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REPORT ON WHETHER WHISTLEBLOWERS SHOULD BE REWARDED FOR MAINTAINING SHAREHOLDERS VALUE OR SHOULD BE REVILED FOR THEIR ACT OF DISLOYALTY TO THE CORPORATE MANAGEMENT TEAM
IN PARTIAL FULFILMENT OF THE AWARD OF POST-GRADUATE DEGREE (MSC FINANCE AND BUSINESS MANAGEMENT)UNIVERSITY OF BEDFORDSHIRE
ACKNOWLEDGEMENT
TABLEOFCONTENTS PAGES
ACKNOWLEDGEMENT
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
BACKGROUND OF STUDY
STATEMENTS OF PROBLEMS
RESAERCH AIM AND OBJECTIVES
SIGNIFICANCE OF STUDY
RESEARCH METHODOLOGY
LIMITATION TO STUDY
OVERVIEW OF CHAPTERS
LITERATURE REVIEW
INTRODUCTION
HISTORICAL BACKGROUND OF WHISTLEBLOWING
WHAT IS WHISTLEBLOWING
TYPES OF WHISTLEBLOWING
INTERNAL WHISTLEBLOWING
EXTERNAL WHISTLEBLOWING
ALLERGED ORGANISATION MISCONDUCT
AFFECTED PARTIES TO WHISTLEBLOWING
ORGANISATION (CORPORATE MANAGEMENT TEAM)
SHAREHOLDERS & STAKEHOLDERS
INDIVIDUALS (WHSITLEBLOWERS)
POTENTIAL BENEFITS OF WHISTLEBLOWING TO VARIOUS PARTIES
POTENTIAL BENEFITS TO ORGANISATION (CORPORATE MGT TEAM)
POTENTIAL BENEFITS TO SHAREHOLDERS & STAKEHOLDERS
POTENTIAL BENFITS TO INDIVIDUALS (WHISTLEBLOWERS)
POTENTIAL COSTS TO ORGANISATION
EXECUTIVE SUMMARY
1. INTRODUTION
1.1 Background of StudyOrganizations often face information that exposes problems or wrongdoing or
represents dissent. Messages signalling problems or wrongdoing frequently
come from internal sources such as employees or from related agencies and
organizations aware of problems or wrongdoing. When the organization refuses
to take appropriate action in response to these messages, insiders or outsiders
may call broader attention to the issue by blowing the whistle. The
communicative process of blowing the whistle is critical for organizations and
societies seeking to monitor areas of emerging risk that are threatening to an
organization’s established routines and assumptions (Jensen, 1987; Miceli &
Near, 1992; Redding, 1985; Seeger 1997).
Over the past 25 years the topic of whistle blowing has been turned around from
being such a rare occurrence, to the present when more numerous cases would
readily flow off the tongue. (Vinten, 1993). This signifies that the concept of
Whistle-blowing cannot be over emphasized. Apart from being an important
aspect of corporate governance, it occurs in all types of organizations and in
response to many kinds of wrongdoing.
Whistle-blowing is often presented as a personal act of conscience that
contributes to the open dissemination of important information about the well-
being of the public (Nader, 1990). Thus, whistleblowing can also be viewed as a
strategy to enhance and maintain quality. It is commonly framed as the ethical
act of a hero, a virtuous individual following a personal sense of right and wrong
at great personal risk, and no doubt, some employers would always hesitate at
the thought of providing rewards for ethical behaviour. In other instances,
however, whistle-blowers are described as turncoats breaking trust and
confidence and lacking in loyalty (Winfield, 1994). Peter Drucker (1982), for
example, argued that encouraging whistle-blowing compromises trust and the
overall ethical climate of organizations: “Whistle blowing is simply another word
for informing” (p. 234).
1.2 Statement of problemHaving stated earlier that the concept of whistleblowing cannot be
overemphasized, it is pertinent to give a brief definition of what whistle blowing is.
It involves an individual with some level of unique or inside knowledge using
public communication to bring attention to some perceived wrongdoing or
problem, (Johannesen, 1996; Seeger, 1997; Vinten, 1994). Whistleblowing is
seen as a risky business, however most whistleblowers suffer in various ways,
including ostracism, harassment, punitive transfers, reprimands, referral to
psychiatrists and dismissal. It is worthy to note that bosses and top managers are
responsible for many of the attacks on whistleblowers, but coworkers often join in
or do nothing, often due to fear that they could be the next victims.
Several authors and academics have established numerous benefits associated
with whistle blowing. If this being the case, it is however alarming to discover
several ways in which whistle blowers suffer as a result of being loyal. This
research tends to provide an insight into the above mentioned problem by which
investigating ways in which whistle blowers can be rewarded and protected from
the above punitive measures as well as exploring whistle blowing policies in
selected organizations.
1.3 Research Aim and ObjectivesThe aim of this research has its origin from the above mentioned problem. This
research therefore aims to analyse if whistleblowers should be rewarded by
companies as they enhance shareholders valuation, or whether they should be
despised for disloyalty to corporate management team, using UK and USA as my
main area of concentration.
In order to achieve this aim, the following research objectives would be
examined;
To examine the whole concept concerning whistleblowing
To find out the benefits and costs of whistleblowing to the whistleblowers,
organisations, as well as the stakeholders
To examine the concept of Corporate governance as an important tool in
business ethics
To examine the employees duty of Loyalty and Confidentiality to an
organisation
To examine several laws and regulations protecting whistleblowers in the
UK and in the United States.
To draw a conclusion as to whether whistleblowers should be rewarded or
reviled.
1.4 Significance of StudyWhistleblowing has been viewed from different perception. As a result of this, so
many research studies has been done on corporate governance as regards
ethical issues, morality, illegality especially with regards to whistle blowing in
Canada, UK, USA, Australia and a multitude of many other countries.
Hence, academics have shown an intense concern in identifying the factors
proposed to encourage and improve how whistleblowing can be managed in
organisations. This study is concerned with determining the existing factors that
protect individuals who disclose wrongdoings in organisations, and legal
protection available for those who are willing to blow the whistle, but frightened of
its cost. As a result of these, whistleblowers in organisations need to be protected
especially when they are faced with challenging situations, particularly in the UK
and the USA.
This study will also help improve the practice of whistleblowing management by
eradicating misconducts, and adopting ethical values in UK and USA, which
serves as an indicator of this study.
However, this research will contribute to existing literature on whistle blowing as it
tries to put to test whistleblowing theories and case studies, with particular
reference to corporate organisation (corporate management team), and also
serve as a base for further research on whistle blowing.
1.5Research MethodologySince the aim of this study is to analyse if whistleblowers should be rewarded or
reviled, for the purpose of this study, secondary data would be used to obtain
information needed, by thoroughly examining what other researchers/scholars
have said and their various judgment .This research method that would be based
on secondary data would be gotten from; Articles and Journals, Published Books,
newspapers, magazine reports and published or unpublished reports.
1.6 Limitation of StudyThe limitation to this study is the fact that the research is restricted to the use of
data from secondary sources only such as journals, textbooks, magazines and
newspapers. The use of primary data would have been more helpful, in that we
would not be restricted to what other researchers have said, but we would have
had the opportunity of ask for others opinion via questionnaire and personal
interviews
1.7 Overview of ChaptersChapter 1 of this study provides a general overview of the entire study. This
includes an introduction and background of whistleblowing; the statement of
problems; research aim and objectives; the significance of the study; methods
that would be used in gathering information needed for the study is also included;
limitation to the study; as well as the overview of chapters.
Chapter 2 deals with the literature review, which looks at relevant theoretical and
empirical work on whistleblowing. This chapter examines the benefits and costs
of blowing the whistle, laws, regulations, policies as regards whistleblowing in the
UK and USA, such as the PIDA, Sarbanes Oxley, as well as employee’s duty of
loyalty and employer’s ethical duty of good corporate governance.
Chapter 3 provides a review of different case studies of whistleblowing in some
selected corporate organisations in the UK and USA. The context of this chapter
will entail brief background of the company of discuss, the scandal i.e. the
accusation that created the motive for blowing the whistle, and finally the
outcome of the case will be discussed in order to know whether the
whistleblowers in question were rewarded or compensated for blowing the
whistle, or punished, dismissed or victimised as a result of blowing the whistle on
its organisation.
Chapter 4 gives an analysis and discussion of the theories of the reviewed
literature side by side with the selected case studies
Chapter 5 winds up the study by presenting a conclusion based on our findings
between certain case studies on whistleblowing and conceptual research
framework under the study of whether whistleblowers should be rewarded as
they help in improving the valuation of an organisations share, or whether they
should be reviled for their act of disloyalty to their organisation. It also highlights
recommendations are made for future research arising from the study.
WE HAVE TO STATE OUR FOCUS (COY OF FOCUS AND ARE OF
CONCENTATION (SHAREHOLDERS FOR THE PURPOSE OF THIS STUDY)
2. LITERATURE REVIEW
2.1 IntroductionThe issue of whistle blowing is increasingly becoming a topic of discussion as
employees protest concerns about illegality at work (Vinten 1994). Vinten further
stressed that this issue can have tragic and threatening consequences on the
individual, and also put the company being reported at stake in terms of survival.
It is therefore a problem that will concern not only managers, but students of
business and management as well as workers. According to Miceli and Near
(1994), whistleblowing poses several problems for organisations and its
members who respond to alleged organisational misconduct, thereby, making it
difficult for such organisation to achieve a level organisational decency.
