken the trust and loyalty of their employer. 5. List five conditions for whistle-blowing to be considered ethical. The five conditions for whistle-blowing to be considered ethical are: • When the company, through a product or decision, will cause serious harm to the public or break existing laws, the employee should report to the organization. • When the employee identifies a serious threat of harm, he or she should report it and state his or her moral concern. • When the employee’s immediate supervisor does not act, the employee should exhaust the internal procedures and chain of command to the board of directors. • The employee must have documented evidence that is convincing to a reasonable, impartial observer, that the firm’s practice, product or policy seriously puts the public in danger. • The employee must have valid reasons to believe that revealing the wrongdoing to the public will result in the changes necessary to remedy the situation. 6. Under what condition could whistle-blowing be considered unethical? Students’ answers will vary. Whistle-blowing can be considered unethical if the employee is motivated by financial gain or media attention, or if he or she carries a vendetta against the company. In this case the legitimacy of their whistle-blowing must be questioned. 7. If you blow the whistle on a company for a personal vendetta against another employee but receive no financial reward, is that more or less ethical than doing it just for the money? Students’ answers may vary. Personal vendettas and/or financial rewards are unethical reasons for blowing the whistle on corporations. Whistle-blowing should be about wanting to prevent unethical behavior that will affect numerous stakeholders by “shedding light” on behavior unknown to others. 8. Would the lack of any financial reward make you more or less willing to consider being a whistle-blower? Why? Students’ answers may vary. Blowing the whistle on someone or on an organization should not be about the reward. It is important for the health of the company and its stakeholders to report unethical behavior. 9. If an employee blows the whistle on an organization on the basis of a rumor, is that ethical? Students’ answers may vary. Some of them may say that this act cannot be considered ethical. One of the conditions for ethical whistle-blowing states that there must be documented evidence that is convincing to a reasonable, impartial observer. 10. If that information turns out to be false, should the employee be liable for damages? Explain your answer. Students’ answers may vary. If an employee blows the whistle on an organization based on a rumor and the information is false, then the employee should be held liable for damages. The employee will have cost the organization its reputation—which it has to spend time mending and rebuilding—and trust. Whistle-blowing should only take place if there is documented evidence that is convincing to a reasonable, impartial observer. 11. Compensation under Dodd-Frank isn’t as clear as a percentage of the funds recovered for a government whistle-blower. Does that make it less likely that we’ll see more whistle-blowing under Dodd-Frank? Students’ answers will vary. It may or may not promote more whistle-blowing, but the financial reward aspect should not be the primary motivation. The primary motivation should be to do the right thing and prevent an organization from going through a corporate scandal when it can be prevented. 12. Under SOX, complaining to the media isn’t recognized as whistle-blowing. Is that ethical? Students’ answers will vary. Complaining to the media is different from whistle-blowing. Complaints should be addressed and taken care of by the organization, whereas, the information displayed by the whistle-blower will be taken into consideration and dealt with by legislation. 13. How should managers or supervisors respond to an employee who brings evidence of questionable behavior to their attention? Students’ answers will vary. Managers should tell the employee about the company’s defined process and ensure the employee’s confidentiality. They should then take the employee through the next steps of the company’s outlined process for reporting questionable behavior. 14. Should that employee be given any reassurances of protection for making the tough decision to come forward? Students’ answers will vary. Yes, as it is stated in SOX, retaliation against whistle-blowers is prohibited and the company’s policies should stress this along with extreme confidentiality. 15. Do you think a hotline that guarantees the anonymity of the caller will encourage more employees to come forward? Students’ answers may vary. An anonymous hotline would allow for those who are uncomfortable coming forward to do so. However, this may also encourage those who have personal vendettas to cause unnecessary investigations as well. 16. Does your company have a whistle-blower hotline? How did you find out that there is (or isn’t) one? Students’ answers may vary. Most likely, students will not be working in a company that has a whistle-blower hotline, but many will upon graduation. If a hotline exists, the company will want to share it with their employees. Ethical Dilemma 7.1 – The Inside 1. Wigand was initially unwilling to go public with his information. What caused him to change his mind? Students’ responses will vary. After being fired due to “poor communication skills,” the company modified their confidentiality agreement. While still employed, Wigand did not want to break his integrity of honoring the contract. Once he realized they did not believe he would honor their agreement he chose to go public. 