Last Updated 21 Apr 2020

Whistleblowing and the Consequences

Category Enron, Fraud, Justice
Words 2419 (9 pages)

Whistleblowing is an act that has become more prevalent in the corporate and private sectors. A whistleblower is described by Liuzzo (2013) as “…a person who reveals to a governmental authority, or to news media, confidential information concerning some wrongdoing or conduct that he or she regards as unethical” (p. 28). Some of the most notable cases in United States history have involved corporations, utility companies and the President. Some cases have been so extensive that they have brought about the collapse of corporate giants and even garnered the resignation of the President prior to his impeachment.

The following will outline some notable cases, reasons why some people decide to “blow the whistle” and steps that the Occupational Safety & Health Administration (OSHA) has taken to secure the rights of those who report violations in the workplace. With greater frequency, internal organization constituents such as employees and board members are reporting issues of wrongdoing by their companies, instead of the reports coming from external auditing agencies (Mesmer-Magnus & Viswesvaran, 2005, p. 277).

Whistleblowing is further defined as, “the disclosure by organization members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action’’ (as cited in Mesmer-Magnus & Viswesvaran, 2005). Companies try to anticipate the possibility of unfaithfulness by demanding employees sign an employment contract or non-disclosure agreement, which would render the disclosure of company business a serious offense. Employees who feel an unjust action is taking place within their organization have two channels to approach to address the issues.

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An internal channel consists of reporting the offense to company management so that they have the opportunity to research and contend with the offense(s). This is the most beneficial to any organization as it allows them to determine solutions and their internal issues stay safeguarded. Instead of lengthy investigations and legal troubles, companies could save thousands of dollars if the employee brings to light an issue internally to management, which provides the information to the people who are best able to resolve the situation.

Although internal channels are best for organizations, they may not be the best option for the employee to ensure compliance. External channels would include news media and government officials. People who decide to use the external route are considered whistleblowers. Organizations are least likely to welcome this form of disclosure, as their profits will likely plummet while the bad press spreads. Some employees go this route without discussing the issues with corporate management because they do not know who to talk to or they feel that their concerns will not be addressed. People also go behind their employer’s back because they are afraid of retaliation and being labeled a trader by co-workers.

The use of the word whistleblowing actually goes back more than 100 years and had nothing to do with corporate espionage or wrongdoing. The term came about in 1863 in the federal government’s False Claims Act (Eaton & Akers, 2007). The Act was initially enacted to incent consumers to report acts of wrongdoing against the government. According to Eaton and Akers (2007), Congress revived the Act in 1986 and retaliation legislation was added. The Whistleblower Protection Act of 1989 strengthens the protection for employees who disclose waste and fraud.

In 2002, the Sarbanes-Oxley Act (SOX) was added after the collapse of Enron to hold publicly held corporations accountable for their actions. Whistleblowing statutes may vary from state to state. There are some states that only allow protection to a whistleblower if he or she is a public employee or is working for a government contractor (Whistleblower, 2008). Some statutes allow for only the person blowing the whistle to have protection against employer retaliation, while others allow co-workers that are supporting the whistleblower in their effort protection.

This is why it is vital to research the law within the state the injustice occurred. Whistleblowing cases have been steadily increasing year over year since an additional 21 federal laws have been put into place to coincide with the OSH Act 1970. Each law outlines what is considered a discriminatory act and the deadlines around filing a complaint. Due to the protection that these laws provide, more and more people are coming forward and disclosing issues within their knowledge. OHSA protection means that companies cannot take “adverse actions” against employees for uncovering the truth (Occupational Safety & Health Administration, 2012).

These actions include, but are not limited to firing, demoting, harassing threats, and reducing pay and/or overtime. Constant updates to whistleblowing laws are allowing more industries to outline the rights of those who are thinking about disclosing misdeeds. Violations that are being reported include issues with airline and workplace safety, consumer products, food industry safety, and securities fraud. As of March 31, 2012, OHSA has reported a 139% increase in yearly reported cases from 2005 through 2011 (Occupational Safety & Health Administration, 2012).

