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Table of Contents
Chapter Summary and Learning Outcomes.................................................................................2
Frontline Focus: Good Money Questions....................................................................................3
Learning Outcomes......................................................................................................................4
Life Skills...................................................................................................................................10
Progress Check Questions..........................................................................................................10
Ethical Dilemma Case 7.1 The Insider...................................................................................14
Ethical Dilemma Case 7.2 The Cold, Hard Reality................................................................15
Frontline Focus: Good MoneyBen Makes a Decision Questions.........................................16
Key Terms..................................................................................................................................16
Review Questions......................................................................................................................17
Review Exercises.......................................................................................................................18
Internet Exercises.......................................................................................................................19
Team Exercises...........................................................................................................................20
Thinking Critically Exercises.....................................................................................................22
7-1
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 individuals 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 whistleblowing.
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.
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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 134. Which approach should Ben follow if he does decide to raise his
concerns?
Student 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 page
134. Has Rick given Ben enough information to be concerned about the Benfield Voyagers?
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 Bens boss John does not take immediate action, Ben should not run right to the press. Ben
should make sure he exhausts all efforts internally of trying to solve the issue. 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.
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The opening Frontline Focus case shows how a tire sales agent faces an ethical decision with
a new product his company is pushing to sell.
o The term whistle-blower refers to an employee who discovers corporate misconduct and
chooses to bring it to the attention of others.
o After an employee decides to become a whistle-blower, s/he must then assess what
channel of exposure s/he feels is most beneficial to solving the dilemma.
o Internal whistle-blowing is when an employee discovers corporate misconduct and
brings it to the attention of his or her supervisor, who then follows established procedures
to address the misconduct within the organization.
o External whistle-blowing is when an employee discovers corporate misconduct and
chooses to bring it to the attention of law-enforcement agencies and/or the media.
Whistle-blowers have been said to give an invaluable service to their organization as well as
the general public.
o Discovering illegal activity before the media finds out could save a company millions of
dollars in fines and lost revenues.
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o Discovering potential harm to consumers is an immeasurable benefit and thus one of the
reasons why the media holds whistle-blowers to a standard of honor and integrity. Many
believe whistle-blowing can be motivated by both appropriate and illegitimate reasons.
o Whistle-blowing is considered ethical under five conditions:
(1) When the company will cause serious harm to the public.
(2) When the employee identifies a serious threat of harm he or she should report it
and state his or her moral concern.
(3) When the employees immediate supervisor does not act the employee should
exhaust the internal procedures and chain of command.
(4) The employee must have documented evidence that is convincing that the
practice, product or policy seriously puts the public in danger.
(5) The employee must have valid reasons to believe that revealing the wrongdoing to
the public will result in changed necessary to remedy the situation.
o Whistle-blowing can be considered unethical if the employee is motivated by financial
gain or media attention, or if they carry a vendetta against the company. In this case the
legitimacy of their whistle-blowing must be questioned.
o A qui tam lawsuit is a lawsuit brought on behalf of the federal government by a
whistleblower under the Federal Civil False Claims Act, also known as Lincolns Law.
Qui tam is an abbreviation for a longer Latin phrase that establishes the whistleblower as a deputized petitioner for the government in the case.
The Federal Civil False Claims Act was enacted during the Civil War in 1863 to
protect the government against fraudulent defense contractors.
The act was strengthened in 1986 to make it easier and safer for whistle-blowers
to come forward.
o While internal-whistle blowing is hard to track, external whistle-blowing has become a
20th century phenomenon. The term started in 1963 and reached a peak in 2002.
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Whatever the motive of the whistle-blower, the fact remains employees are increasingly more
willing to respond to any questionable behavior they observe.
o Employers face two choices in these situations:
(1) They can ignore the warnings and risk public embarrassment or extreme financial
penalties.
(2) They can create an internal system allowing whistle-blowers to be heard before
the case is taken public. This option means hearing out the whistle-blower instead
of firing them.
o Prior to 2002, safeguards against retaliation were not part of the legal protection for
whistle-blowers.
o The Whistleblower Protection Act of 1989 addressed the issue of federal employees who
brought accusations of unethical behavior and imposed deadlines in filing complaints and
for settlement payments to the whistle blower (only in effect for federal employees).
o The Sarbanes-Oxley Act of 2002 (SOX) not only prohibited retaliation against whistleblowers, but also encouraged the act of whistle-blowing.
The Act requires that public companies adopt a code of ethics, set up an internal
system to receive, review, and solicit employee reports of fraud and or ethical
violations.
SOX does not protect employee complaints to the news media because under
SOX these do not constitute whistle-blowing.
o Employees who prevail in whistle-blower cases are entitled to damages which may
include:
Reinstatement to the same seniority status that the employee would have had but
for the adverse employment action.