2. Did CBS pursue Wigand’s story because it was the right thing to do or because it was a good story? Students’ responses will vary. Arguments for CBS covering the story could be considered for both the right thing to do and because it was a good story. Both of these were probably motivators for CBS. They were able to turn a true story into a movie with a Hollywood cast. 3. Since CBS played such a large part in bringing Dr. Wigand’s story to the public, do you think the network also had an obligation to support him once the story broke? Explain why or why not. Students’ responses will vary. CBS was not obligated to support Wigand, but should have run the interview as an unbiased display of coverage. CBS does have an obligation to display the facts of the stories they are covering. 4. Was CBS’s decision not to run the interview driven by any ethical concerns? Students’ responses will vary. The main decision not to run the interview, however, came from fears of lawsuits from Brown & Williamson. Students’ answer may vary as to whether this was because of financial reasons or the ethical issue of interfering in to other parties’ contractual relationship. 7.2 – The Cold, Hard Reality 1. Who took the greater risk here: Khaled Assadi or Kyle Lagow? Why? Students’ responses will vary. Khaled Assadi disclosed to his supervisors and the GE ombudsperson about an alleged case of bribery. He was the only one to point out the matter. He then faced retaliation from the company and was ultimately fired from his job. Even though he was an American employee he was working for the company’s Aman Jordan operations, where the rules and regulations regarding whistle-blowing might be entirely different. On the other hand, Kyle Lagow—who accused subprime lender Countrywide Financial of inflating appraisal values on government-insured loans—was fired soon after raising concerns about the appraisal practices at his company. His complaint was brought under the qui tam provision, and his lawsuit was one of five whistle-blower complaints that were folded into a larger $25 billion national mortgage settlement that five banks. 2. Was the alleged behavior at GE Energy more or less unethical than the behavior at the Countrywide Financial? Explain your answer. Students’ responses will vary. Both companies performed unethical practices. GE Energy way bribed the government, and Countrywide Financial falsified documents and appraisal reports. 3. Do you think Assadi and Lagow regret their decisions to go public with their information? Why or why not? Students’ responses will vary. In light of the following information given in the case, many students may say that Assadi may be regretting his decision whereas, Lagow may be comfortable with his decision: • Although Assadi sought protection under the Dodd-Frank whistle-blower provisions, the U.S. Court for the Southern District of Texas dismissed the lawsuit on the grounds that the antiretaliation provision did not apply in cases of “extraterritoriality”. Assadi lost his job and did not receive any kind of protection from the government. • Lagow’s complaint however was brought under qui tam provision, and his lawsuit was one of five whistle-blower complaints that were folded into a larger $25 billion national mortgage settlement. He later received his share of $14.5 million from the lawsuit settlement. 4. Do you think their behavior changed anything at either company? Students’ responses will vary. In the light of the following information given in the case, many students may say that nothing will have changed in Assadi’s company but there must have been a few changes in Lagow’s company: • In the case of Assadi the outcome of the entire process was a negative one, where Assadi lost his job and was also not provided any protection under the Dodd-Frank whistle-blower provisions. The company did not take any actions based on Assadi’s allegations and successfully put the matter behind by firing Assadi. • In Lagow’s situation, his complaint was brought under the qui tam provision and he did receive a $14.5 million dollar worth settlement from the lawsuit that he had filed against Countrywide Financial. Frontline Focus “Good Money—Ben Makes a Decision” Questions 1. What do you think will happen now? Students’ answers will vary. The family will probably sue the tire company for damages. The more direct effect will be on Ben and how he handles the pressure of knowing he could have stopped this. 2. What will the consequences for Ben, Rick, their tire store, and Benfield? Students’ answers will vary. Benfield and potentially the store that sold the tires could have lawsuits on their hands. Ben and Rick will have to live with the fact that even after knowing the truth about the quality of the tires they chose to keep quiet and not talk about it. 3. Should Ben have spoken out against the Voyager tires? Students’ answers will vary. Ben should have called the company hotline so that the company could follow a procedure and investigate the situation and handle it accordingly. Key Terms External Whistle-Blowing: An employee discovering corporate misconduct and choosing to bring it to the attention of law-enforcement agencies and/or the media. Internal Whistle-Blowing: An employee discovering corporate misconduct and bringing it to the attention of his or her supervisor, who then follows established procedures to address the misconduct within the organization. Qui Tam Lawsuit: A lawsuit brought on behalf of the federal government by a whistleblower under the Federal Civil False Claims Act of 1863. Whistle-Blower: An employee who discovers corporate misconduct and chooses to bring it to the attention of others. Whistle-Blower Hotline: A telephone line by which employees can leave messages to alert a company of suspected misconduct without revealing their identity. Review Questions NOTE: Some questions allow for a number of different answers. Below are some suggestions. 