ADDITIONAL QUESTION 2: WHAT IS WHISTLE-BLOWING AND WHAT
PROTECTIONS DO WHISTLE-BLOWERS HAVE?
BACKGROUND
Sometimes an individual concerned about ethics works for an organization that refuses to take
action against unethical or illegal activities. When this happens, an employee is faced with a
major conflict of values — should the employee remain loyal to the organization or inform
someone outside the organization who can take appropriate action.
oContacting someone outside the organization about potential or actual nontrivial
misconduct inside the organization is referred to as whistle-blowing.
oIf nobody within the organization is willing to take appropriate action, then the employee
can inform a regulator, lawyer, reporter, law enforcement official, or a watchdog group.
oThe federal government encourages its employees to blow the whistle. The U.S. Office of
Special Counsel (OSC), an independent federal investigative and prosecutorial agency
with jurisdiction over current and former federal employees, investigates and prosecutes
cases supplied by whistle-blowers that violate personnel policies.
oThe OSC guarantees whistle-blower confidentiality and submits investigative
reports to Congressional oversight committees that include the whistle-blower’s
comments.
oThe OSC also obtains remedies for whistle-blower retaliation as appropriate, such
as back pay and job reinstatement.
WHEN TO BLOW THE WHISTLE
oBlowing the whistle on an employer can be detrimental to the whistle-blower as well as
the organization.
oAfter failing to pursue change within the organization, potential whistle-blowers must
cautiously explore the ramifications of blowing the whistle prior to formally informing
the public about ethical misconduct.
oBegin by consulting with an attorney.
oLegal advisors recommend that the following four conditions be met before an employee
informs an external authority.
1. Serious harm is involved.
2. The whistle-blower has already expressed his or her concerns to an immediate
superior.
3. The whistle-blower has exhausted other communication channels within the
organization.
4. The whistle-blower has convincing, documented evidence.
FALSE CLAIMS ACT
oResearchers estimate that 10 percent of federal government spending is lost to fraud.
oThe U.S. Department of Justice encourages whistle-blowing on fraud issues by offering
financial rewards for information that leads to successful recovery of funds.
oAs of 2010, the federal government has paid whistle-blowers approximately $3 billion,
with an average award of $1.5 million.
oThe False Claims Act was initially passed in 1863 during the Civil War to prevent
defense contractors from fraudulently selling the Union Army rifles, ammunition, and
horses.
oThe False Claims Act includes a “qui tam” provision where citizens can sue the
fraudulent supplier on behalf of the government and be rewarded a percentage of the
financial recovery.
oPresident Ronald Reagan’s Administration strengthened the False Claims Act in 1986
following a series of defense industry frauds against the federal government.
oAn employee who independently sues his or her employer for fraud can now
receive between 15–30 percent of the total recovery amount plus attorney fees and
related costs and expenses for successful lawsuits.
oIf the government joins the lawsuit, the employee can receive up to 25 percent of
the total recovery. The lawsuit must be filed within six years of the fraud being
committed.
oReview EXHIBIT 8.5 “Top Seven False Claims Acts Cases (as of September 2009),”
which lists the seven highest settlements, all in the healthcare industry, as of September
2009.
oAccording to the False Claims Act Legal Center, a potential whistle-blower should
consider the following prior to filing under the False Claims Act:
The whistle-blower must have actual knowledge of the fraud, not just a suspicion,
and the evidence cannot come from a publicly disclosed source, such as a
newspaper or court record.
The fraud cannot be a tax fraud; tax fraud is specifically exempt from prosecution
under the False Claims Act.
Federal money must be involved, or, in a state with a state False Claims Act, state
money must be involved.
Most lawyers work on a contingency fee basis, and will only pursue a case if the
financial amount of the fraud is sizable, and the entity to be sued is able to pay
back the stolen money and associated fined.