2.2 HISTORICAL BACKGROUND OF WHISTLEBLOWINGWhistleblowing is a new name for an ancient practice from the development of
the theory of individualism. Before Christ in the eighth century, the Hebrew
prophets such as Hosea and Amos did criticise rulers for their social injustices
selflessly, thereby risking their lives (Vinten 1994)
The first recorded usage of “whistleblowing” occurred in 1963 during the famous
Otto Otopeke case. Some documents concerning securities risks in the new
administration was handed over to the Chief Counsel of Senate Subcommittee
on Internal Security by Otopeke. The then Secretary of State Dean Rusk,
dismissed him from his job in the State department for conduct unbecoming a
state department officer. This highly fascinating incident has ever since then
been growing gradually in the media report (Petersen and Farrell, 1986).
In the 60’s employees were at all cost expected to be loyal to their organisations,
thus firing at will any employee who does not comply with the duty of loyalty. This
was as a result of lack of protection for employees who go against this duty of
loyalty to blow the whistle.
In the 70’s many cases of were experienced as many employees decide to
swallow the whistle despite the awareness of hazardous products. The case of
Firestone in 1972 is a typical example of swallowing the whistle, as warnings of
the producing inferior tires were not adhered to, thus causing may life and some
injuries.
The 1980’s was the beginning of new era for whistleblowers as employees were
provided with protection against whistleblowing so employees could no longer
fire them at their free will. This protection enacted was to protect employees in
the corporate world of America. The wake of Enron and WorldCom, coupled with
Sarbanes-Oxley, was the climax of it all, where employees are now given more
power to report ethical and legal infringement (Ravishankar, 2007)
2.1 What is Whistle blowingAccording to Lewis (2001), there is no universally accepted concept of
whistleblowing but it has been defined by various authors .Some of these
definitions is as follows:
Vinten (1994:5) defined whistleblowing as “the unauthorized disclosure of
information that an employee reasonably believes is evidence of the
contravention of any law, rule, or regulation, code of practice, or professional
statement, or that involves mismanagement, corruption, abuse, of authority, or
danger to public or worker health and safety”. Nader et al (1972) also describes
whistle blowing as an act whereby an individual whose concern for the public
tends to outride that of the organisation he serves and as a result, report any
fraudulent, illegal or harmful doings of an organisation he/she serves to the
public.
Near and Miceli (1985), sees whistleblowing as a situation whereby employees of
an organisation (past/present), reports or leaks a wrongdoing, misconduct i.e.
illegal or illegitimate act, to a person (internal or external) or organisation who is
able to do something or pass judgement. Eaton and Akers (2007) equally share
the same view with Near and Miceli that whistleblowing is a form of “ethical
informing”, which is motivated by the desire to protect and promote the interest of
the public. Whistleblowing was also defined by Jubb (1999) as the disclosure of
public record, by an employee or person with way into an organisations’
information, about the illegality which implicates the organisation to an external
authority.
Based on a number of definitions of whistleblowing, I will summarise
whistleblowing as been an act whereby an individual decides to report any form
of wrongdoings, misconduct, illegality or activities which can jeopardise the
reputation of an organisation. This act could be reported to internally i.e. within
the organisation, or externally i.e. outside the organisation as long as required
action is taken to correct the act.
In spite of all what has been defined by researchers as whistleblowing, the views
of some are totally different. Researchers of different view of whistleblowing are
classified as anti-whistleblowers.
THE ANTI-WHISTLE BLOWERS
Whistle blowing is not mostly encouraged by everybody. The most distinguished
anti-whistleblower is Peter Drucker (1981). According to him, Whistle blowing
could be viewed as ‘informing’, he also explained further that the societies that
encouraged informers in the Western history were bloody. To him, mutual trust,
and ethics under Whistle blowing should be viewed as impossible. Hoffman and
Moore (1982), criticised Drucker’s judgements and said ‘informing’ is a value-
laden interpretation, not a neutral description of Whistle blowing. To them,
Whistle blowing cannot be expressed as ‘informing’ and that Drucker did not
present a clear argument to support his claims. They further posited that the
support needs rigorous normative reflection and this reflection should be the area
of business ethics.
An Editorial Survey in Business and Society Review (Orr, 1981), where a group
of leading business and thinkers were invited to comment on Drucker’s article.
According to them, Drucker was generally over simplistic and Monte Throdahl,
senior Vice-President of Monsanto said that his company had made something
good from Whistle blowing especially in respect to safety and environmental
issues.
Westin (1981) considered that Druckers and those who had the mentality as him
(i.e. those that see whistleblowers as rats and whistleblower protection legislation
as rat protection) deserve to be called ‘totalitarian’. These people will only tend to
evaluate silent loyalty to employers i.e. those who act unlawfully or in clear
disregard of public interests, above any moral or social duty, which is meant to be
the otherwise.
ALLERGED ORGANISATION MISCONDUCTSA good number of authors from our definition of Whistle blowing speak about it as
been related to an alleged organisational misconduct. So, an individual must
observe an unpleasant behaviour in an organisation, or position of wrongful
happenings before a form of disclosure can occur or can have effect. After that,
the observations then stand as a starting point for the whistleblower to disclose
misconduct (Miceli and Near, 1992). On the other hand, there must be
verification that the misconduct/ wrongdoing are vital for the individual to disclose
it and speak about (Gundlach, Douglas and Martinko 2003).
TYPES OF WHISTLEBLOWING According to Near and Miceli (1995), there exists two basic form of whistle
blowing. They are;
Internal Whistleblowing External Whistleblowing
Internal WhistleblowingThis is a situation whereby an individual or employees reports any form of
wrongdoings, or illegality of an organisation to a source within the organisation
that can pass necessary judgment. This type of whistleblowing occurs when the
whistleblower reports wrongdoings to members outside the hierarchy of
command within the company. This may possibly comprise of company’s board
of directors such as executive officers as well as non-executive officers, who are
representatives of company’s shareholders (Finn, 1995). Consequently, reporting
wrongdoings to colleagues cannot be classified as whistleblowing (Kings, 1999).
Barnett (1992) further stated that the issue of internal whistleblowing helps
organisations rectify wrongdoings before it goes public and causing damages to
such company’s reputation as well as its shareholders. Somers and Casal,
(1994), purported that in organisations, internal whistleblowing can be examined
as an expression of trustworthiness and commitment. Therefore, internal whistle
blowing among employees can be encouraged by the introduction of cultural
ethics (Kings 1999).
External Whistle blowing This is a type of whistle blowing whereby a wrongful or illegal act is reported to
sources outside the organisation. Such sources may include reporting to the
media, professional bodies, interest groups, law enforcement agencies, and
many more (Near and Miceli, 1995). When an organisation is without a safe
internal route, whistleblowers are left with no other choice but to disclose the
wrongdoings externally to authorities or more widely. Also, employees tend to
blow the whistle externally when they do not feel safe blowing the whistle within
the organisation. (Dehn, 1999) Most times, external whistleblowing occur when
internal whistleblowing is ignored or when proper action is not taken on the
report. Most often,
On the other hand, some researchers argue that this type of whistleblowing
brings about negative publicity about an organisation as well as its brand name
and reputation. This negative impact causes shareholders and potential
shareholders loose confident in the organisation. (Barnett, 1992 and Binikos,
2006). Have I actually argued
REVIEW OF PREVIOUS STUDIES
Many researchers have studied the act of whistleblowing from different views.
The following studies were relevant for this study:
David (2005), in his paper made to find out how management should respond to
whistleblowers argue that most employees who notice wrongdoings refuse to
disclose it to management because of the fact that they might get punished for
speaking out. As a result of this, there could be mistrust in the management of an
organisation. He finally concluded that employees should be rewarded for the
courage they have in blowing the whistle as it will serve as a good signal to other
employees that it is safe to disclose unethical behaviour.
Dr Romulo (2004) discussed shareholders awareness, attitudes and concerns
regarding whistleblowing. According to him, whistleblowing can be seen as anti-
corruption measure. For the purpose of his research, 50m stakeholders were
interviewed over the issue of whether whistleblowers should be rewarded or not.
Findings of his study indicated that whistleblowers should be given financial
incentives which will serve as form of motivator for potential whistleblowers.
Some whistleblowers should not be rewarded as it is their responsibility as it
should be seen as part of their job.
Dr Romulo concluded that whistleblowers should be rewarded in terms of
monetary reward, but potential whistleblowers should not take advantage of this
reward and start making living out of whistleblowing.
Thompson, (1987), in his study described whistleblower as ’’concerned
employee’’. The word concern is an affirmation that the employee has the interest
of the organisation at heart. However, he stated that whistleblowers are seen
from a negative perspective, as they are usually well thought of as rebellious
employees, thus at the end of their actions, they are mostly dismissed, poorly
evaluated by their employers.
All the above studies provide a concrete support and also give an idea on the
subject of whether Whistleblowers as been rewarded for their action or otherwise.
On basis of these researches done by different researchers, a methodology has
been developed for this research.
AFFECTED PARTIES TO WHISTLE BLOWING IN ORGANISTAIONWHISTLEBLOWERThe Whistleblower is a concerned citizen, who is totally inspired by the public
interest, and opened to disclosing a significant wrongdoing to a person capable
of investigating and facilitating correction of such wrongdoing (Senate Select
Committee on Public Interest Whistle blowing 1994). Such disclosure could be
done within a source in an organisation or outside the organisation.
