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16. In October 2010 it was reported that Cheryl Eckard, a quality-assurance
manager at the pharmaceutical company Glaxo-SmithKline who had blown
the whistle on the safety of products made in its Puerto Rico plant, had been
fired as a result of what the company called a “redundancy” related to the
merger of Glaxo Wellcome and SmithKline Beecham a couple of years
before. Of course, the suspicion was that Eckard was fired because she
refused to go along in a cover-up of the quality assurance and compliance
problems at the plant. She had made recommendations to her superiors that
were ignored reportedly because the company was too busy preparing for an
FDA inspection they hoped would clear the way for approval to market two
new products, including the diabetes drug Avandamet, which was eventually
approved. Eckard had found that the manufacturing facility had a
contaminated water system, an air system that allowed products to be cross-
contaminated and pills of different strengths mixed in the same bottles,
among other problems.
Eckard filed a federal lawsuit against Glaxo under the U.S. False Claims Act.
She won $96 million as part of a $750 million penalty against Glaxo. Glaxo
agreed to pay millions in fines, penalties and settlements to resolve claims
that it knowingly made and sold adulterated drugs, including Paxil, a
popular antidepressant, with the intent to defraud and mislead.
How do you view whistleblowers that approach the government under the
False Claims Act and win large awards from the settlement? Are they just
out for the money? Should they profit from the wrongdoing of their
employer? Or, are they performing an important public service?
Ask the students if being ethical should be rewarded or not? Many may argue that being
ethical is its own intrinsic reward. In a society that often seems to reward the unethical
person and harm the ethical person, students may not see the dilemma in rewarding a
whistleblower. Harry Markopolos in his book No One Would Listen, tells the story of
being the Bernie Madoff whistleblower and notes that the SEC would not investigate his
17. It is a distinguishing mark of actions labeled whistleblowing that the agent
intends to force attention to a serious moral problem. How does this
statement relate to whistle-blowers who come forward under provisions of
the Dodd-Frank Financial Reform Act? Respond to the question by
considering the motivations to blow the whistle as discussed in this chapter.
A study by the Ethics Resource Center (ERC), Inside the Mind of a Whistleblower,
indicates that the top five reasons given by whistleblowers for coming forward are (1) the
belief that corrective action would take place (79 percent); (2) support of management
(75 percent); (3) support of coworkers (72 percent); (4) the fact that they could report
The 2010 passage of Dodd-Frank proposed additional incentives for whistleblowers
who provide information that aids in the recovery of over $1 million. The whistleblower
could receive 10 to 30 percent of that amount. The belief is that monetary incentives will
prompt observers of corporate misconduct to come forward, which could prevent future
scandals like those leading up to the 2007–2008 financial crisis. One major concern with
Under Dodd-Frank, whistleblowers who report violations of the securities laws are
supposed to be protected from being fired. These protections—which can include rein-
There are many unanswered questions about Dodd-Frank, including whether specific
18. Do you believe that the Dodd-Frank whistle-blower program that
incentivizes reporting fraud and other wrongdoings in return for a monetary
reward is ethical? Use the ethical reasoning methods discussed in Chapter 1
to answer the question.
One concern about the Dodd-Frank is that from an ethical perspective it may be
better for all involved—the whistleblower, the offending company, and the public—if the
whistleblower works with the company to fix the matter without getting the government
(and the press) involved. Another concern is that it may force the whistleblower to take a
more adverse position against the company and endure greater scrutiny and exposure
when they come forward. The confidentiality obligation of the employee is another
employee works within the accounting system. So far, concerns about upending
compliance programs by going public have not really been borne out. Those programs
still serve to encourage employees to report internally before going outside the company.
From an ethical perspective the Dodd-Frank reward may encourage the whistle-blowers
to act out of egoism, enlightened egoism, or act-utilitarianism (the ends justify the means)
19. Because of their access and knowledge, accountants are in an ideal position to
provide their clients and the SEC with early and invaluable assistance in
identifying the scope, participants, victims and ill-gotten gains associated
with corporate wrongdoing. Historically, when CPAs discovered attempted
or actual fraud, client confidentiality rules limited their ability to publicly
report their observations. With the advent of Dodd-Frank, accountants no
longer need to choose between doing the right thing and risking the loss of
their professional licenses. Explain how and under what circumstances Dodd-
Frank enables accountants to report their observations.
