Whistle-Blowing: Ethics and The Conduct of Business

J. R.
Boatright
Chapter 4
ETHICS AND THE CONDUCT OF BUSINESS

6th Edition
Whistle-Blowing
C. H. Quah USM
.
2010 Pearson Education South Asia Pte. Ltd. All rights reserved
After studying this chapter you should be able to:

define what is whistle-blowing? distinguish between blowing the whistle and sounding the alarm. discuss the arguments for and against whistleblowing. identify the elements of a good whistle-blowing policy.
Whistle-Blower
This terminology was initially used to describe government employees who went public with complaints of corruption or mismanagement but it is now applied to employees in the private sector as well.
What is Whistle-Blowing?
The voluntary release of non-public information, as a moral protest, by a member or former member of an organization to an appropriate audience outside the normal channels of communication regarding illegal and/or immoral conduct in the organization that is opposed to the public interest.
J. Boatright (1997)
What is Whistle-Blowing? (cont.)

Key points of Boatrights definition:
Must be a member or former member of an organization and not an outsider. Information that is revealed must be non-public information and not facts that are already known.
Information must concern some significant misconduct by the organization or some of its members.
What is Whistle-Blowing? (cont.)

Key points of Boatrights definition: Information revealed outside the normal channels of corporate communication of an organization. Information revealed voluntarily and not by a legal mandate.
Information revealed as a moral protest in order to

correct some perceived wrong.
Internal vs. External Whistle-blowing

Internal whistle blowing: When information is revealed to top management in an organization via internal channels of communication. External Whistle-Blowing :
When the wrong-doing is revealed to outside parties [government agencies or media] through channels of communication outside the organization.
Blowing the whistle vs. sounding the alarm

Blowing the whistle is synonymous to whistleblowing
Sounding the Alarm: Unlike whistle-blowers who reveal new facts, dissenters take a public stand in opposition to arouse public opinion; to get people aroused about facts that they already know.
e.g. The revival of cable car project on Penang Hill, Penang.
Justification for Whistle-Blowing

The Loyal Agent Argument
An agent is a person engaged to act in the best interest of another person (the Principal).
As agents, they are obligated to work as directed, to protect confidential information and to act in the principals best interest.
Justification for Whistle-Blowing (cont.)

The Loyalty Argument (cont)
10
Justification for Whistle-Blowing [cont]

Exit, Voice and Loyalty
Albert O. Hirschman in his book Exit, Voice and Loyalty, states that:
Members of organizations can respond to
dissatisfaction by:

Leaving the organization Speaking up and making the dissatisfaction known in the hope of bringing about change
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Justification for Whistle-Blowing [cont]

Exit, Voice and Loyalty (cont)
Hirschman states that:

Loyalty is a factor that keeps people from
exiting an organization and actives the voice option.
According of Hirschman, those who speak up are the most loyal

They want to get the organization back on the
right track.
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Justification for Whistle-Blowing (cont.)

Limits to Loyal Agent Argument
An agent has an obligation to obey only reasonable directives of the principal, so an agent cannot be required to do anything illegal or immoral. Obligations of an agent are confined to the needs of the relationship. Employees are not obligated to do anything that falls outside the scope of their employment.
13
Conditions That Justify WhistleBlowing

Is the situation of sufficient moral importance to justify whistle-blowing?
Do you have all the facts and have you understood their significance? Have all internal channels and steps short of whistle-blowing being exhausted?
14
Conditions That Justify WhistleBlowing (cont.)

What is the best way to blow the whistle? What is my responsibility in view of my role within the organization? What are the chances for success?
15
Existing Legal Protection

The Civil Service Reform Act of 1978
- prohibits retaliation against Federal employees who report waste and corruption in Civil service.
The Whistle-Blower Protection Act of 1989

- strengthens protection with the creation of the office of special counsel for processing whistle blowing reports.
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Existing Legal Protection (cont)

The Occupational Safety and Health (OSH) Act of 1970 - prohibits retaliation against any employee who
files a complaint with the OSH Administration or testifies in the proceeding.
The Sarbanes-Oxley Act of 2002 (SOX) provides protection for private sector employees who whistle-blow. employer who retaliates against a whistle-blower may be subject to a fine or imprisonment or both.
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Existing Legal Protection (cont)

The Occupational Safety & Health Act 1994 (Section 27) Malaysia
No employer shall dismiss an employee, injure him in his employment, or alter his position to his detriment by reason only that the employee:
(a) Makes a complaint about a matter which he considers is not safe
or is a risk to health;
(b) is a member of a safety and health committee established
pursuant to this Act,
(c) exercises any of his functions as a member of the safety and health committee.
18
Whistleblower Protection Act 2010 Malaysia
Gazetted in June 2009 and came into force on December 15, 2010. What is the Act about?
To protect individuals who disclose
information on corrupt practices or improper conduct in the public and private sector.
2010 Pearson Education South Asia Pte. Ltd. All rights reserved 19
Whistleblower Protection Act 2010 Malaysia [cont]
What the Act is about

Section 6: a person may disclose
improper conduct to any enforcement agency based on his belief that any person has, or is preparing to engage in improper conduct. Section 13: the whistleblower shall be informed in the event that the enforcement agency finds that there is not substantial case.