Vickers (1995) explains two types of whistleblower; the ‘watchdog’ and ‘protest’
whistleblowers. Vickers describes a ‘watchdog’ whistleblower as a person or an
employee who discovers any form of illegality or wrongdoing, then exposes it so
as to aid financial disaster or safety, and a ‘protest’ whistleblower as a person
who tends to be mostly concerned about the effects of their employer’s activities.
SHAREHOLDERS & STAKEHOLDERSThe strategic objective of any organisation is to maximise shareholders’ wealth
as well as that of stakeholders such as employees, customers, tax authorities,
and the communities where firms operate. This simply means that mangers
should create as much wealth as possible for the shareholders, and focus on
their stakeholders too. The shareholders wealth can be maximised through the
cash received as dividend and capital gains arising from increasing share prices
(Head and Watson 2004)
Therefore, firms that focus on their shareholders and stakeholders would mostly
avoid actions that could be harmful to them (Megginson and Smart 2006).
Maximisation of Shareholders Value (DO I NEED TO TALK ON THIS)
CORPORATE MANAGEMENT TEAMManagement is an integral part of, and fundamental to, the successful operations
of the organisation. Management is therefore the cornerstone of organisational
effectiveness, effectiveness, and is concerned with activities for carrying out
organisational processes and the execution work. There are many aspects to
management in work organisations, but the one essential ingredient of any
successful manager is the ability to handle people effectively. (Mullins 2005)
POTENTIAL BENEFITS OF WHISTLE BLOWING TO VARIOUS PARTIESWhistleblowing tends to be beneficial to various parties. Some prominent authors
such as (Graham, 1983; Mathews, 1988; Parmerlee, et al.1982) purported that
whistleblowers can benefits organisations, individuals as well as shareholders by
suggesting solutions to organisational problems. These benefits could be short-
term or long-term (Near and Miceli 1992). Therefore, below are some benefits of
Whistle blowing.
POTENTIAL BENEFIT TO ORGANISATIONS (CORPORATE MANAGEMENT TEAM)
Whistleblowing can be of great benefits to corporate management team as it
facilitates;
Maintenance of Goodwill and Avoidance of Damage Claim;Individuals and Public may decide not to purchase certain goods & services as
soon as they realise any form of wrongdoings, thereby putting the market of such
organisation at a disadvantage over other companies with related products and
services. In order words, when attention is given to wrongdoings reported within
an organisation, it will help protect the good name of the organisation and avoid
any form of damage claim.
However, some argue that outsiders hear of wrongdoings, this is because of the
fact that the whistles are blown outside. But according to Baker (1983), whistles
are blown outside when not given proper attention to inside.
Support for Codes of Ethics A research by Mathews (1987:125) stated that there existed “little relationship
between codes of conduct, civil, and administrative corporate violations, contrary
to the notion that the codes serves as an effective form of regulation”. Hence,
Whistle blowing helps management of organisations who responds to it make
necessary changes which goes in line with organisational codes of ethics (Near
and Miceli 1992).
Improved Employee MoralThose who blow the whistle tend to feel more fulfilled ad satisfied than those who
keep silent to wrong doings. Therefore, accomplished Whistle blowing gives
employees more confidence that they are able to change unethical behaviour in
organisations, thereby improving employees’ satisfaction at work (Near and
Miceli 1988a).
Avoidance of Legal RegulationOrganisations trapped in illegal activities are mostly subject to punishment by
legal authorities. Such punishments are mostly borne by investors and mangers
of such corporate illegality (Davidson & Worrell, 1988). Punishments for
wrongdoings or illegality can only be minimised or avoided when the
organisations involved yields to internal Whistle blowing and corrects it before the
public learns of the organisations wrongdoings. Also, correction of internal
Whistle blowing protects the organisation from been constantly monitored by
legislators, which could lead to the introduction of new regulations of
organisations activities (Near and Miceli, 1992)
POTENTIAL BENEFIT TO INDIVIDUAL (WHISTLEBLOWER)Whistleblowers according to Cherry (2004), are regarded as “Lone voices of
reason, morality and truth who speak out to protect the public from harm”. Hence,
benefits of blowing the whistle are that;
The whistleblower would be legally protected from retaliation as he/she
places the interest of the public more importantly than that of his
employers.
They usually receive several awards for their loyalty as well as public
recognition.
POTENTIAL BENEFITS TO SHAREHOLDERS & STAKEHOLDERSShareholders are regarded as those individuals who provide fund for ongoing of
an organisation. They are usually regarded as legal owners of businesses who
are interested in how their money is been invested so they can have returns in
form of cash dividend and capital gains and stakeholders comprise of employees,
consumers and the general pubic. Workers usually pay more attention to their job
security, pay as well as health and safety policy put in place at work. Consumers
are particular about the quality of goods & services consumed, thus, making the
public/community interested in the social and environmental impact organisations
have on the community. As a result of all these, when making corporate
decisions, each of these groups needs to be well thought of, since they have got
a “stake” in the organisation (Lewis 2001).
As a result of these, Whistle blowing helps shareholders & stakeholders to;
Increase their Safety and Well-being;Whistle blowing adhered to or corrected tends to save a company from huge
potential loss which could harm stakeholders especially (investors and potential
investors) of an organisation from huge financial loss, since weak financial
performance will damage shareholders interest (Lewis 2001). Thereby, enabling
stakeholders, especially shareholders and potential investors feel save in
investing their monies in such company.
Subsequently, the criminal Justice Commission (1999) also provides some long-
term benefits of Whistle blowing to Shareholders & stakeholders. Therefore, the
act of Whistle blowing;
A.) Helps protect stakeholders from corporate negative reputation.
B.)Helps managers and staffs to focus on accountability, as a result to their
accountability to shareholders
C.)Helps improve company’s performance, which could lead to increase in cash
dividend and capital gains.
D.)Helps protect employees, consumers and the public from the danger of health
and safety
Notwithstanding all the stated benefits of whistleblowing to various parties above,
some researchers claim that the cost of whistleblowing outweighs its benefits.
Some of these costs are unbearable. Many whistleblowers tend to receive a lot of
negative response from organisations, families and many more. Shareholders
are not let out of the threat of whistleblowing as most times they suffer a lot of
financial distress as a result of whistleblowing. Below are some costs of
whistleblowing to various parties.
POTENTIAL COSTS TO ORGANISATIONS
Some of the costs of whistleblowing to an organisation are;
Threats to Organisational Viability;Whistleblowers serve as a form of threat to organisations as it may be seen as
destructive instrument to the profitability of an organisation. Near and Miceli
(1992) further believe it could be cost effective to break the law may enable
organisations minimise costs and pay less for breaking such laws.
Challenge to Authority Structure;Weinstein (1987) posited that whistleblowers may serve as a threat to an
organisations authority structure, as a result of its difficulty to the organisation.
This can also lead to deterioration of an organisations chain of command.
Unpredictability of Organisation Member Actions;The issue of Whistle blowing gives some organisations much concern as to
which employee would blow the whistle and an unwarranted report may cause a
disruption with one’s professional activities (Koshland, 1988). For example, fear
of a student by faculty members raising issues on an undue grading.
POTENTIAL COSTS TO INDIVIDUAL (WHISTLEBLOWER)
According to Soeken and Soekan (1987), Estell (2002) and Daniels (2002),
Consequences of individuals who blow the whistle includes;
Been ostracised and abused by other colleagues at works
Threats to his/her family members i.e. security of his/her family members
are mostly at risk
Such individuals attempts suicides in order to escape living in nightmare.
Other consequences for the whistleblowers are;
a.) Whistleblowers, in their quest for compensation to damages suffered,
they tend to undergo continual litigation (Jos, Tompkins and Hays 1989)
b.) They usually go through terrible financial crisis as a result of lost job and
their prospect for another job is being jeopardized as a result of the person’s
reputation as a traitor (Uys 2005)
POTENTIAL COSTS TO SHAREHOLDERS & STAKEHOLDERS
Whistle blowing could have both long-term and shot-term consequences on
shareholders as well as stakeholders, depending on the extent of the
misconduct. Most times, shareholders loose their investments in terms cash
dividend and capital gains, while employees job security would be at stake, the
environment could be threatened, and the consumers’ health and safety could be
jeopardized.
However, Bowen and Raigopal (2007) argued that Whistle blowing made known
in an organisation usually leads to the downward movement, of the market’s
share price, particularly if the allegation has to do with earning reinstatement or
manoeuvring of profit.
Despite all the benefits and costs of blowing the whistle explained above, some
whistleblowers may decide to keep silent rather than blow the whistle due to
some benefits. Some benefits of keeping silent are discussed below; BENEFITS OF NOT BLOWING THE WHISTLEWhistleblowers act in order to stop or correct a wrongdoings or misconducts
(Near and Miceli 1985). Therefore, keeping silent to wrongdoings can have both
negative implications and positive implications on the organisations, the
individual (whistleblower), as well as the stakeholder and shareholders such as
employees, consumers and the public, depending on the magnitude of the
misconduct. Some benefits of not blowing the whistle are briefly explained below.
BENEFITS TO ORGANISATIONAs a result of staying silent to wrongdoing, managers of organisations may tend
to correct any form of illegality or wrongdoings on time. The option of keeping
silent may also give room for smooth organisational functioning, as well as
avoidance of unserious complaints such as lawsuits (Near and Miceli 1992).