During the same period, only 2% of the cases determined were given merit, 22% were settled and the remaining 77% were either dismissed or withdrawn. These statistics lend credibility to the determination of the people who are blowing the whistle and trying to make the world a safer place for all. Although the constant updates to the laws are beneficial, in come cases anonymity would be advantageous for the whistleblower. The implementation of a whistleblowing policy within companies, organizations and schools is encouraged to avoid damaging public attention and loss of internal morale.

The Association of Certified Fraud Examiners compiles data every other year on fraud cases both in the United States and internationally. The 2012 “Report to the Nations on Fraud and Abuse” provides the following statistics for those organizations surveyed between January 2010 and December 2011: (1) 5% of annual revenues are lost to fraud each year, (2) The medium loss to fraud was $140,000, with one-fifth of the cases involving over $1 million, (3) Most frauds occurred for 18 months before detection, and (4) Most frauds were detected through employee tips (Association of Certified Fraud Examiners, 2012).

A 5% loss to fraud each year is far from an insignificant amount to a company, and the statistic proves that providing employees with guidelines for revealing fraud can save a company thousands of dollars each year. The creation and inception of a whistleblowing policy is a small price to pay for safeguarding a company against losses to financial and human capital. Whistleblowing happens for a variety of reasons, including identifying corruption, public safety and securities fraud.

Sometimes the whistleblower is a direct employee of the company brought under scrutiny, while others have inside knowledge of wrongdoings through a working relationship. Although whistleblowing happens all around the world, the United States has had its share of famous cases that brought about new regulations to control further corruption in business dealings. Three cases and their outcomes are: 1)In June 1972, a break-in at the Watergate Hotel in Washington, D. C. led to the resignation of the then current President, Richard M. Nixon.

One of the perpetrators was a former CIA operative and a current security advisor to the President’s re-election campaign. Notebooks containing the phone number for “E. Howard Hunt (W. H. )” were found on two of the men, and these clues gave rise to intense media attention (Woodward, 2005). The United States Senate started an investigation to determine how far reaching the scandal was. A confidential informant, later dubbed “Deep Throat”, provided Washington reporters Bob Woodward and Carl Bernstein insight into misdeeds by the President and his advisors.

“Deep Throat” continued to tell Woodward & Bernstein to “follow the money” until they eventually uncovered the illegal indiscretions happening in the White House (Arnold, 2008). On May 31, 2005, Vanity Fair magazine released the announcement that former FBI Associate Director Mark Felt was in fact “Deep Throat. ” Felt was convicted of authorizing illegal FBI searches in 1980 and was later pardoned by President Ronald Reagan. 2)Dr. Jeffrey Wigand, a former vice president and head of research and development for Brown and Williamson, disclosed deceptive practices by tobacco companies in the manipulation of nicotine.

He communicated that they knew nicotine was addictive, but failed to act upon it (Arnold, 2008). Jeffrey also insisted that the company ignored research proving that flavoring added to cigarettes caused cancer, along with concealing damaging documents that could be used against them in cases brought by sick patients. “Jeffrey considered the whistleblowing a great personal risk to himself and his family but still decided that it was for the better good of people and society for the practice to be exposed” (Whistleblower Center, n. d.)

Testifying as a master witness, he helped the formation of the 1998 Master Settlement Agreement that implemented a $246 billion settlement against large tobacco giants. Wigand was fired from his position prior to blowing the whistle, and he described his subsequent harassment in an interview on 60 Minutes in 1996. Becoming a whistleblower had damaging effects on Wigand’s life, some of which he has overcome after a great many years. He no longer had any privacy, and his reputation was ruined. Death threats against him precluded that he needed around-the-clock bodyguards for several years.

His wife divorced him and took his two children to live with her in another state. A critically acclaimed movie titled The Insider was made about his story in 1999 and it highlighted the harassment that he endured. After the movie came out, Jeffrey was in demand to speak at schools and health organizations about the dangers of tobacco and smoking (Salter, 2002). Salter also states that Wigand became a teacher and eventually reconciled with his children. 3)One of the most famous whistleblowing cases in recent history involved the collapse of the energy giant, Enron.

