978-1259535437 Chapter 7 Part 1

Chapter 07 – Blowing the Whistle

7-1

CHAPTER 7

Blowing the Whistle

Table of Contents

Chapter Summary 7-2

Learning Outcomes 7-2

Frontline Focus: “Good Money” Questions 7-2

Learning Outcome 1 7-3

Learning Outcome 2 7-3

Learning Outcome 3 7-5

Learning Outcome 4 7-6

Learning Outcome 5 7-6

Life Skills 7-7

Progress ✓Questions 7-7

Ethical Dilemma 7-10

Frontline Focus: “Good Money—Ben Makes a Decision” Questions 7-13

Key Terms 7-13

Review Questions 7-13

Review Exercises 7-14

Internet Exercises 7-15

Team Exercises 7-17

Thinking Critically 7-19

Chapter 07 – Blowing the Whistle

7-2

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

individual’s 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 whistle-

blowing.

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.

Extended Chapter Outline

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

discussed later in the chapter. Which approach should Ben follow if he does decide to raise

his concerns?

2. The five conditions that must exist for whistle-blowing to be ethical are outlined later in the

chapter. Has Rick given Ben enough information to be concerned about the Benfield

Chapter 07 – Blowing the Whistle

7-3

Voyagers?

Students’ answers may vary. 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

3. What should Ben do now?

Students’ answers may vary. Ben needs to do some research to see if the Voyager tire is of

Learning Outcome 1: Explain the Term Whistle-Blower, and Distinguish Between Internal

and External Whistle-Blowing.

• A whistle-blower is an employee who discovers corporate misconduct and chooses to

bring it to the attention of others.

• Internal whistle-blowing happens when an employee discovering corporate misconduct,

brings it to the attention of his or her supervisor, who then follows established procedures

Chapter 07 – Blowing the Whistle

7-4

Learning Outcome 2: Understand the Different Motivations of a Whistle-Blower.

• Whistle-blowers are said to provide an invaluable service to their organizations and the

general public.

• The discovery of illegal activities before the situation is revealed in the media could

potentially save organizations millions of dollars in fines and lost revenue from the

inevitable damage to their corporate reputations.

• The discovery of potential harm to consumers offers immeasurable benefit to the general

public.

the firm’s practice, product, or policy seriously threatens and puts in danger the

public or product user.

o The employee must have valid reasons to believe that revealing the wrongdoing to

the public will result in the changes necessary to remedy the situation.

• If there is evidence that the employee is motivated by the opportunity for financial gain or

media attention or that the employee is carrying out an individual vendetta against the

company, then the legitimacy of the act of whistle-blowing must be questioned.

Chapter 07 – Blowing the Whistle

7-5

Education.

it easier and safer for whistle-blowers to come forward.

• Whether the motivation to speak out and reveal the questionable behavior comes from a

personal ethical decision or the potential for a substantial financial windfall, the key point

is that one had better be very sure of one’s facts and one’s evidence had better be

irrefutable before crossing that line.

• Since examples of internal whistle-blowing rarely receive media attention, it is impossible

to track the history of such actions.

o However, external whistleblowing is a 20th-century phenomenon.

o One of the first instances of the use of the term whistle-blower occurred in 1963.

o Public awareness of whistle-blowers reached a peak in 2002.

Learning Outcome 3: Evaluate the Possible Consequences of Ignoring the Concerns of a

Whistle-Blower.

• Employees are becoming increasingly willing to respond to any questionable behavior they

observe in the workplace.

o The choice for an employer is to ignore them and face public embarrassment and

potentially ruinous financial penalties, or to create an internal system that allows

whistle-blowers to be heard and responded to before the issue escalates to an external

complaints and guaranteed the anonymity of the whistle-blower unless

revealing the name would prevent criminal activity or protect public safety.

➢ The act also required payment of any portion of the settlement to which the

whistle-blower would be entitled, even if the case were still working its way

through the appeals process.

Chapter 07 – Blowing the Whistle

7-6

integrated approach to the matter of whistle-blowing by both prohibiting retaliation

against whistle- blowers and encouraging the act of whistle-blowing itself.

• The Dodd-Frank Wall Street Reform and Protection Act of 2010 introduced a new reward

Learning Outcome 4: Recommend How to Build Internal Policies to Address the Needs of

Whistle-Blowers.