However,
BENEFITS TO SHAREHOLDERS & STAKEHOLDERSThe option of staying silent may benefit stakeholders as managers of
organisations are persuade from making decisions which are less risky to
stakeholders. Some managers may become more careful in their decision
making as a result of the fear that possible whistleblowers may analysis their
actions as illegitimate. Also, another benefit to stakeholders is that when the
whistle is not blown, cost associated to unserious allegations by whistleblowers
are prevented. Such cost includes fees to file a legal action or court injunction.
(Near and Miceli, 1989).
BENEFITS TO INDIVIDUAL (WHISTLEBLOWER)Silence is an option of least risk for individual employee who comes across
wrongdoings in the workplace (Callend and Dehn 2004). Employees mostly keep
quite to wrong doings at the detriment of stakeholders though, but to their own
benefit. Such attitude of keeping silent to wrongdoings saves the individual from
demotion, harassment at work as well as been ostracised by colleagues.
COSTS OF NOT BLOWING THE WHISTLEBlackburn (1988, p9), indicated that “staying silent has negative implications for
the organisation”. Also, Staying silent has negative implication on whistleblowers
(individual) as well as Shareholders and stakeholders. Some costs of keeping
silent are examined below
COST TO THE ORGANISATIONEmployees who are aware of any illegality in the company and decide to keep
quiet, tends to loose focus at work and pays little or no attention to their job,
thereby leading to ineffectiveness at workplace.
After a while, managers of organisations that execute illegal act encounter more
problems. Such problem is likely to keep occurring, and in so doing
organisational survival is put at stake (Baucus and Near, 1991)
COST TO SHAREHOLDERS AND STAKEHOLDERSShareholders as well as stakeholders have got different stakes in organisations.
As a result of these stakes, they suffer losses when an employee decides to keep
quite.
The cost of keeping quite about wrongdoings is that shareholders loss all their
investment when the company eventually folds up, and the stakeholders such
employees suffer unemployment; consumers at times loose their lives as a
results of consumption of products harmful.
PROBLEMS OF WHISTLE BLOWINGSome problems of Whistle blowing as stated by Westin (1981) as follows:
I. The problems of ineffectual performing employees are likely to blow the
whistle in order to keep away from been sanctioned.
II. The issues some whistleblowers are protesting about are not the
unlawful /wrongdoings activities, but social policies by management that
employees sees as foolish.
III. The unclear of legal definitions of what comprises of a safe products,
unacceptable treatments of employees or products dangerous to health.
IV. Employees who blow the whistle can be chosen in some ways that would
be unacceptably disturbing, in spite of the merits of their complaints.
ORGANISATIONAL RESPONSES TO WHISTLE BLOWINGDifferent authors such as Barnett (1992:949) and Ponemon (1994:119) purported
that organisations response to whistle blowing in different ways.
The following organisation response towards Whistle blowing has been
described by (Baker and Dawood 2004: 134-135) as;
The credibility of the whistleblower might be challenged by the
organisation and hence can reduce the attention received from the public
The unlawful activity can be acknowledged, and the whistleblower
rewarded for his good conduct.
The whistleblower can be isolated from other employees so as to avoid
the flow of information.
A specific individual might be selected to classify who is responsible for
what, and also to receive complaints on wrongdoings.
The organisation can respond to whistle blowing by punishing the
whistleblower as an example to other potential whistleblower.
This was argued by Near and Miceli (1985) who refers organisational response
towards Whistle blowing as it were like an incorporated and consistent response
to the whistleblower by all members of an organisation. But in a further research
by Miceli and Near (1992) they concluded that most whistleblowers encounter
diverse responses within their organisations. These responses could be a shot-
term response or long-term response summarised in the diagram below
Short-Term and Long-Term Responses/Outcomes of Whistle blowing Short –Term Long-Term
FIGURE 1 SOURCE: Adapted from Miceli and Near, (1992)
ETHICAL ISSUES IN BUSINESS
Over the last decades, business ethics has become an accepted part of
management both inside and outside organisations. Just like marketers claim
that everything follows from marketing or like numbers would be meaningless
without accounts in organisations, so do business ethicists claim that the values
and purposes matters above all else (Jones et al.2005). Nevertheless, as the
Termination of wrongdoing
Continuation of wrongdoing
Retaliation against whistleblowers
Reward to whistleblower
No response to Whistleblower
Whistleblowingg
Policy change
No Policy change
Negative organisational outcomes
Positives organisational outcomes
existence of wrongdoing is more evident that organisation committed to ethical
behaviours pays-off. Consequently, in today’s post-Enron, management
accountants as well as financial managers are expected to lay emphasis on
actions that would promote ethical actions that would preserve assets and
improve profits as a form of good return for shareholders (Verschoor 2003)
Hence, employees owe to their organisation duty of loyalty and confidentiality,
and from the management, a good ethics of corporate governance is expected of
them.
Ethical duty of Loyalty and Confidentiality In the last decades, due to difficulty of loyalty and confidentiality has, the issue of
whether loyalty or confidentiality as a good quality of an employee or as a wicked
behaviour is still been debated on by many researchers (Hart and Thompson,
2007).
Vallance (1995) stated that it is difficult to set up arrangements whereby board of
directors and shareholders make sure that the aim of an organisation is pursed
and achieved at all cost. However, this cannot be achieved without the
employees who are usually in the best position to see and know what is going on
in the organisation. Now, what if employees see things which are which they
believe to be wrong in the company they operate, what should they do? These
and many more are some of the dilemmas of Whistle blowing where an individual
is faced with the conflict of loyalty and confidentiality. Naturally, employees are
taken to owe a duty of loyalty and confidentiality to the business which employs
them, but do employees have a duty of loyalty to the organisation irrespective of
how the company function?
According to Bok (1980) whistleblowers are disloyal employees, as he/she must
have sworn certain oat of loyalty and confidentiality to his colleagues and clients.
Bowie (2002), in support of Bok claims that Having sworn to silence which should
be a doubtless obligation, an employees’ duty of loyalty will likely restrict him/her
from reporting his employer’s or organization.
Vallance (1995) argues that; employees do not really have a duty of loyalty and
confidentiality. If something illegal is going on in the organisation, there is no duty
of confidentiality and loyalty, and no business can, by embedded or explicit
means, irrespective of the situation tie its employees to silence. Vallance further
stated that where an employee does have a loyalty to the business is in making
sure that the aim of the business is well achieved, but the aim will almost
certainly not be served by wrongdoing.
Furthermore, Tittle (2002), examines why duty of loyalty can be overridden. The
promise of loyalty can be overridden if;
A.)The public interest at issue is strong enough
B.)The oat of loyalty was taken through deceit or force
C.)The duty of loyalty is in itself wrong or unlawful
The fact that one has sworn to loyalty, should not serve as a reason for an
involvement in covering up crime or a breach of public trust.
Therefore, the issue of being loyal is protecting the things that allow the business
to achieve shareholder value over the long-term, in terms of its reputation, brand
protection, the concern for its product as well as customers of such product
(Vallance 1995).
WHISTLE BLOWING ANDTHE ISSUE OF CORPORATE GOVERNANCEWhistle blowing is an important aspect of corporate governance. This was made
clear in the high cases of scandals of Enron (2001), when sherron Watkins blew
the whistle on Enron in US, and when Harry Templeton confronted his boss; the
case well described as “the Maxwell Saga” (1991) in the UK and many more. All
these failures and scandals were as a result of deficiency in the organisations
corporate governance.
Several practices are being established daily on corporate governance. Such
practices are the increase adoption of corporate whistleblower policies. Due to
the adoption of these practices and policies, a clear commitment of ethical
responsibilities are been asked to be exhibited by directors of different
businesses. Also, for the purpose of improved performance, key staffs are also
held liable for any unlawful actions and are asked to act responsibly (Olander,
2004 and Fels, 2003).
As a result of several corporate scandals such as the falsified accounting
policies, governments and regulators have decided to introduce stronger
regulations in order to bring back the investors i.e. shareholders assurance in the
financial market and also stop future collapses as a result of scandals. In different
countries, the issue of corporate governance laws/rules has been properly
adjusted and developed. These laws include; Sarbanes- Oxley- USA, Cadbury
Report- UK, OCED principles of corporate governance and the NYSE listing
standards.
The OCED Principles of Corporate GovernanceThe OECD’s (Organisation for Economic Corporation Development) developed
some principles of corporate Governance that focuses on private sector (1999).
This principles is to assist both OCED and non-OCED governments in their
attempt to appraise and improve the regulatory framework of corporate
governance. These principles were first published in 1999, and were revised in
April 2004. The principles are to;
I. Provide form of relationship between a company’s’ management, its board,
its shareholders as well as other stakeholders of the organisation.
II. Provide a well structured set of company’s objectives, the way of achieving
the stated objectives, and determining how the performance is being
monitored.
III. Ensure a proper monitoring of management, strategic leadership of the
organisation by the board, as well as the boards accountabilities to its
various stakeholders.
In conclusion, from all the above explanation, developing a good corporate
governance structure will enable mangers behave ethically and make decisions
that profit the shareholders, as well as expose an organisation to several kinds of
risks, which will enable them to maintain an optimal risk-return and therefore
maximize shareholders’ value.