Executive Sherron Watkins disclosed extreme accounting irregularities to Enron CEO Kenneth Lay and expressed her concern for the collapse of the company (Arnold, 2008). After Lay did nothing and Watkins was demoted, Enron shares fell to $1 in November 2001 from a mid-2000 high of $90. In their book The Smartest Guys in the Room, McLean and Elkind surmise, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control" (2004, pgs. 132-133).

Deceptive accounting practices hid billions of dollars of debt from failed transactions, and Enron pushed auditors Arthur Anderson to ignore and not report them either. Many of the firm’s executives were convicted and spent time in prison. The auditing firm of Arthur Anderson was indicted and found guilty in District Court, but the Supreme Court later overturned the conviction. By this time, Anderson’s reputation had been marred and most of their customers abandoned them. This led to the shutdown of the firm.

The lies and deceptions by both Enron and Arthur Anderson helped to create the previously mentioned SOX legislation. Several studies have been done on whistleblowers over the years to determine the motivation behind their actions. “While results seem to differ slightly across studies, whistleblowers (as compared with inactive observers) tend to have good job performance, to be more highly educated, to hold higher-level or supervisory positions, to score higher on tests of moral reasoning, and to value whistleblowing in the face of unethical behavior” (as cited in Mesmer-Magnus & Viswesvaran, 2005).

This information indicates that someone with a lot of responsibility in an organization will have the knowledge of unethical, internal practices. A person of high moral judgment is more likely to turn in a company for violating various laws and standards, than someone who is okay with cutting corners to keep him employed. Before becoming a whistleblower, a person must have absolute certainty that a protected Act is being violated. The OSHA website contains a list of the Acts and their descriptions to determine which one is being breached. It will also provide the type of communication for the complaint (i. e. telephone or writing. )

Adherence to the guidelines is important to ensure that protection coverage is available in the case of retaliation by an employer. In addition, weighing the many pros and cons before making a decision to blow the whistle on a company or organization is vital. Whistleblowing should not be taken lightly, and the decision should be carefully thought out. Aggressive documentation of the issues and conversations with company management is extremely important. Researching which authority to approach is highly imperative.

Although law protects whistleblowers, they sometimes will incur job loss, harassment, intimidation and even loss of property or life while pursuing the issue and resolution. Long, drawn-out court cases can lead to a loss of income and notoriety. Lengthy investigations can lead to secret personal issues becoming known. Lots of support from family and friends is needed during an investigation because the intense scrutiny can break down a person’s will. A person needs to be certain that they are prepared for an onslaught from the government and media prior to proceeding with their disclosure.

Conversely, whistleblowing will give a person a moral sense of pride. Standing up for what you believe in will show people that you are not afraid to fight for what is right. Whistleblowers may also be looked upon as trustworthy since they are looking out for the welfare of others. Sometimes it is possible to obtain reward sums of money from the government for uncovering injustices. Lastly, if a whistleblower is unjustly retaliated against, they may obtain monetary remedies from their companies for retaliation.

A recent tax fraud case against the Swiss bank USB AG awarded the whistleblower a record $104 million reward provided by the United State Internal Revenue Service (Temple-West & Browning, 2012). In a rare case like this, the whistleblower spent time in prison for his wrongdoing, but then was handsomely rewarded for turning in his employer for promoting an illegal act. People have deeply personal reasons for blowing the whistle. Some may see it as a safety concern, while others who have participated in illegal acts have had a guilty conscience that they want to unburden.

Hundreds of cases are reported, dismissed and/or won each year with the help of OSHA. Being a whistleblower is not something to be taken lightly as many questions must be raised before proceeding with the act. Numerous laws have made it easier for people to come forward when they witness misdeeds by those in charge, but knowing history and potential outcomes prior to voicing concerns will enable a person to deal with the backlash. Having good moral judgment and standing up for what you believe in will allow a person to live their life with few worries and a clear conscience.

Whistleblowing and the Consequences essay

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