1. Why are whistle-blowers regarded as models of honor and integrity? Students’ responses will vary. Whistle-blowers can be regarded as models of honor and integrity because they put their careers and personal lives at risk to do the right thing. 2. Which whistle-blowing option is better for an organization: internal or external? Why? Students’ responses will vary. Internal whistle-blowers do not receive a tremendous amount of attention and it is harder to track. They avoid public embarrassment. External whistle-blowing exploits the company and it typically creates more public awareness of an issue or incident at a particular organization. 3. Why would an organization decide to ignore evidence presented by a whistle-blower? Students’ responses will vary. An organization could decide to ignore evidence if it thought the individual was reacting in the interest of his or her own ethical perception. 4. Is it reasonable for a whistle-blower to expect a guarantee of anonymity? Students’ responses will vary. Some organizations have whistle-blower hotlines that individuals use to protect their identity, while disclosing information regarding the misconduct. A well- defined process is needed to determine how complaints are handled. It can assure confidentiality and ensure that there is no retaliation against the employee. 5. Why would a whistle-blower be concerned about retaliation? Students’ responses will vary. A whistle-blower should be concerned about retaliation because he or she could lose his or her job or create an environment that could be dangerous or uncomfortable in which to work. 6. Why is trust such an important issue in whistle-blowing? Students’ responses will vary. Whistle-blowing has become popular over the years and it is important that the employee is assured that his/her information can be given anonymously and without fear of retaliation. Review Exercises 1. You work for a meatpacking company. You have discovered credible evidence that your company’s delivery drivers have been stealing cuts of meat and replacing them with ice to ensure that the delivery meets the stated weight on the delivery invoice. The company has 12 drivers and, as far as you can tell, they are all in on this scheme. Your company has a well-advertised whistle-blower hotline. What do you do? Students’ responses will vary. If you do not have substantial evidence you should report the situation to the hotline so that they may do an investigation. If you do have evidence and feel comfortable doing so you may want to take the evidence to your direct manager. 2. What would you do if your company did not have a whistle-blowing policy? Students’ responses will vary. The right thing to do would be to take the information to your direct supervisor. You must make sure you have evidence and are not just going on rumors or suspicions. 3. You later discover that one of the drivers was not a part of the scheme but was fired anyway when the information was made public. What do you do? Students’ responses will vary. You may want to report what you know to a supervisor to try and help the driver get his job back. This is why it is important to know all of the facts before placing the complaint. 4. Should the driver get his job back? Why or why not? Students’ responses will vary. It will be hard to prove the driver was not involved. It will also be hard to prove if he was aware of the scheme and turned a blind eye or if he was unaware of the situation. Internet Exercises 1. Visit the Government Accountability Project (GAP) at www.whistleblower.org. a. What is the mission of GAP? The Government Accountability Project’s mission is to promote government and corporate accountability by protecting whistleblowers, advancing occupational free speech, and empowering citizen activists. b. How is GAP funded? Founded in 1977, GAP is a non-profit, public interest organization that receives funding from over 10,000 individual donors and foundations such as the CS Fund, the Open Society Foundations and Rockefeller Family Fund. Additional support comes from legal fees, settlement awards, and services provided. c. What kind of assistance is available through GAP for someone thinking about becoming a whistle-blower? Students’ responses will vary. A few examples include: • 12 Survival Strategies • A GAP Intake Application for GAP to review your case • Conferences 2. Visit the National Whistleblowers Center at www.whistleblowers.org. a. Using the interactive map, select one country and summarize the whistle-blowing activity in that country. Students’ responses will vary based on the country they select. Students should include a summary of the whistle-blowing activity in that country. • Some of the