Dodd-Frank contains provisions to encourage accountants and auditors to report
corporate wrongdoing to meet their public interest responsibilities. The whistleblower
provisions of Dodd-Frank exclude two categories of accountants from award eligibility
because of their preexisting legal duty to report securities violations:
1. Individuals with internal compliance or audit responsibilities at an entity,
including CPAs, who receive information about potential violations, cannot receive
whistleblower awards because it is part of their job responsibilities to report
suspicion of illegal acts to management. However, these individuals will not be
2. CPAs who receive information about potential violations of a client or its
directors or officers through an audit or other engagement required under the federal
securities laws are not eligible to receive whistleblower awards. The SEC included
The whistleblower exclusions do not apply to CPAs who report information about potential
violations regarding their own firms’ performance of audit services for a client. This is true
The issue of confidentiality is important in that it may appear that blowing the whistle on
one’s employer or client violates the ethical obligation of confidentiality. However, the
20. “Give me the ‘McFacts,’ ma’am, nothing but the McFacts!” So argued the
defense attorney for McDonald’s Corporation as she questioned Stella
Liebeck, an 81-year-old retired sales clerk, two years after her initial lawsuit
against McDonald’s claiming it served dangerously hot coffee. Liebeck had
bought a 49-cent cup of coffee at the drive-in window of an Albuquerque
McDonald’s, and while removing the lid to add cream and sugar, she spilled
the coffee and suffered third-degree burns of the groin, inner thighs, and
buttocks. Her suit claimed the coffee was “defective.” During the trial it was
determined that testing of coffee at other local restaurants found that none
came closer than 20 degrees to the temperature at which McDonald’s coffee
is poured, about 180 degrees. The jury decided in favor of Liebeck and
awarded her compensatory damages of $200,000, which they reduced to
$160,000 after determining that 20 percent of the fault belonged with Liebeck
for spilling the coffee. The jury then found that McDonald’s had engaged in
willful, reckless, malicious, or wanton conduct, the basis for punitive
damages. It awarded $2.7 million in punitive damages. That amount was
ultimately reduced by the presiding judge to $480,000. The parties then
settled out of court for an amount reported to be less than the $480,000.
For its part, McDonald’s had suggested that Liebeck may have contributed
to her injuries by holding the cup between her legs and not removing her
clothing immediately. The company also argued that Liebeck’s age may have
made the injuries worse than they might have been in a younger individual,
“since older skin is thinner and more vulnerable to injury.”
Who is to blame for the McSpill? Be sure to support your answer with a
discussion of personal responsibility, corporate accountability, and ethical
reasoning.
Some key facts of this case are whether McDonalds knew their coffee was too hot and
whether they had alternatives to taking this risk with peoples’ lives. They had been sued
and lost on coffee burns before but the judgments were small enough that improving their
Students should be asked about the difference between compensatory damages and
punitive damages, using the example of an elephant stepping on your foot. The elephant
might not crush or destroy your foot but you have to hit an elephant very hard with a big
Here is some of the evidence the jury heard during the trial1:
McDonald’s operations manual required the franchisee to hold its coffee at 180 to
190 degrees Fahrenheit.
Coffee at that temperature, if spilled, causes third-degree burns in three to seven
seconds.
The chairman of the department of mechanical engineering and biomechanical
engineering at the University of Texas testified that this risk of harm is
McDonald’s admitted it had known about the risk of serious burns from its
An expert witness for the company testified that the number of burns was
At least one juror later told the Wall Street Journal she thought the company
wasn’t taking the injuries seriously. To the corporate restaurant giant those 700
McDonald’s quality assurance manager testified that McDonald’s coffee, at the
McDonald’s admitted at trial that consumers were unaware of the extent of the
McDonald’s admitted it did not warn customers of the nature and extent of this
1 http://www.caoc.org/?pg=facts
In a story about the case published shortly after the verdict was delivered in 1994, one of
McDonalds’s was used as an example of the need to act responsibly when serving a
product to the public that had the potential for harm. In a sense the jury used a utilitarian