Section 7: assures the confidential nature of the
whistleblowers identity and other information will still be protected even if the case was dropped.
Section 11: the protection offered by enforcement
agencies for whistleblowers may be cancelled depending on several factors e.g. if the whistleblower himself has participated in improper conduct or wilfully made a false statement which he/she knew or did not believe to be true.

Section 19: deals with the relocation of
place of employment to the whistleblower or any person associated with him to prevent reprisal action being taken against him.
22
Arguments supporting WhistleBlower Protection
benefits society through the exposure of illegal activity, waste and mismanagement
employees ought to have a right to act in accordance with ones own conscience.
23
Arguments against Whistle-Blower Protection
Might be open to abuse by employees to:

Protest company decisions or to get back at
their employers
Cover up their own incompetence or inadequate
performance
Would encroach on the right of employers to
conduct business as they see fit
24
Whistle-Blowing cases in Malaysia
Cheating in the CLP legal examination

(The Star, July 2001).
Misuse of government resources by the Director of the Malaysian Fire and Rescue Department.
25
Global whistle blowing cases
Sacked EU whistle-blower loses claim

Marta Andreasen was fired in 2005 by her then-boss
Neil Kinnock for going public three years earlier with revelations of a 130 million discrepancy between two sets of EU accounts.
In a 55-page judgment, the EUs civil tribunal
rejected her appeal to have her dismissal annulled and upheld every single complaint made against her by the commission.
26
Global whistle blowing cases (cont)
Sacked EU whistle-blower loses claim

It is pretty clear that people will know that if they
open their mouth and make any criticism, even strictly professional as I did, they will pay a high price. They will have to prepare to be dismissed and to have no defense.
(Marta Andreasen) Source: www.telegraph.co.uk (15 January 2008)
27
Global whistle-blowing cases (cont.)
Case of McDonald admitting using beef fat to fry their fries [New Straits Times, 21 May 2001]. Case of Jiang Yanyong, an army doctor in China exposing Chinas attempt in covering up the Severe Acute Respiratory Syndrome [SARS] outbreak in 2003
[Star, 27 August 2004]
28
Developing a Company Whistle-Blowing Policy

Enables a company to address misconduct internally and avoid embarrassing public disclosure. Ensures that reports are properly investigated, appropriate action taken and retaliation will not occur. Company benefits by learning of problem early and taking corrective action. Affirms a companys commitment to maintaining an ethical corporate climate.
29
Components of good whistle-blowing policy
An effectively communicated statement of responsibility. A clearly defined procedure for reporting. Trained personnel to receive and investigate reports. A commitment to take appropriate action. A guarantee against retaliation.
30
Conclusion
Whistle-blowing involves a conflict between two competing duties, viz. to protect the public or to be loyal to ones organization. As far as the loyalty argument holds, an agent only has an obligation to obey reasonable directives of the principal and not to do anything illegal or immoral. At present, whistle-blowers still suffer persecution or retaliation from employers. Hence, there should be greater legislation in this area to provide whistleblowers greater protection.
31

Whistle-Blowing: Ethics and The Conduct of Business

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J. R.

ETHICS AND THE CONDUCT OF BUSINESS

After studying this chapter you should be able to:

What is Whistle-Blowing? (cont.)

What is Whistle-Blowing? (cont.)

Information revealed as a moral protest in order to

Internal vs. External Whistle-blowing

Blowing the whistle vs. sounding the alarm

Justification for Whistle-Blowing

Justification for Whistle-Blowing (cont.)

Justification for Whistle-Blowing [cont]

Justification for Whistle-Blowing [cont]

Hirschman states that:

exiting an organization and actives the voice option.

According of Hirschman, those who speak up are the most loyal

Justification for Whistle-Blowing (cont.)

Conditions That Justify WhistleBlowing

Conditions That Justify WhistleBlowing (cont.)

Existing Legal Protection

The Whistle-Blower Protection Act of 1989

Existing Legal Protection (cont)

Existing Legal Protection (cont)

pursuant to this Act,

Whistleblower Protection Act 2010 Malaysia

Whistleblower Protection Act 2010 Malaysia [cont]

What the Act is about

Whistleblower Protection Act 2010 Malaysia [cont]

What the Act is about

Section 11: the protection offered by enforcement

Whistleblower Protection Act 2010 Malaysia [cont]

What the Act is about

Arguments supporting WhistleBlower Protection

Arguments against Whistle-Blower Protection

Might be open to abuse by employees to:

conduct business as they see fit

Whistle-Blowing cases in Malaysia

Cheating in the CLP legal examination

Global whistle blowing cases

Sacked EU whistle-blower loses claim

Global whistle blowing cases (cont)

Sacked EU whistle-blower loses claim

Global whistle-blowing cases (cont.)

Developing a Company Whistle-Blowing Policy

Components of good whistle-blowing policy

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