states that have Qui Tam Statutes are Washington, North Dakota, Oregon, Idaho, and Wyoming. • Some states that do not have Qui Tam Statutes are Montana, Minnesota, Wisconsin, Michigan, and New York. • Some of the states that have States Whistleblower Protection Act are North Dakota, South Dakota, California, Arizona, and Illinois. • Some of the states that have Piecemeal Whistleblowers Protections are Washington, Montana, Minnesota, Wisconsin, and Michigan. • Some of the states with common law public policy exception for whistleblowers are Washington, North Dakota, Minnesota, Wisconsin, and Michigan. • Some of the states with no common law public policy exception for whistleblowers are Montana, New York, Maine, Louisiana, Alabama, and Georgia. b. Identify the whistle-blower protections in effect in your home state. Students’ responses will vary based on the students’ home state. • Some of the states that have Qui Tam Statutes are Washington, North Dakota, Oregon, Idaho, and Wyoming. • Some states that do not have Qui Tam Statutes are Montana, Minnesota, Wisconsin, Michigan, and New York. • Some of the states that have States Whistleblower Protection Act are North Dakota, South Dakota, California, Arizona, and Illinois. • Some of the states that have Piecemeal Whistleblowers Protections are Washington, Montana, Minnesota, Wisconsin, and Michigan. • Some of the states with common law public policy exception for whistleblowers are Washington, North Dakota, Minnesota, Wisconsin, and Michigan. • Some of the states with no common law public policy exception for whistleblowers are Montana, New York, Maine, Louisiana, Alabama, and Georgia. 3. There are now two whistle-blowing websites separated by only one letter. Summarize their differences and propose which one offers the greatest assistance to a potential whistle-blower. Students’ responses will vary. Students are required to summarize the differences between www.whistleblower.org and www.whistleblowers.org. Team Exercises 1. Guilt by Omission. Divide into two groups and prepare arguments for and against the following behavior: You work for a large retail clothing company that spends a large amount of its advertising budget emphasizing that its clothes are “Made in America.” You discover that only 15 percent of its garments are actually “made” in America. The other 85 percent are actually either cut from patterns overseas and assembled here in the United States or cut and assembled overseas and imported as completed garments. Your hometown depends on this clothing company as the largest local employer. Several of your friends and family work at the local garment assembly factory. Should you go public with this information? Students’ responses will vary. It is not okay to use false advertisement. This goes deeper into deciding whether the statement “made in America” insinuates that 100% of their products are made in America. However, this also addresses the question of who is affected by this decision. If the employment opportunities at this hometown depend on this company and several friends and family members work there, these people may be out of a job if the whistle is blown. 2. “Tortious Interference.” Divide into two groups and prepare arguments for and against the following behavior: In the case of Dr. Jeffrey Wigand and the Brown & Williamson Tobacco Company, the CBS Broadcasting Company chose not to air Dr. Wigand’s 60 Minutes interview with Mike Wallace under threat of legal action for “tortious interference” between B&W and Dr. Wigand. There were suspicions that CBS was more concerned about avoiding any potential legal action that could derail its pending sale to the Westinghouse Corporation. Was CBS behaving ethically in putting the welfare of its stakeholders in the Westinghouse deal ahead of its obligation to support Dr. Wigand? Students’ responses will vary. A corporation should never act in a way that would negatively affect their shareholders. However, some may feel that CBS should not have agreed to support Dr. Wigand and then backed off the case. 3. A New Approach to Freshness. Divide into two groups and prepare arguments for and against the following behavior: You work in the meat department of store 2795 of a large retail grocery chain. The company recently announced a change in the meat-handling protocols from the primary supplier. Starting in January 2013, the meat will be gassed with carbon monoxide before packaging. This retains a brighter color for the meat and delays the discoloration that usually occurs as the meat begins to spoil. You understand from the memo that there will be no information on the product label to indicate this protocol change and that the company has no plans to notify customers of this new process. Should you speak out about the procedure? Students’ responses will vary. This would depend on the health effects that the meat gassed with carbon monoxide will have. If the protocol change might cause people to buy meat that will go bad earlier, or if the gas itself might harm consumers, you should speak out about the procedure. 