RELEVANT LEGISLATURE REGARDING WHISTLE BLOWING LEGAL PROTECTION FOR WHISTLEBLOWERS
IntroductionLegal protection for employees who blow the whistle is a relatively recent
phenomenon. In the nineteenth century, when there was a policy of non
interference by the government, employers benefited from the fact that there was
no job protection. As a result of this, they had the authority to layoff employees as
long as the employees were not employed for an indefinite period, of which,
whistleblowers were not free from this rule.
In the 70’s, things began to change, when the legal protection for whistleblowers
was slowly developed. In recent times, this legal protection has focused mainly
on retaliation suffered by most whistleblowers as both the federal and state
model are intended to protect employees from retaliation, or compensate them, if
they have by any way suffered retaliation, but it was not adequately effected
(Near and Miceli 1992).
Therefore, in order to encourage Whistle blowing and compensate the individuals
concerned for the risk they are prepared undertake in the UK the US, several
acts, rules, and models has be developed. Some of which are briefly explained
below.
THE US LEGISLATIVE HISTORY /EXPEREIENCEWhistle blowing is not an entirely new issue in the USA, especially in America.
While in the UK, there is yet to be a well detailed law passed dealing with Whistle
blowing across the board, in the USA, a body governing Whistle blowing is not a
new experience entirely (Vinten, 1994)
The issue of Whistle blowing originally emerged in the federal governments’
False Claims Act and did not from the connection with malfeasance (Miceli and
Near, 1992)
The False Claims Act’s influence.The Act was passed as long ago as 1863 to curb fraud during the US Civil war,
by Abraham Lincoln. His aim was to end the transaction of gunpowder. The
establishment of the false claims acts was to offer a form of motivation to
individuals who give information about an organisation or individual, taking
advantage of the government or cheat the government.
In 1986, antiretaliation protection was added to the act, and the act also spelt out
that 30% from the lawsuits earnings from Whistle blowing case can be shared in,
by the whistleblowers. As a result of this monetary reward, some whistleblowers
can choose to report false claims. Therefore, the act imposes financial penalties
on whistleblowers that make false (Eaton and Akers 2007)
The National Labour Relations Act of 1935 (NLRA)The National Labour Relations Act of 1935 (NLRA) was the first legislation which
guards the whistleblowers. Due to the fact that protection against union related
Whistle blowing by employers was not curtailed, the Federal Whistleblower
Protection Model was enacted, which is commonly known as the National Labour
Relations Act (NDRA) in order to guide employees involved in union-related
activities and who files charges against illegal labour practices. The only problem
with this act is that employees who blow the whistle in regions not covered by the
act are not protected (Near and Miceli 1992)
1989 and 1994: The Whistleblower Protection Act.This Whistle blowing Protection Act was passed in 1989 and amended in 1994.
The purpose of this Act is to protect from retaliation, federal employees at
workplace who engage in disclosing any wrongdoings, and later amendments is
applicable to strengthen the existing protections to federal employees.
This act has been carefully thought of, by the congress to help reinstate the act
as well as improve protection for federal employees who leak any deceitful
activity which could be of help to the shareholders and the public. The
whistleblower law was agreed upon by the house of representative in 2007, as a
result of their debate (Eaton and Akers 2007).
2002: SOX requirements he changes in the approach towards Whistle blowing, has brought about the
changes in laws and rights associated to whistle blowing. There have been some
examples given by SOX as to how most publicly traded companies has been
asked to restructure their activities and approach towards crime at workplace.
Further on Whistle blowing guidance are sections 806, 301, and 1107 of SOX
Section 806 explains additional protection to those employees who leaks
malpractices to any law enforcement agencies, or any persons of higher
hierarchy to the employee. Those protected by these laws are members of the
publicly traded companies. The regulation states that there is a protection from
retaliation by management or contractor, for any whistleblower that helps in
reporting any breach of federal law or investigation of any deceitful activity that is
not in favour of the company’s shareholders.
However, the regulation further states that if the whistleblower, during the course
of investigating any form of violation against the federal law or violation against
SEC laws experiences retaliation, he/she will be allowed compensation for
damages, litigation costs, attorney fees, reinstatement of proper position.
Necessary support is also made available to such employee to make him/her
complete (Olander, 2004)
Section 301 This section amends the Securities Exchange Act of 1934. The
section compels the audit committee to take a responsibility in Whistle blowing as
well as reducing corporate fraud. The audit committee is expected to develop a
device which could be used for recording, tracking, and acting on any form of
information provided anonymously or confidentially by an employee.
Therefore, the SOX standards is more than just encouraging companies to be
more alert to whistleblowers by making mandatory various policies and protection
for reporting wrongdoings.
Section1107. In this section, whistleblower’s policy goes further than the
protection of public corporation, but also extends protection to those individuals,
corporative that report to a law enforcement officer any activity that infringes the
federal law. These individuals are been protected from retaliation by the offender
while acting in good faith, and any company, employers that commits this crime
of retaliation, is liable to 10 years imprisonment. Sarbanes-Oxley further stated
that, the audit committee of public companies, as well as securities listed on the
stock exchange are the only ones obligatory to set up procedures for handling
whistleblowers complaints.
Shortcomings of SOX in Whistle blowingSince the endorsements of Sarbanes-Oxley 2002, there have been many debate
and has been challenged on several grounds. SOX have been debated on as
been unconstitutional and too costly especially for small business and foreign
companies. It has also been blamed in part for reduced foreign listing on the New
York Stock Exchange. (Dworkin, 2007).
Dworkin (2007) further sated that the ineffectiveness of SOX was borne by
statistics in the study by Earle and Madek confirmed in their study that through
May 2007, about 677 complaints where done on Sarbanes-Oxley, out of which
499 were dismissed, 95 withdrawn and only 6 of the 286 cases that went to
administrative law judge resulted in a positive decision for the whistleblower. This
made Dworkin (2007) concluded that SOX has been unsuccessful and ineffective
in encourage Whistle blowing.
THE UK LEGISLATIVE HISTORY/ EXPERIENCEThe British approach to Whistle blowing –focusing on organisational and
individual responsibility has demonstrated a huge success than what could have
been envisaged decades ago by any of its original campaigners.
By the early 1990’s, public’s confidence in many of the institutions and
companies had been shaken by series of disasters and calamity. In July 1991,
the collapse of the Bank of Credit and Commerce International (BACCI) was
investigated and over £2 billion worth of fraud that had dodged exposure for 19
years was uncovered. This case and many more prompted public inquiries to
uncover what went wrong and learn lessons for the future. As a result of these
inquires, it was discovered that in most cases employees knew about the crisis,
but most were frightened to speak while some turned blind eyes to the crisis.
After all these, acts where developed in the UK, such as the Public Concern at
Work (PCaW)- the charity behind much of the work done on Whistle blowing in
the UK, and the Public Interest Disclosure Act (PIDA), also known as
“whistleblower charter”.
The PCaW and the PIDA, would be examined further in this study
Public Concern at Work Public Concern at Work was launched in 1993 “to tackle Whistle blowing”. One of
those behind this new organisation is its present director, Guy Dehn, who had
strong legal, consumer protection and policy backgrounds.
The aim of this independent charity is to respond to the outcry of disasters,
frauds and scandals that could have been avoided if the legitimate concerns of
employees are been heeded to. The goal is to give employees confidence to
raise concerns at work place without fear and also to encourage employers to
listen to them with the intention of supporting them.
The foremost response of this independent charity is to set up a confidential legal
helpline to give employees/individuals with concerns advice about malpractices,
risks or danger at work. Fundamental to making Whistle blowing work and vital to
the charity’s responsibility is;
A.) To provide free and confidential help to people who are insecure about
whether to raise a concern about wrongdoing;
B.) To train and support organisations on Whistle blowing and accountability
in the modern workplace;
C.) To educate the public, about safer alternatives to keeping silent; and
D.) To effect good management, governance and regulation.
THE PUBLIC DISCLOSURE INTEREST ACT (PIDA) 1998
The Public Interest Disclosure Act (1998) commonly known as the “Whistle
blowing Act” which came into existence as result of the amended Employment
Right Act of 1996, was introduced as a private member’s bill, and was also
endorsed in the commons by the conservative MP Richard Shepherd. This act
was established in order to give support to whistle blowing across the private,
public and voluntary sectors. The acts also protects from unfavourable action or
victimisation from their employers if, the whistle is blown in the interest of the
public. Ref
OVERVIEW OF THE PROVISIONS
MALPRACTICES
In order to be protected, the act applies to employee’s that raises authentic
concern on information about the following categories; a criminal offence, a
failure to comply with any legal; obligation, a miscarriage of justice, danger the
health and safety of any individual, environmental damage, and the concealment
of deliberate information of any of these matter.
INDIVIDUAL COVERED
Asides the employees covered, the act also covers workers, co-workers,
trainees, home workers, police officers, and every professional in NHS.
GOOD FAITH
In order to be protected, disclosure must be made in good faith. This appears in
ss 43e -43h. Basically this means that a concern can be properly addressed if
made honestly. Therefore, a required disclosure must;
Be made honestly, even where it is made casually or without due care;
Not be for personal gain; and
Must be made in reasonable belief that the disclosure and any other claim
is true
A disclosure in good faith can be rendered invalid for some other main unsuitable
motives.
The issue of whistleblower’s motive: Goode (2002), argue that the motive of the
whistleblower ought to be related to the result as to whether or not to investigate
the matter, suggesting that an investigation into motive will prevent making a
disclosure in bad faith. Fels (2003) further stated that the motive of the
whistleblower is sometimes crucial for assessing reliability, in order to have an
effective plan.