• Given the new legal environment surrounding whistle-blowers, all employers would be

wise to put the following mechanisms in place:

o A well-defined process to document how such complaints are handled—a nominated

contact person, clearly identified authority to respond to the complaints, firm

assurances of confidentiality, and nonretaliation against the employee.

Learning Outcome 5: Analyze the Possible Risks Involved in Becoming a Whistle-Blower.

• The perceived bravery and honor in doing the right thing by speaking out against corporate

wrongdoing at personal risk to one’s career and financial stability adds a gloss to the act of

whistle-blowing that is undeserved.

• The fact that an employee is left with no option but to go public with information should be

seen as evidence that the organization has failed to address the situation internally for the

long-term improvement of the corporation and all of its stakeholders.

Chapter 07 – Blowing the Whistle

7-7

to fix whatever has been broken.

o Regrettably, the majority of executives choose to either bury the information and hire

the biggest legal gunslinger they can find to discredit the evidence or, tie their

employees in such restrictive confidentiality agreements that speaking out exposes

the employee to extreme financial risk, which managers hope will prompt the

employee to “keep his or her mouth shut.”

➢ 25 percent suffered alcohol abuse

➢ 17 percent lost their homes

➢ 15 percent got divorced

➢ 10 percent attempted suicide

Life Skills

Making Difficult Decisions

Many individuals, such as Jeffrey Wigand, Sherron Watkins, Christine Casey, and David Welch,

have come across situations in their business lives where the behavior they observe is in direct

conflict to their ethical standards, and they find themselves unable to simply look the other way.

What would you do in this situation? Would you ignore it? Could you live with that decision?

What if there was a negative impact on the company as a result of your actions? The

consequences for you, your immediate family, your co-workers, and all the other stakeholders in

the organization represent an equally important part of that decision. Now you can see why

whistle-blowers face such emotional turmoil before, during, and after what is probably one of the

toughest decisions of their lives. If you find yourself in such a situation, don’t make the decision

alone. Talk to people you can trust, and let them help you review all the issues and all the

potential consequences of the decision you are about to make.

Progress ✓ Questions

1. What is a whistle-blower?

7-8

Education.

it to the attention of others.

2. What is internal whistle-blowing?

3. What is external whistle-blowing?

4. Is whistle-blowing a good thing?

5. List five conditions for whistle-blowing to be considered ethical.

The five conditions for whistle-blowing to be considered ethical are:

• When the company, through a product or decision, will cause serious harm to the

public or break existing laws, the employee should report to the organization.

6. Under what condition could whistle-blowing be considered unethical?

7-9

Education.

motivated by financial gain or media attention, or if he or she carries a vendetta against the

company. In this case the legitimacy of their whistle-blowing must be questioned.

7. If you blow the whistle on a company for a personal vendetta against another employee but

receive no financial reward, is that more or less ethical than doing it just for the money?

8. Would the lack of any financial reward make you more or less willing to consider being a

whistle-blower? Why?

9. If an employee blows the whistle on an organization on the basis of a rumor, is that ethical?

10. If that information turns out to be false, should the employee be liable for damages? Explain

your answer.

11. Compensation under Dodd-Frank isn’t as clear as a percentage of the funds recovered for a

government whistle-blower. Does that make it less likely that we’ll see more whistle–

blowing under Dodd-Frank?

7-10

Education.

scandal when it can be prevented.

12. Under SOX, complaining to the media isn’t recognized as whistle-blowing. Is that ethical?

13. How should managers or supervisors respond to an employee who brings evidence of

questionable behavior to their attention?

14. Should that employee be given any reassurances of protection for making the tough decision

to come forward?

15. Do you think a hotline that guarantees the anonymity of the caller will encourage more

employees to come forward?

16. Does your company have a whistle-blower hotline? How did you find out that there is (or

isn’t) one?

Chapter 07 – Blowing the Whistle

Ethical Dilemma

7.1 – The Insider

1. Wigand was initially unwilling to go public with his information. What caused him to

change his mind?

2. Did CBS pursue Wigand’s story because it was the right thing to do or because it was a good

story?

3. Since CBS played such a large part in bringing Dr. Wigand’s 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.

4. Was CBS’s decision not to run the interview driven by any ethical concerns?

7.2 – The Cold, Hard Reality

1. Who took the greater risk here: Khaled Assadi or Kyle Lagow? Why?