4. California Organic. Divide into two groups and prepare arguments for and against the following behavior: You work in the accounting department of a family-owned mushroom grower based in California that sells premium organic mushrooms to local restaurants and high-end retail grocery stores. The company’s product range includes both fresh and dried mushrooms. Your organic certification allows you to charge top dollar for your product, but you notice from invoices that operating costs are increasing significantly without any increase in revenues. The market won’t absorb a price increase, so the company has to absorb the higher costs and accept lower profits. One day you notice invoices for the purchase of dried mushrooms from a Japanese supplier. The dried mushrooms are not listed as being organic, but they are apparently being added to your company’s dried mushrooms, which are labeled organic and California-grown. Should you speak out about this? Students’ responses will vary. This is a prime case of false advertising. The company cannot claim their mushrooms are organic and California-raised if they are imported from Japan. Thinking Critically 7.1 – Questionable Motives 1. Birkenfeld was adamant that his prison sentence is unfair when compared to the fact that no one else (e.g., Olenicoff or UBS bankers) went to jail. Did he have a point? Students’ responses will vary. Some of them may say that Birkenfeld didn’t have a point because he withheld pertinent data related to Olenicoff’s business dealings. He did not disclose the nature of his relationship with Olenicoff to the United States Justice Department. 2. Why did UBS elect to settle with the U.S. government? Students’ responses will vary. Some of them may say that UBS elected to settle with the U.S. government because it did not want to lose its access to a large market and it wanted to remain a global banking entity. UBS also sought the intervention of the Swiss Government to help its case. 3. Given that there was an immunity agreement in place, what did the Department of Justice gain from prosecuting Birkenfeld? Students’ responses will vary. Students should recall that Birkenfeld was charged with helping Olenicoff by referring him to a UBS specialist in the creation of offshore ‘shell’ corporations designed to hide the true ownership of UBS accounts. The Justice Department charged Birkenfeld with conspiracy to commit tax fraud. 4. Critics are concerned that even with the large qui tam award, Birkenfeld’s prison sentence will discourage other tax whistle-blowers from coming forward. Is that a valid concern? Why or why not? Students’ responses will vary. Some of them may say that it is a valid concern. However, Birkenfeld was not honest with the Justice Department because he withheld pertinent information about the case. 7.2 – Olympus: Paying a Price for Doing What’s Right? 1. What accounting irregularities did Michael Woodford uncover at Olympus? As part of a regular review of Tokyo operations, Woodford had begun analyzing four separate acquisitions that Olympus had made between 2006 and 2009. Three of the four had cost Olympus $1 billion, but their assets had already been written down to just a fraction of that on the balance sheet, indicating that they were considered to be of no real value to the corporation. The fourth company—a UK-based medical instruments company called Gyrus—was acquired for $2.2 billion in 2008. The purchase included a $687 million “transaction fee” to two investment bankers, with the funds going into a Cayman Islands account that was also closed shortly after the deal was concluded. Given that investment banking fees typically amount to only 1 percent of the transaction, a fee of almost 33 percent was suspicious enough to warrant an independent audit, which the Olympus board had authorized in October 2009. 2. How did the executive leadership respond to Woodford’s revelations? Three days after Woodward sent the memo to Kikukawa mentioning the accounting discrepancies that he had noticed in the financial statements, Kikukawa and his board of directors fired Woodford from his position as CEO. 3. Critics argue that Woodford could have been more effective if he had taken a longer-term approach to addressing the accounting scandal, rather than the “showdown” approach he took with Kikukawa. Is that a fair assessment? Why or why not? Students’ responses will vary based on their perception of the case. Woodford had enough evidence to hold Kikukawa responsible for the accounting discrepancy. Knowing that the board of directors readily fired him once Kikukawa received the memo shows that even the board may have been a party to this scandal. Woodford could have taken the assistance of an external agency or organization that supports whistle-blowers. 4. Can Olympus recover from this scandal? Why or why not? Students’ responses will vary based on their perceptions of the case. Yes, Olympus can recover from the scandal, but it will require significant efforts in restoring trust, improving transparency, and implementing strong governance practices. Recovery depends on the company's commitment to ethical reform and rebuilding its reputation with stakeholders. 4o mini 7.3 – The Olivieri Case 1. Was it ethical for Apotex to include a three-year gag clause in the agreement with Dr. Olivieri? Students’ responses will vary. Some of them may say that it is not ethical to keep hidden information that could prove to be harmful for society yet that is what this clause did. 2. Even though Dr. Olivieri later admitted that she should never have signed the agreement with Apotex that included a confidentiality clause, does the fact that she did sign it have any bearing on her actions here? Why or why not? Students’ responses will vary. While it is unethical to break a signed agreement, some of the students may feel that it is more unethical to keep hidden information that could cause harm to a number of children. 