REPORTING TAX FRAUD
oIn 2006, with estimates of U.S tax evasion as high as $350 billion, the IRS created a
Whistle-blower Office to receive information about possible individual or corporate tax
frauds.
oThe IRS Whistle-blower Office modeled a Whistle-blower Reward Program after the
False Claims Act, paying whistle-blowers 15-30 percent of the unpaid taxes recovered.
oTo be eligible for a reward, the tax fraud and assessed penalties must exceed $2 million.
oIf the tax cheat is an individual, rather than a corporation, the fraudulent person must
have gross income above $200,000 for a reward to be disbursed.
o The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, developed in
response to the 2008-2010 financial crisis, offers the same reward program for
information about securities violations successfully enforced by the Securities and
Exchange Commission.
WHISTLE-BLOWER PROTECTION LAWS
oFear of retaliation is one of the primary reasons why employees do not blow the whistle
on illegal activities.
oRetaliation protection clauses are common for new federal laws.
oReview EXHIBIT 8.6 “Whistle-blower Protection Laws,” which summarizes key federal
laws that protect all, or major groups of, employees from retaliation for whistle-blowing.
o1935 National Labor Relations Act: Forbids employers from retaliating against
any employee who files a charge with the National Labor Relations Board.
o1964 Civil Rights Act: Protects employees who file a discrimination charge and
participate in an investigation.
o1970 Occupational Safety and Health Act: Prohibits retaliation against any
employee who files an OSHA complaint or testifies.
o2002 Sarbanes-Oxley Act: Prohibits retaliation against any employee of a
publicly-traded company who provides a law enforcement officer with truthful
information relating to the commission or possible commission of any federal
offense.
o2010 Dodd-Frank Wall Street Reform and Consumer Protection Act: Establishes a
“whistle-blower bounty program” which rewards people who provide information
that leads to a successful SEC enforcement between 10 to 30% of the monetary
sanctions over $1 million.
SARBANES-OXLEY ACT OF 2002 (SOX)
oCongress quickly passed the Sarbanes-Oxley Act of 2002 (SOX) to ensure additional
confidence in the stock market and the financial statement of publicly-held companies
following a series of high profile accounting scandals in early 2000s, including Enron.
oAccording to SOX, no publicly traded company, or subcontractor of that company, can
discharge, demote, suspend, threaten, harass, or in any other manner discriminate against
a whistle-blower.
oOther major features of SOX include
Creation of a Public Company Accounting Oversight Board, a private,
not-for-profit entity that reports to the Securities and Exchange Commission that
registers and inspects public accounting firms and sets quality and ethical
standards for the issuers of audit reports.
Disclosure of whether a Code of Ethics has been established for executives and
making it available to the public.
Personal loans to executive offices and directors are prohibited
Establishment of an “anonymous reporting mechanism” for employees to report
fraud.
Managerial assessment of the effectiveness of their company’s internal control
structure for financial reporting and auditor comments about management’s
assessment.
Outside, independent directors chosen for the board of directors, and a “financial
expert” on the board’s audit committees
Auditors cannot engage in consulting work for the companies they are auditing
without approval of the client’s audit committee
The same senior auditors cannot work on the same account for more than five
years, and other auditors for more than seven years
DISCUSSION ACTIVITY
Several critics of whistle-blowing reward systems argue that employees blowing the whistle
should first be required to inform an internal manager and provide the company time to correct
the problem. Others maintain that sometimes the person that would be informed is the one who is
violating the law. Should Congress modify the law and require that an appropriate manager first
be notified and given time to correct the problem? Why?
CHAPTER QUESTION 5: WHAT ARE SOME OF THE NEGATIVE OUTCOMES THAT
MANY WHISTLE-BLOWERS HAVE EXPERIENCED?
The decision to blow the whistle on an employer requires careful consideration. Whistle-blowing
can have many negative impacts on an employee’s life. Researchers report that soon after
blowing the whistle, many whistle-blowers experience:
oAll of the retaliatory actions listed above are prohibited by law.
oNonetheless the legal process can take years to settle the issue, during which time the
whistle-blower might be unemployed and without any guarantees the outcome will be
favorable.