VICTIMISATION AND DISMISSAL
When the act is violated by the dismissal or victimisation of the whistleblower, the
employee can file a claim to an employment tribunal for compensation. An
employee can also be compensated for injury to feeling when victimised (but not
dismissed) and when dismissed/sacked can within seven days seek interim relief
so that his employment continues until the full hearing.
EXCEPTIONALLY SERIOUS MATTERS
If an exceptionally serious matter is reasonable and meets the test for regulatory
disclosures, it will be protected in as much as such disclosure is not made for
personal gain.
GAGGING CLAUSE
Gagging clause in employment contracts and severance agreement are null and
void as long as they conflict with the acts protection.
SHORTCOMINGS OF PIDAThe PIDA has been said to be imperfect and very complex. Some of the
weaknesses of the PIDA as outlined by De Maria (2002) are as follows;
The exclusion of non-employees and security personnel
The omission of trade unions as a prescribed disclosure channel;
Its limited disclosure routes and the lack of provision for the influence of a
culture of secrecy, and its promotion as well as its implementation.
According to some researchers, out of 1,200 employees who have lodged
complaints on victimisation, over half were unsuccessful. This also concerns the
PCaW. Therefore, we can conclude that the success of PIDA is minimal.
CONDITIONS FOR JUSTIFYING A WHISTLE BLOWING ACT
Hunt (1997) claimed that the criteria for justifying a Whistle blowing act revolve
around some issues such as the disclosure, the reason for it, and the motives
which lie behind it. At times, Whistle blowing is justified and at times not justified.
But where firm minimal conditions are met, it would be sensible to claim that
Whistle blowing be justified .A justified disclosure according to Bowie(1982), is
one which;
The act whistleblowing must be suitable ethical motives for avoiding
unnecessary harm to others;
The whistleblower must have exhausted all the internal measures for
correcting the perceived misconduct, before opting for public disclosure;
The whistleblower must perceive that the violations or misconduct will be
of serious danger;
The action of the whistleblower must be in line with his or her
responsibilities designed to expose or avoid any breach of ethics;
The actions of the whistleblower must have some sensible likelihood of
success.
Davis (1996) argues that justifying whistleblowers act is irrelevant except the act
is been thought, as wrong. Also we do not have to justify the act of
whistleblowing because as far as the act is wrong, justification is impractical. He
further argues that the act of blowing the whistle does not prevent much harm,
therefore, if whistleblowers must have good reasons to believe that revealing the
threat will probably prevent harm, then the history of whistleblowing virtually rules
out at the moral justification of whistleblowing.
3. CASE STUDIES
3.1IntroductionThis section gives a summary on true life cases on the whistleblower as well as
the response of the organisation to the disclosure.
For the purpose of this study, four true life cases on Whistle blowing in the UK
and the USA would be examined. This includes cases between;
3.2 NETCOM CONSULTANTS (UK) VS FERNADES (2000)
3.2.1 The Company Netcom Consultants was started operations in 1993, and it has business in
Sweden, Singapore, and also throughout Asia and Africa (through Millicom, they
sit on sit with operators in Asia and Africa).The company has since than, rapidly
expanded, with its founder shareholders remaining active directors in the
business.
The company specialises in offering different services also provide solutions to
financial and media sector such as consultants in network, technologies, billing,
and services developments.
Due to the wide use of internet, the company is highly developed and has
become wider in its activities to other sectors, thereby, making it gain a strong
telecom market position.
3.2.2 The Whistleblower i.e. the Scandal
The case between Fernandes, the Chief Financial Officer (CFO) for the UK arm
of Netcom, and Netcom Consultants took place over 1999 &2000, when
Fernandes found himself in a very complex and difficult situation of morals and
ethics.
The problem started when the UK Chief Executive Officer of Netcom (CEO) Mr
Stephen Woodhouse started giving his payment claims to the CFO without
receipts, of which Mr Fernandes (CFO) was the person accountable for the
monies been spent by the CEO either through the company’s credit card or by
cash. The CEO claimed that the receipts were all kept in a large box which would
be handed in to the CFO later, which he never did.
In 1997, when this action by the CEO persisted, the CFO could not handle it any
more, so he decided to fax a letter to the US contact, raising concerns about the
large sum of money claimed to have been spent by the CEO without receipts,
where he was told to turn a blind eyes. In 1999, the CEO’s expenses increased
to about £371,000, all without receipts. It was later realised that the CEO has
been using the money to pay for his personal expenses, thereby putting his own
satisfaction above that of others. Thereafter, fernandes decided to put into
practice his moral duty, by blowing the whistle on Woodhouse’s actions as a
result of cashflow problems which led to the non payment of corporation tax in
the organisation.
Fenandes put in writing his concerns to the US board members, Luxembourg as
well as his UK team members as he could not keep it anymore. Some weeks
after his disclosure, Fernandes was interrogated and was released from
employment with no form of compensation, on the basis of his refusal to pay the
corporation tax and the misuse of unauthorized sum of £317,000 by the CEO. Mr
Woodhouse, despite his deceitfulness, was allowed to retain his position.
3.2.3 Result/ OutcomeFernandes was totally supported by the courts and eventually succeeded under
the Public Disclosure Act 1998 (PIDA) claims, as one of their duty is to give legal
protection to employees who are been dismissed from work as a result of blowing
the whistle against his employer/organisation. At the age of 58, Fernandes won
the case of interim relief. At this age, he was unable to secure a job and thereby,
awarded the sum of £293, 441 as compensation. The CEO later resigned from
work and left the organisation (Mason, 2000 and Eaglesham, 2000)
3.3 ENRON VS SHARRON WATKINS
3.3.1 BackgroundEnron was one of the world’s largest energy, commodities and Services
Company. It was formed in July 1985, in Houston, Texas. This company was
formed by the merger of Houston Natural Gas and InterNorth of Omaha,
Nebraska in 1985.
In 1999, Enron had expanded into diverse fields such as the purchase of power
plant, the building of retail or wholesale business around the world, which
enables the company provide financial and risk management services to
customers worldwide, and also the launching of a web based commodity site,
well known as Enron Online, thus making it an e-commerce company.
As a result of this expansion, the company successfully recorded revenue of a
revenue of $100 billion in 2000, thereby making it the seventh-largest company
on the fortune 500, and the sixth largest energy company in the world.
3.3.2 The Whistleblowers’ Story (Enron’s Scandal)Sherron Watkins the former vice president of Enron Corporation in spite of the
company’s rapid growth and success knew all was not well with the
organisation’s account, as she suspected an overstatement of the company’s key
assets.
In 1996, Ms Watkins made her concern known to Mr Festow, Enron’s Chief
Financial Officer (CFO) and the company’s auditor Arthur Anderson, but she was
ignored and told off for intruding into accounting matters when she was in the
finance department.
In October 2001, Watkins realized that the CFO had set up a series of companies
to do business with Enron such as the LJM and other off-the-books partnership in
an attempt to inflate their profits and a means to put out of sight Enron’s growing
losses of the company at the detriment of the company’s shareholders. Later,
Watkins realized the level of fraud going on in the organisation, so decided to
blow the whistle on the company’s dangerous financial deals, by sending a
memo to the CEO Ken Lay of gross misconduct as regards to accounting
irregularities within the organisation. The CEO promised to look into the matter,
where he discovered nothing wrong with the company’s accounts.
When the CFO heard of Watkins word of warning to the CEO, he tried to dismiss
her. In November, Enron admitted to have overstated its profit dating back to
1997 by $600 million.
3.3.3 Result/OutcomeIn December, the Enron was filed for bankruptcy, its value which was at $80
billion some time ago, became a penny stock. Enron’s employees were made
redundant as well as pensioners.
Watkins kept her job until November 2002 when she left the job to become a
corporate governance consultant. She stayed longer in the company then CFO
who ought to be fired, but resigned, and the company’s auditors who did not quit,
but waited to be fired.
Watkins was praised for the part she played in revealing the greed and
dishonesty of the once seventh largest company in America. She also received
several awards for her excellent display of ethics at work place, and was named
Times Person of the year 2002.
3.4 JEFFREY WIGAND VS BROWN & WILLIAMSON TOBACCO
3.4.1 BackgroundBrown & Williamson Tobacco Corporation a subsidiary of British America
Tobacco plc and the third largest manufacturer of cigarettes in the United States
was founded in 1894 in the Tobacco Heart of Winston-Salem, North Carolina and
incorporated in 1906.
The company has oversees operation in Japan and South Korea, and it
possesses about 16% of the US cigarette market. It also put on the market
several mixed brands of cigarette, as well as special line of tobacco products
such as; Kite and Sir Walter Raleigh Bloodhound.
3.4.2The Whistleblower (Jeffrey Wigand)
Jeffery Wigand popularly known as “the insider” started work with Brown &
Williamson in 1988 as the company’s head of research and development, with a
primary project of developing a new, to put into competitive market cigarettes that
are healthy. During the course of his assignment, Wigand discovered the
company has been deceiving consumers about the Tobacco rhythm “increased
biological activity” which was a form of code for cancer and diseases, and also
the highly additive nature of nicotine used to improve flavour of cigarette, causes
cancer.
As a result of his discovery, in 1992, Wigand refused the usage of these deadly
flavours in cigarettes, but he was told the removal of the flavour would affect
sales, and was asked to mind his business.