3. Was Olivieri’s decision to publish her findings about the trial an example of universalism or utilitarianism? Explain your answer. Students’ responses will vary. Oliveiri’s decision to publish her findings about the trial is an example of utilitarianism. Utilitarianism is the philosophy that ethical choices are made based on the greatest good for the greatest number of people. Olivieri could have allowed Apotex to terminate the findings, but this would have allowed the drug to be used on people who cause a toxic build-up of iron in the liver—known as hepatic fibrosis. 4. If we identify the key players in this case as Dr. Olivieri, Apotex, the Hospital for Sick Children, and the University of Toronto, what are the conflicts of interest between them all? Students’ responses will vary. The conflict of interest for Apotex is the large amount of time and money they have invested in their drug and the wellbeing of their company. The conflict of interest of the University is the donation they were expecting to receive from the CEO of Apotex. 5. What do you think would have happened if Dr. Olivieri’s fellow academics had not supported her in her fight? Students’ responses will vary. Some of them may say that Olivieri would have never been reinstated nor had the complaints withdrawn or legal fees covered if her fellow academics had not supported her in her fight. 6. How could this situation have been handled differently to avoid such a lengthy and bitter battle? Students’ responses will vary. Some of them may say that Dr. Olivieri should not have signed the agreement with Apotex that did not allow the unauthorized release of any findings. Also, she needed to go public with her findings after approaching Apotex and raising her ethical concerns she had with terminating the results. Chapter 7 Blowing the Whistle 7-2 What is Whistle-Blowing? • Employee who discovers corporate misconduct and chooses to bring it to the attention of others Whistleblower • Employee discovering corporate misconduct and bringing it to the attention of his or her supervisor, who then follows established procedures to address the misconduct within the organization Internal whistle-blowing • When an employee discovers corporate misconduct and chooses to bring it to the attention of law enforcement agencies and/or the media External whistle-blowing 7-3 Ethics of Whistle-Blowing • In contrast to whistle-blowers being brave and praiseworthy, they are considered to: • Be motivated by money or personal egos • Have breached he trust and loyalty they owe to their employers 7-4 When is Whistle-Blowing Ethical? • When the company, through a product or decision, will cause considerable harm to the public or break existing laws • When the employee identifies a serious threat of harm • When the employee’s immediate supervisor does not act, the employee should exhaust the internal procedures and chain of command to the board of directors 7-5 When is Whistle-Blowing Ethical? • Employee must have documented evidence that: • His or her view of the situation is accurate • The firm’s practice, product or policy threatens the public or product user • Employee must have valid reasons to believe that revealing the wrongdoing to the public will result in the changes necessary to remedy the situation 7-6 When is Whistle-Blowing Unethical? • Motivation is the opportunity for financial gain or media attention • Employee is carrying out a vendetta against the company • Qui tam lawsuit: Brought on behalf of the federal government by a whistle-blower under the False Claims Act of 1863 7-7 The Duty to Respond • Responding to whistle-blowers means addressing their concerns and not firing them • Prior to 2002 • Legal protection for whistle-blowers existed only through legislation 7-8 The Whistleblower Protection Act • Addressed the issue of retaliation against federal employees • Imposed specific processing deadlines of complaints • Guaranteed anonymity of the whistle-blower • Required prompt payment of any portion of the settlement entitled to the whistle-blower 7-9 Sarbanes-Oxley Act of 2002 • An integrated approach of whistle-blowing by: • Prohibiting retaliation against whistle-blowers • Encouraging the act of whistle-blowing itself 7-10 Dodd-Frank Wall Street Reform and Protection Act • Introduced a new reward program for whistle- blowers who report securities law violations to: • The Securities and Exchange Commission (SEC) • The Commodity Futures Trading Commission (CFTC) 7-11 Addressing the Needs of Whistle- Blowers • Well-defined process to document how such complaints are handled • Whistle-blower hotline: Telephone line by which employees can leave messages to alert a company of suspected misconduct without revealing their identity • Prompt and thorough investigation of all complaints • Detailed report of all investigations 7-12 Whistle Blowing As a Last Resort • Unceasing media attention and the terminal damage should be considered a catalyst for the organization to take remedial steps • Unfortunately executives prefer to: • Bury the information • Discredit the evidence • Tie their employees in restrictive confidentiality Agreements Solution Manual for Business Ethics Now Andrew Ghillyer 9780073524696, 9781260262513
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