DISCUSSION ACTIVITY
Have students read the stories of several whistle-blowers on the National Whistle-blowers
website at http://www.whistle-blowers.org/index.php?
option=com_content&task=blogcategory&id=71&Itemid=108. What are some common
themes in their testimonies? Why didn’t managers stop these illegal behaviors from occurring?
CHAPTER 8 CHAPTER AND ADDITIONAL QUESTIONS SUMMARY
Chapter Question 1: Why do some employees refuse to report ethical misconduct?
Employee silence refers to an employee who observes ethical misconduct at work but does
Frequency of ethical misconducts undertaken to benefit the company that go unreported
(Exhibit 8.1 “Unreported Observed Ethical Misconducts”):
Frequency of ethical misconducts undertaken to benefit an individual that go unreported
Review EXHIBIT 8.2 “Reasons for Employee Silence,” which highlights a wide range of
organizational factors, observer factors, and anticipated negative outcomes reasons for
maintaining silence about an observed ethical misconduct.
oOrganizational Factors
oObserver Factors
Employee empowerment refers to employees possessing the
authority to make decisions affecting themselves and their work.
oAnticipated Negative Outcomes
Being labeled or viewed negatively (e.g., troublemaker, complainer, tattletale)
Damaging a relationship (e.g., loss of trust, respect, acceptance)
FOR DISCUSSION: Have students review the list of unethical behaviors that typically are not
reported. Have the students observed any of those behaviors at work or school? Which of those
behaviors didn’t they report? Why? In small groups, have students describe the situation and
explain why they failed to do anything about
Chapter Question 2: What skills must a manager development for employees to feel
comfortable to discuss potential unethical behaviors?
A diverse set of managerial techniques and attributes can help employees become
comfortable sharing sensitive ethical information.
Being honest, transparent, and responsible
Being abreast of the ethics and diversity training workshop topics and discussions
FOR DICUSSION: Have students think about a time when they approached a boss, teacher, or
some other authority figure about unethical behaviors. Why did the student choose that person to
convey such sensitive information? What characteristics or skills did that person exhibit that led
the student to trust the person?
Chapter Question 3: Discuss the typical duties and skills of an Ethics & Compliance
Officer? How can these activities be managed in a small organization?
Ethics & Compliance Officer (ECO) is a high-level employee responsible for managing
ethical performance.
ECO duties include:
oManage internal reporting systems
oAssess areas for ethical risks
oOffer guidance
ECO skills (review TIPS AND TECHNIQUES)
oInsider status and is well-networked with business unit managers
oA high position that exemplifies authority
oThe trust and respect of organizational executives
FOR DISCUSSION: Have student review the lists of ECO duties and skills. Assume you were
employed by a small business or college. What advice would you give to ensure that the duties of
an ECO were integrated in management operations?
Chapter Question 4: Describe the fourteen-steps for developing and managing an internal
reporting system process.
oThe ECO’s primary duty is to manage the organization’s internal reporting system. Review
the process model in EXHIBIT 8.3 “Internal Reporting System Process,” which provides
guidance on how to accomplish this.
oSTEP FOUR: Assure people that any form of retaliation against an employee who
raises an ethical concern is prohibited.
oSTEP FIVE: If appropriate, the employee should first attempt to resolve the issue by
directly approaching the individual engaged in the questionable activity.
oSTEP EIGHT: Assure the employee that his or her identity will not be revealed
without consent.
oSTEP NINE: Interview the employee and discuss clarifying questions.
FOR DISCUSSION: Tell students that the Dean of the School of Business, College president, or
boss has asked them to create an internal ethics reporting system. How would they design the
system? What features would they implement? How would they roll out the plan?