In 1993, Wigand was fired and was to face lawsuit on the basis of breaking his
agreement of confidentiality which is not disclose any of the company’s policy.
After his dismissal, Wigand decided to blow the whistle publicly. He testified
about the illegality going on in the tobacco company, by telling the public of the
harmed caused by nicotine in cigarettes it is causing to smokers.
In addition, he disclosed that the Thomas Sandefur (CEO) lied under oath by
telling the congress nicotine was not addictive (Esperon 2005).
3.4.3 Result / Outcome
Wigan lost everything for going public. He lost his wife as she filed for divorce,
lost his kids to the wife, lost his privacy, and his reputation was damaged. It took
him time to heal, but he had to start all over again.
Also, his testimony has brought about $206 billion settlement between the
tobacco company and 46 US states for the costs of treating sick smokers.
At the present, has been given so many awards and public recognition for his
achievement in revealing helpful information about tobacco’s illegality, which was
detrimental to public’s health.
3.5 HARRY TEMPLETON VS MAXWELL “THE MAXWELL SAGA”
3.5.1 BackgroundRobert Maxwell was an international legend who owned several UK’s national
newspapers, which includes the Mirror Group of Newspapers and the Maxwell
Corporate Communication (MCC).
Maxwell Corporate Communication (MCC) established in 1987, was
incorporated as British printing corporation in1964, with over 14,000 employees
and over 15 publishing business in more than 15 countries.
The Company has interests in providing information for publishing electronic
services in school and college publishing, language instruction, and reference
book and professional publishing. This company was the tenth largest media and
publishing company in British.
3.5.2 The Scandal Harry Templeton had worked for 14 years in Glasgow for the Mirror Group title –
The Daily Record and The Sunday Mail, as a printer operating the presses
owned by Robert Maxwell’s Mirror Group.
Robert Maxwell was disqualified by many as well as Templeton on his bid to
take-over Leasco Data Processing Equipments of the United States. His was
criticised on the basis of manipulation of profits by the Department of Trade and
Industry (DTI) reported in Pergamon Press Ltd. But Maxwell who had carefully
surrounded himself by well- connected politicians, bankers, financiers and
accountants aggressively took over to become the CEO of Mirror Group of
Newspapers (MGN) and Maxwell Corporation Communications (MCC). But this
company was built on millions of debt and fraud loaned from employees’ pension
fund.
Afterwards, Templeton was appointed as one of the company’s board of trustees
of the Mirror Group Pension Scheme. After Templeton’s appointment, he began
to discover some unusual movement of pension’s monies run by the Maxwell’s
businesses; and he became the only trustee challenging Maxwell’s misuse of
pension funds assets to support the share price of his own company. A meeting
was held with Maxwell by Templeton and other Scottish delegates to make aware
of their concerns where Maxwell denied every request on the misuse of pension’s
fund. This led to Templeton dismissal in 1988, and Maxwell vowed Templeton
would never get any printing job again.
Maxwell was allowed to go on with his preferred evil path until his death in 1991.
After his death, it was later discovered that he had embezzled the sum of £458
million from various pension funds (Calland and Dehn 2004)
3.5.3Outcome/ ResultThis Scandal led to the unfortunate death of many pensioners as they were
worrying about the ability to manage financially when pension payments they
relied upon were either suspended or stopped completely, many pensioners
suffered, while a few received compensation. Shareholders and employees
where not left out in the disaster, as they also suffered financial problems.
The company was insolvent and will be liquidated to pay £2.5 billion in debt. This
was also reported as one of the largest UK’s fraud cases.
Templeton is now the Scottish Director of Public Concern at Work and continues
to support of Whistle blowing. (Calland and Dehn 2004 and PCaW).
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4. ANALYSES AND DISCUSSION
4.1 Introduction
This session presents a synthesis of the study, taking into deliberation the
selected case studies which are the cases of Netcom, Enron, Maxwell and Brown
&Williamson Tobacco and analysing the cases. Our analysis would be based on
the implication of Whistle blowing to their various shareholders as well as the
organisations involved, and also picking the theories and comparing them side by
side with the selected cases, and drawing a conclusion.
4.2 Was duty of Loyalty and Confidentiality breach or Honoured?
The issue of loyalty and confidentiality is still been argued on, as either a good
quality or a wicked act of an employee by researchers Hart and Thompson
(2007).
Every organisation is expected to have laid down rules and regulations in form of
business ethics that would entail employees’ duties, and this should be binding
on all members of an organisation. This makes employees owe to its
organisation the duty of loyalty, confidentiality, morality, to mention a few before
taking up a job. The awareness of these duties will not permit employees
disclose any information of the company to third parties or expose company’s
information to its competitors. Hence, any employee that refuses to comply with
organisations duties as stated earlier can be regarded as a disloyal employee
and should be punished. According to Bok (1980), any employee who blows the
whistle is disloyal, as he/she must have sworn an oath of confidentiality and
loyalty to colleagues and clients.
Despite all duties which employees are expected to comply with, Vallance (1995)
argues that there is no duty of confidentiality and loyalty, and no business can, by
embedded or explicit means, irrespective of the situation tie its employees to
silence. Therefore, the issue of loyal is based on protecting the things that allow
the business to achieve shareholder value over the long-term, in terms of its
reputation, brand protection, the concern for its product as well as customers of
such product.
Using the case of Brown and Williamson Tobacco Corporation, Jeffrey Wigand
the head of the company’s research and development department raised his
concerned within the company about his discovery of highly nature of nicotine in
cigarette, but was asked to mind his business as the nicotine in cigarettes boosts
sales. He had to blow the whistle in order to create awareness of the danger in
smoking, hence, making him disloyal. Another similar case where employees’
loyalty was questioned is in the case of Netcom, where Fernandes blew the
whistle, a disloyal act though, but at the same time it was an action that saved
the organisation and its shareholders & stakeholders.
As a result of the two whistleblowing cases, Fernandes and Jeffrey Wigan were
justified based on what the theory as they owe the public an utmost duty of
loyalty therefore they should be rewarded as their disclosures were made in good
faith. Also, any other whistleblower that discloses misconduct in the interest of
the public in good faith should also be rewarded. However, any employee that
discloses misconduct for selfish motives making him/her a disloyal employee
should be reviled.
4.2 The misconduct must be seen as serious danger?
The issues surrounding the justification of whistleblowing are the reasons for it,
and the motive that lie behind the action (Hunt, 1997). Every whistleblower’s
action need to be justified, and one of the conditions justifying whistleblowers
action is that the perceived wrongdoing is expected to be of serious danger
before deciding to blow the whistle. This serious danger could be danger to
health, the organisation, or to shareholders of the organisation. Although Davis
(1996), argued that justifying whistleblowers action is irrelevant.
Using the cases of Fernandes, Templeton (Maxwell Saga) and Jeffrey Wigand to
justify this review of literature, we can see that Fernandez decided to blow the
whistle because company’s fund had been spent carelessly by his boss, and as
such affect employees, shareholders and other members of the organisation in
the long run. Templeton on the other hand knew pensions funds was misused
and diverted to support share price of Maxwell’s own company. The same as
Wigan when he discovered keeping silence to his company’s misconduct would
result many smokers loosing their lives as a result of cancer. All three
whistleblowers recognize that if illegality in their various organisations is not
reported, several parties would be in serious danger. Such parties are the;
shareholders, pensioners, employees and the organisations itself.
However, in as much as a whistleblowers’ action tends to save people from
serious danger in the future, they should be rewarded, but if any whistleblower
goes against this, such whistleblower should be reviled.
Is the whistleblower’s action in line with his/her responsibilities?
According to Bowie (1982), one of the ideal requirements for justifying
whistleblowers act is that the whistleblower must act in accordance with his or
her responsibilities for exposing illegality. Whistleblowers are expected to raise
concern or expose wrongdoings that are related to their duty, not just expose
illegality they know nothing about.
Fernandes was able to raise concern and expose the actions of his boss
because he was the company’s chief accountant; one of the responsibilities of an
accountant is to monitor financial matters including the inflow and outflow of cash
in and out of an organisation.
On the other hand, Watkin knows nothing about finance, as she was the vice
president, but decided to blow the whistle because she discovered the
companies account was been overstated. Her disclosure was not in line with her
responsibilities.
From the above analysis, we can say that Fernandes action could be justified,
since he did not blow the whistle on what he knew nothing about. Unlike Watkins,
though there were illegal actions taking place in Enron, but it was not in line with
her responsibilities. Therefore, we can say that Fernandes should be rewarded
as his actions were justified, but Watkins should be reviled as her actions did not
meet the condition for justifying whistleblowing.
Consequences to Organisation, Shareholders and Whistleblowers.Shareholders are regarded as fund raiser for organisation; thus any decision
made in an organisation must be of great benefit to them this should include the
decision to blow the whistle which should also be of great benefit rather a cost to
the shareholders &stakeholders, the organisation and the whistleblowers.
Near and Miceli (1992) posited that some of the short-term outcome of Whistle
blowing is that wrongdoing might be continued, ignored, rectified and at times the
whistleblower is retaliated against, while in the long-term Whistle blowing could
bring about negative organisational outcomes or positive organisational
outcomes.
Considering the case of Netcom vs. Fernandes, it was evident that Fernandes
decided to blow the whistle in order to stop the action of CEO who embezzled the
company’s fund for personal expenditure at the detriment of the owners
(Shareholder), stakeholders and the organisation.