Back pay.
Interest.
All compensatory damages to make the employee whole.
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Special Damages, including litigation costs, reasonable attorney fees and costs,
expert witness fees, and all relief necessary to make the employee whole.
Learning Outcome 4: Recommend How to Build Internal Policies to Address the Need of
Whistle-Blowers.
Employers are becoming increasingly willing to respond to any questionable behavior they
observe in the workplace.
o Prior to 2002, the only protection for a whistle-blower was legislation that encouraged the
moral behavior of employees to speak out, without offering any safeguards to the
employees.
o The False Claims Act of 1863 was designed to prevent profiteering from the Civil War.
The government would split up to fifty percent of the recovered amount with the
individual that filed the petition, but it did not offer specific prohibitions against
retaliatory behavior.
o The Whistle-Blower Protection Act of 1989 addressed the issues associated with
retaliation against federal employees who bring accusations of unethical behavior:
It imposed specific performance deadlines in processing whistle-blower
complaints.
It guaranteed the anonymity of the whistle-blower unless revealing the name
would prevent criminal activity or protect the safety of the public.
It required prompt payment of any portion of the settlement to which the whistleblower would be entitled, even if the case were still working its way through the
appeals process.
It applied only to federal employees until the Sarbanes-Oxley Act of 2002.
o The Sarbanes-Oxley Act of 2002 (SOX) is also known as the Corporate and Criminal
Fraud Accountability Act
By putting the following mechanisms in place employers can safeguard
themselves from breaking SOX.
SOX does not provide for punitive damages.
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o Employees who prevail in whistle-blower cases are entitled to damages; and the damages
can include:
Reinstatement to the same seniority status that the employee would have had but
for the adverse employment action.
Back pay
Interest.
All compensatory damages to make the employee whole.
Special damages, including litigation costs, reasonable attorney fees and costs,
expert witness fees, and all relief necessary to make the employee whole.
o It is wise for employers to address the needs of whistle-blowers and implement the
following policies:
A well-defined process to document how such complaints are handleda
nominated contact person, clearly identified authority to respond to the
complaints, firm assurances of confidentiality, and no retaliation against the
employee.
An employee hotline to file complaints with assurance of confidentiality and no
retaliation.
A prompt and thorough investigation of all complaints.
A detailed report of all investigations, documenting all corporate officers involved
and all action taken.
o A whistle-blower hotline is a telephone line where employees can leave messages to
alert a company of suspected misconduct without revealing their identity.
Employers must be committed to follow through with all reports.
Trust must be established for the mechanisms to work.
Learning Outcome 5: Analyze the Possible Risks Involved in Becoming a Whistle-Blower
The act of whistle-blowing often gets such positive attention that it masks the risks to ones
own career and financial stability.
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o If an employee is left with no other option than to go public than the organization has
failed to address the situation internally for the long-term improvement of the cooperation
and all of its stakeholders.
o Going public should be the last resort.
o The fallout of media attention and the often irreversible damage done to the company
should be enough to pressure the executives to look deeper and fix what is broken.
o Regrettably, many still choose to bury the truth, hire a legal gunslinger, or put the
employee in a position of such severe financial risk that s/he decides not to speak out.
o A study of 233 whistle-blowers by Donald Soeken of St. Elizabeths 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 The following statistics were also revealed about whistle-blowers:
About 90 percent of whistle-blowers are fired or demoted.
About 27 percent are faced lawsuits.
About 26 percent had to seek psychiatric or physical care.
About 25 percent suffered alcohol abuse.
About 17 percent lost their homes.
About 15 percent got divorced.
About 10 percent attempted suicide.
About 8 percent were bankrupted.
Despite these repercussions, only 16 percent said they wouldnt blow the whistle
again.
7-9
Life Skills
Making Difficult Decisions
Many individuals, such as those discussed in this chapter, have been faced with situations where
there is a conflict in ethical standards and they cannot simply look the other way. What would
you do in this situation? Could you life with your decision? What if there were negative impacts
on the company as a result of your decision? Then there are the consequences for you, your
family, coworkers, etc. Now you can see why whistle-blowers face such emotional turmoil. If
you find yourself in such a situation,
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, some individuals 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 squealer who has broken the trust and loyalty of their employer.
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(2)
When the employee identifies a serious threat of harm he or she should report it and
state his or her moral concern.
(3)
When the employees immediate supervisor does not act the employee should exhaust
the internal procedures and chain of command.
(4)
The employee must have documented evidence that is convincing that the practice,
product or policy seriously puts the public in danger.
(5)
The employee must have valid reasons to believe that revealing the wrongdoing to the
public will result in changed necessary to remedy the situation
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9. If an employee blows the whistle on an organization on the basis of a rumor, is that ethical?