Additional Question 1: Describe other ethics reporting system mechanisms:
Ombudsperson, Chaplains, and Assist Lines.
oAnother internal channel for communicating information about potential ethical and legal
violations is an organizational ombudsperson.
oAn ombudsman guarantees the employee anonymity, asks permission to contact key people,
oAn ombudsman, similar to an accountant or lawyer, is held legally accountable to a
professional Code of Ethics. The International Ombudsman Association’s Code of Ethics
highlights four ethical principles and corresponding policies:
oChaplains are members of a religious clergy trained in providing spiritual advice.
oIn additional to providing pastoral care for employees and their families, chaplains have
expanded their list of services expanded to include helping employees manage ethical
dilemmas and interactions with other employees.
oAssist lines, previously referred to as “ethics hotlines,” have long been popular with
organizations as a method of obtaining information about situations that may be unethical or
illegal.
oEmployees reporting to the assist line are ensured anonymity and privacy, and the
information provided is directed to the appropriate person within the employee’s
organization.
oConfidentiality and false accusations are two central issues addressed by effective assist
lines.
FOR DISCUSSION: Have students describe a situation when they observed someone at work
behave unethically but did not do anything about it. Would they have informed an “Ethics Assist
Line” if one had been available? Why?
Additional Question 2: What is whistle-blowing and what protections do whistle-blowers
have?
oWhistle-blowing refers to contacting someone outside the organization about potential or
oThe federal government encourages its employees to blow the whistle. The U.S. Office of
oBlowing the whistle on an employer can be detrimental to the whistle-blower as well as the
organization.
oLegal advisors recommend that the following four conditions be met before an employee
informs an external authority.
oThe False Claims Act, initially passed in 1863 during the Civil War, includes a “qui tam”
provision where citizens can sue the fraudulent supplier on behalf of the government and be
rewarded a percentage of the financial recovery.
oAn employee who independently sues his or her employer for fraud can now receive
oAccording to the False Claims Act Legal Center, a potential whistle-blower should consider
the following prior to filing under the False Claims Act:
oThe whistle-blower must have actual knowledge of the fraud, not just a suspicion, and
oThe fraud cannot be a tax fraud; tax fraud is specifically exempt from prosecution
oFederal money must be involved, or, in a state with a state False Claims Act, state
oMost lawyers work on a contingency fee basis, and will only pursue a case if the
oIn 2006, with estimates of U.S tax evasion as high as $350 billion, the IRS created a
Whistle-blower Office to receive information about possible individual or corporate tax
frauds.
oThe IRS Whistle-blower Office modeled a Whistle-blower Reward Program after the
False Claims Act, paying whistle-blowers 15-30 percent of the unpaid taxes
recovered.
oWhistle-blower Retaliation protection clauses are common for new federal laws.
oCongress quickly passed the Sarbanes-Oxley Act of 2002 (SOX) to ensure additional
confidence in the stock market and the financial statement of publicly-held companies
following a series of high profile accounting scandals in early 2000s, including Enron.
oAccording to SOX, no publicly traded company, or subcontractor of that company,
can discharge, demote, suspend, threaten, harass, or in any other manner discriminate
against a whistle-blower.
FOR DISCUSSION: Several critics of whistle-blowing reward systems argue that employees
blowing the whistle should first be required to inform an internal manager and provide the
company time to correct to the problem. Others maintain that sometimes the person that would
be informed is the one who is violating the law. Should Congress modify the law and require that
an appropriate manager first be notified and given time to correct the problem? Why
Chapter Question 5: What are some of negative outcomes that many whistle-blowers have
experienced?
oWhistle-blowing can have many negative impacts on an employee’s life. Researchers report
that soon after blowing the whistle, many whistle-blowers experience:
FOR DISCUSSION: Have students read the stories of several whistle-blowers on the National
Whistle-blowers website at http://www.whistle-blowers.org/index.php?
option=com_content&task=blogcategory&id=71&Itemid=108. What are
some common themes in their testimonies? Why didn’t managers stop these illegal behaviors
from occurring?