Fernandes action was criticised though, as in the short-run his action was of
more cost to shareholders, the organisation and the whistleblower than benefits.
It was evident that Fernandes was dismissed short-term, but was later rewarded
as the action was rectified. His action in the long-term eventually helped brought
about positive organisational outcomes, as Netcom regained its reputation in the
market and thus enhanced shareholders value.
On the other hand, the case of Enron is a bit different. Enron decided to
overstate its account in order to have a good reputation in the market as well as
to enhance shareholders value, but at the end, their action completely ruined the
company’s shareholders value and other stakeholders as the company finally
liquidated. Sharron Watkins the vice-president of Enron Corporation blew the
whistle after many damages had been done. Her action in the short-term brought
about no response to the illegal act neither was the act rectified. But instead
Sharron’s action in the long-run caused the shareholders and stakeholders more
harm than any good as shareholders lost all there investments and employees
were lay off without pension nor compensation.
If only she had kept silent, maybe there would have been room for correction,
and maybe Enron would not have liquidated. Near and Miceli (1992), stated that
the option of keeping silent may give room for management of an organisation to
correct the wrongdoing. This might have been the case of Enron.
Based on both cases, Sharron blew the whistle not for the sake of the
shareholders &stakeholders interest, but to protect her reputation. Thus, such
action does not deserve any form reward, because the cost of her action
outweighs its benefit. But Fernandes action was at his detriment and in the
interest of all i.e. (shareholders, stakeholders and the organisation). The benefit
of his action outweighs the cost and should be rewarded again and again as the
company still stands strong till date due to his actions.
Ethics of Corporate GovernanceOn account of several accounting scandals, practices of corporate governance is
been established on a daily basis, as management of organisations owe an
ethical duty of good corporate governance to its shareholders and stakeholders.
According to Olander (2004) and Fel (2003), a clear commitment of ethical
responsibilities is expected to be exhibited by management of different
organisation in order to improve performance.
From the cases of Maxwell Saga and Enron Corporation, it is evident that both
companies fell as a result of the lack of good organisational corporate
governance. Templeton the company’s printer was the only employee bold to
confront and raise concerns to the CEO (Maxwell) over the misuse of pension’s
fund. All his action was in the interest of pensioners, same applies to Enron as
deaf ears were given to the whistleblowers.
One of the developed OECD’s (Organisation for Economic Corporation
Development) principles of corporate Governance is that corporate governance
should provide form of relationship between a company’s’ management, its
board, its shareholders as well as other stakeholders of the organisation.
Judging from what researchers have said about corporate governance what
actually happened in the case of Maxwell Communications and Enron
Corporation, we can see that both organisations exhibited no ethical
responsibility to corporate governance and their action were based on corporate
greed and selfishness as the CEO’s never conformed to the principle of
corporate governance. Both companies lacked the ability to carry out a good
ethical decision and at the end of their inability to conform to the value of good
corporate governance principles, woeful performance of both companies as to
stakeholders were badly hurt and shareholders value totally diminishe
4.4 Are Whistleblowers Protected?Legal protection has been put in place to protect employee from retaliation, or
compensate them if the by any way suffered retaliation (Near and Miceli, 1992)
Therefore, in order to encourage Whistle blowing and compensate the individuals
concerned for the risk they undertake or are prepared to undertake in the UK the
Public Interest Disclosure Act (1998), was established to give support and protect
whistleblowers in the private, public and voluntary sector from unfavourable
action or victimisation from their employees if, the whistle is blown in the interest
of the public.
Fernandes is the employee that blew the whistle against his boss, as a result of
his mismanagement of fund. Fernandes action to exhibit his moral duty of
Whistle blowing led to his release from employment without any payment and
was sued.
Due to the establishment of the PIDA to protect whistleblowers from retaliation,
as Fernandes was supported under the Public Interest Disclosure Act (PIDA) and
was compensated with the sum of £293,441 because his action was in the
interest of the public. Therefore, we can say that the establishment of the PIDA is
indeed of great benefit to whistleblowers, though it has its shortcomings, but it
still stands as great protection and a means of encouraging potential
whistleblowers.
Summary
5. CONCLUSIONS AND RECOMMENDATIONS
5.1 INTRODUTIONThe spotlight of the study is based on whether whistleblowers should be
rewarded or reviled with reference to selected case studies. In the preceding four
chapters, the statement of problem was introduced; the research objectives were
also defined. Second, theories from the significant literature were reviewed.
Third, based on the review of literature, selected case studies were examined.
Fourth, theories from our literature review and some selected case studies was
analysed and discussed side by side. This last part concludes the research by
examining the conclusion and recommendation for future research on this study.
CONCLUSIONS
After all that has been discussed above, we can conclude that all whistleblowing cases are different, therefore, we can never have a standard to whistleblowers should be rewarded or reviled. If all whistleblowers are to be reviled, then there would be injustice because those who blow the whistle in the interest of the public i.e. with good motives will suffer. On the other hand, if every whistleblower is to be rewarded, then those who blow
the whistle for selfish interest or for the purpose of fame will go unpunished. The most important thing for an organisation to do is to good corporate governance that should be followed
REASONS FOR IMPLEMENTING WHISTLE BLOWING POLICYWhistle blowing policy/procedure should be implemented not only by
management of organisations, but it should also be implemented in universities,
non-profit making entities, as well as government entities (Eaton and Akers,
2007).
Lewis (2006) examines reasons why management of various organisations,
entities and institutions should desire to create and implement a Whistle blowing
policy. These reasons are;
To contribute to the efficient and effective running of the organisation, by
discouraging management or individuals from malpractice and instilling
the fear of its consequences.
To help keep up the good name of the organisation by providing a means
of justifying ones action/decision.
It can help reduce public disclosure as a result of proper conformity with
the law.
It is a good practice that needs to be implemented as its benefits
outweighs its cost.
Furthermore, this policy when implemented has a great possibility of reducing
fraudulent activities in addition to the fact that it sends good indication to both
internal and external bodies such as its stakeholders (Eaton and Akers 2007).
Olander (2004) also stated that the policy should be implemented so as to tackle
the issue of reporting violations of the code of conduct. The policy is also to ban
unlawful action of any kind.
Despite the fact there exists the needs, by employers to have high values of
ethical conduct in their mission statement, this goal was hard to achieve as the
method of Whistle blowing procedure/policy were recently hardly ever used. UK
employees are not usually forced by the Public Interest Disclosure Act 1998
(PIDA 1998) to create the Whistle blowing policy, but several benefits are usually
given to those who have them. The Public Concern at Work (PCAW) (1998),
states that “unless there are effective procedures in place which demonstrate
your organisation’s willingness to listen and address concerns, employees are
likely to take their concerns outside – and to be protected by the Act in doing so.
Employers with good Whistle blowing policies and procedures are less likely to
be exposed to claims under the Act. Additionally, it is less likely that any wider
public disclosure will be protected under the act”.
DEVELOPING A WHISTLEBLOWER POLICY
Organisations should have an appropriate policy in place which should serve as
guideline to be followed by employees if any malpractice is suspected.
Employees, as well as accountants and internal auditors, are all expected to go
behind these policies. (Elliot and Elliot 2007)
Management may possibly decide to draw up and put into practice a
whistleblower policy. In developing this policy, a clear definition of Whistle
blowing must be stated. Before this policy can be properly implemented, it must
be submitted to the board of directors, audit committees as well as the non-
executives members who are usually the shareholders representatives. Other
important aspects or (view points) of a whistleblower policy examined by Eaton
and Akers (2007), includes the following:
Clear definition of individual covered by the policy;
A whistleblower policy has to cover persons within and outside the organisation
as long as the outsider performs business with the organisation. For example, for
a manufacturing company, those covered may include employees, employers,
suppliers, customers as well as shareholders.
Confidentiality
Another important element of any whistleblower policy is the aspect of
confidentiality. This issue is mostly of great concern of many individuals, because
employees crave for an environment whereby he/she is free to raising any false
claim, and if such environment is created, maybe many more claims will be
reported and filed. Then again, employees want to feel open to submitting their
names for any further investigation. Therefore, the Whistle blowing policy has to
clarify how claims will be treated when received and whether any feedback
should be expected by employees.
CommunicationFor a whistleblower policy to be well effective and efficient, it must be properly
communicated to employees, customers, suppliers and shareholders. All these
stakeholders must have assess to information on intranet sites, and training
programmes could also be made available to them on how to answer questions
of Whistle blowing policy.
ProcessFor employees to file their claims, a due process needs to be followed. This
process must be well stated in the whistleblower policy. Organisations may
oblige employees not to omit any chain of command when trying to make any
claim. Employees filing any claim can also do so by using reporting mechanisms
such as hotlines, websites or suggestion box.
Nonretaliation provisions
As a result of whistleblower policy, employees who report any crisis ought to be
prohibited from retaliation. Therefore, ways by which employees, customers,
suppliers as well as shareholders should be to report fraudulent actions or file
claim in good faith must be stated in the whistleblower policy, as this will serve as
a means of encouraging them.
As soon as the policy is been concluded, the organisation ought to be consistent
with the policy as regards to the implementation and enforcement mechanism.
In conclusion, to create an atmosphere for a whistleblower to file his/her claim or
report a wrongdoing is a very difficult task. Therefore, for a wholly successful
whistleblower policy, it must be consistently implemented, the claims must be
well investigated and evaluated and proper action must be taken when required.
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