No, 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 and have to spend time mending and
rebuilding trust. Whistle-blowing should only take place if there is documented evidence that
is convincing to a reasonable, impartial observer.
11. Compensation to make the employee whole under SOX isnt as clear as a percentage of the
funds recovered for a government whistle-blower. Does that make it less likely that well see
more whistle-blowing under SOX?
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 isnt 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?
Managers should tell the employee about the companys defined process and ensure the
employees confidentiality. They should then take the employee through the next steps of the
companys outlined process for reporting questionable behavior.
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14. Should that employee be given any reassurances of protection for making the tough decision
to come forward?
Yes, as it is stated in SOX, retaliation against whistle-blowers is prohibited and the
companys 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?
Student 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
isnt) one?
Student 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.
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Ethical Dilemma
Case 7.1 The Insider
1. Dr. Wigand was initially unwilling to go public with his information. What caused him to
change his mind?
After being fired due to poor communication skills, the company modified their
confidentiality agreement. While still employed, Wigland 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 Wigands story because it was the right thing to do or because it was a good
story?
Student 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. Wigands 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.
Student 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 CBSs decision not to run the interview driven by any ethical concerns?
Student responses will vary. The main decision not to run the interview, however, came from
fears of lawsuits from B&W. 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.
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7-15
Frontline Focus
Good MoneyBen Makes a Decision Questions
1. What do you think will happen now?
Student answers will vary. The family will probably sue the tire company for damages. The
more direct effect with be how Ben handles the pressure of knowing he could have stopped
this.
2. What will the consequences for Ben, Rick, their tire store, and Benfield?
Student answers will vary. Benfield and potentially the store could have lawsuits on their
hands. Ben and Rick will have to live with knowing they should have stepped up and
reported what they thought.
3. Should Ben have spoken out against the Voyager tires?
Student answers will vary. Ben should have called the company hotline so that the company
could follow procedure and investigate the situation.
Key Terms
External Whistle-Blowing: When an employee discovers corporate misconduct and chooses to
bring it to the attention of law-enforcement agencies and/or the media.
Internal Whistle-Blowing: When an employee discovers corporate misconduct and brings 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, also known as Lincolns Law. Whistle-blowers who
expose fraudulent behavior against the government are entitled to between 10 and 30 percent of
the amount recovered.
Whistle-Blower: An employee who discovers corporate misconduct and chooses to bring it to
the attention of others.
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Review Questions
1. Why are whistle-blowers regarded as models of honor and integrity?
Student 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 organizationinternal or external? Why?
Student 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 whistleblowing 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?
Student responses will vary. An organization could decide to ignore evidence if it thought the
individual was reacting in the interest of his/her own ethical perception.
4. Is it reasonable for a whistle-blower to expect a guarantee of anonymity?
Student responses will vary. Some organizations have whistle-blower hotlines that
individuals use to protect their identity. 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 should a whistle-blower be concerned about retaliation?
Student responses will vary. A whistle-blower should be concerned about retaliation because
s/he could lose their 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?
Student 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.
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Review Exercises
NOTE: some questions allow for a number of different answers. Below are some suggestions.
1. You work for a meatpacking company. You have discovered credible evidence that your
companys 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 welladvertised whistle-blower hotline. What do you do?
Student 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?
Student 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?
Student responses will vary. You may want to report what you know to a supervisor to try
and help the driver get their job back. This is why it is important to know all of the facts
before making accusations.
4. Should the driver get his job back? Why or why not?
Student 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.
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Internet Exercises
1. Visit the Government Accountability Project (GAP) at www.whistleblower.org.
a. What is the mission of GAP?
Mission: The Government Accountability Project (GAP) is a 30-year-old nonprofit public
interest group that promotes government and corporate accountability by advancing
occupational free speech, defending whistleblowers, and empowering citizen activists.
We pursue this mission through our Nuclear Safety, International Reform, Corporate
Accountability, Food & Drug Safety, and Federal Employee/National Security programs.
GAP is the nation's leading whistleblower protection organization.
b.
c. What kind of assistance is available through GAP for someone thinking about becoming
a whistle-blower?
Student responses will vary. A few examples include:
12 Survival Strategies
Conferences
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c.
There are now two whistle-blowing Web sites 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.
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?
Student 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 this hometown depends 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. Wigands 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
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behaving ethically in putting the welfare of its stakeholders in the Westinghouse deal ahead
of its obligation to support Dr. Wigand?
Student 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.
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 companys 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 wont 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
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apparently being added to your companys dried mushrooms, which are labeled organic and
California-grown. Should you speak out about this?
Student 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.
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5. What do you think would have happened if Dr. Olivieris fellow academics had not supported
her in her fight?
Students responses will vary. 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. 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.
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