Encouraging Internal Whistleblowing
When Time magazine editors named WorldCom's Cynthia Cooper and Enron's Sherron Watkins two of their People of the Year for 2002, they were acknowledging the importance of internal whistleblowers—employees who bring wrongdoing at their own organizations to the attention of superiors.
At WorldCom, Cooper pushed forward with an internal audit, alerting the Board of Directors Auditing Committee to problems, despite being asked by the company's CFO to postpone her investigation. According to Fortune magazine, "If Cooper had been a good soldier, the whole incredible mess might have been concealed forever." At Enron, accountant Sherron Watkins outlined the company's problems in a memo to then-CEO Kenneth Lay.
But by the time Watkins and Cooper blew the whistle, much damage had already been done, and the shareholders and employees were the ultimate losers. So the question is, How does an organization create a culture that encourages employees to ask questions early—to point out issues and show courage in confronting unethical or illegal practices? And then how can a company ensure that timely action is taken? In other words, how does an organization encourage internal whistleblowing?
Attitudes Toward Whistleblowing
These questions must be answered in the context of conflicting cultural norms, which make it likely that whistleblowers will encounter hostility and alienation. As Terance Miethe explains in his book, Whistleblowing at Work, many people see the whistleblower as a "snitch," or a "a lowlife who betrays a sacred trust largely for personal gain."
This attitude was illustrated by an arbitrator in a 1972 case, who told the employee that you cannot "bite the hand that feeds you and insist on staying on for the banquet." Among others, Peter Drucker, the famed management guru and anti-whistleblower, viewed whistleblowing as "informing," illustrating yet another instance of the animus whistleblowers have to expect from advocates of loyalty to the organization first.
On the flip side, whistleblowers such as Frank Serpico and Karen Silkwood are seen as "saviors" who ultimately helped create important changes in organizations. This approach to whistleblowers as guardians of public accountability is often taken by consumer advocates such as Ralph Nader.
Given this dichotomy, whistleblowers may well encounter difficulties when they appeal internally or go public with information that may damage their companies.
Attitudes toward whistleblowing have evolved considerably during the past 50 years in corporate America, from the early days of the "organization man" ethos where loyalty to the company was the ruling norm, to the present time when public outrage about corporate misconduct has created a more auspicious climate for whistleblowing.
Prior to the 1960s, corporations had broad autonomy in employee policies and could fire an employee at will, even for no reason. Employees were expected to be loyal to their organizations at all costs. Among the few exceptions to this rule were unionized employees, who could only be fired for "just cause," and government employees because the courts upheld their constitutional right to criticize agency policies. In private industry, few real mechanisms for airing grievances existed although, for example, IBM claimed from its earliest days, to have an effective open-door policy that allowed employees to raise any issue.
In part because of this lack of protection for whistleblowers, problems were often concealed rather than solved. Probably the most egregious example was in asbestos manufacturing, where the link to lung disease was clearly established as early as 1924 but actively suppressed by company officials. The first product liability lawsuit against an asbestos manufacturer was not successfully promulgated until 1971.
The 1970s were notable for cases in which employees who had known of product defects or hazards decided to "swallow the whistle," as Alan Westin, Henry Kurtz, and Albert Robbins put it in their book, Whistleblowing. The result was that consumers and other employees were seriously harmed; and when the information went public, so were the organizations that were damaged by awards in the millions.
Even in cases where whistleblowing occurred, it was not always heeded. In 1972, Firestone Tire Director of Development Thomas A. Robertson sent top management a memo warning that the 500 tire was inferior and subject to belt-edge separation at high speeds. His warning was ignored despite reports about poor performance from major customers such as General Motors, and the 500 tire was kept on the market. By the time Time magazine reported that accidents caused by blowouts had resulted in more than 41 deaths and hundreds of serious injuries, the company had already replaced 3 million tires and spent millions of dollars in personal injury lawsuits. If Robertson had received an internal hearing or blown the whistle externally, such disasters for the public and the company could have been avoided.
Unfortunately, it appears Firestone did not make the necessary organizational changes to prevent such debacles, since the story repeated itself in 2000. After an investigation by the National Highway Traffic Safety Administration, Ford announced a recall and replacement of 3.5 million Firestone tires in October 2000. This recall occurred after 200 deaths and 700 serious injuries had already been reported because of the unsafe tires.
When news of the problem broke in late 2000 and early 2001, it became clear many groups at Ford and Firestone had known about the faulty tires as early as 1996. The ultimate result of inaction by these groups was that Firestone and Ford were called to testify before Congress, millions of dollars were spent settling lawsuits, and a century-long relationship between Ford and Firestone was severed in 2001.
There have, of course, been successful cases of whistleblowing although even in these cases, the personal and professional toll on the individuals has been heavy. In 1968, A. Ernest Fitzgerald, who was in charge of cost evaluations of the C-5A air transport program, found a cost overrun of $2 billion. Although the Air Force dismissed him, he was reinstated through legal action. He was, however, demoted. He later won another appeal for reinstatement in his former position. The reasoning for the actions against him was explained in a memorandum to John Haldeman of the Nixon White House: " Fitzgerald is no doubt a top-notch expert, but he must be given very low marks on loyalty; and loyalty is the name of the game."
In 1996, Jeffery Wigand, a tobacco researcher, revealed that Brown & Williamson Tobacco Corp. knew tobacco was addictive. His revelations had a dramatic impact on public policy and public perceptions of the tobacco industry. However, although he was vindicated by the attention he received in the media and by the fact that after his revelations, victims of tobacco-related illnesses began to be successful in their litigation against the tobacco companies, he still experienced severe personal consequences including threats against his family, loss of income, divorce, and the threat of litigation for breach of confidentiality.
Recent Legislative History
In the late 1970s in the wake of the civil rights movement, federal and state laws were enacted to protect employees in private industry, including anti-discrimination legislation to regulate hiring and firing policies. Many of these laws contained provisions forbidding an employer to retaliate against employees for reporting violations to public authorities. Complaints about reprisals could be filed with agencies such as the Equal Employment Opportunity Commission and the Occupational Safety and Health Administration (OSHA).
In addition, new federal and state legislation, such as the Truth in Lending laws, the Fair Credit Reporting Act, and the Environmental Protection Act, protected the public from illegal or unethical business practices. Many of these laws also contained provisions against reprisal for reporting violations. Although these laws appear to protect whistleblowers, a 1976 study of OSHA showed only 20 percent of the complaints filed that year were considered valid. About half of these claims were settled out of court, and of the 60 claims taken to court, only one was won.
Because of the fear of reprisals, regardless of the legislation available to address issues, Sen. Patrick Leahy, in a 1977 study entitled The Whistleblowers, reported that "federal employees are currently afraid to bring problems to the attention of their superiors." In response to such reports, Congress passed the Civil Service Reform Act in 1978 to protect the rights of government employees who reported wrongdoing. In 1989, the federal government extended whistleblowing protection to nongovernmental employees through the False Claims Act, which allows private individuals to sue government contractors on behalf of the U.S. government if they believe the government is being defrauded. This act protects employees of government contractors against reprisals and also provides incentives to blow the whistle by allowing the employee to collect at least 15 percent of damages awarded to the government.
The Whistleblower Protection Act of 1989 extended protections through the Merit Systems Protection Board and increased the authority of the Office of Special Counsel created in 1979. These laws protect disclosure of information as well as a government employee's refusal to participate in wrongful activities at work.
Although many laws protect the whistleblower as employee, supplier, or buyer in a governmental context, there have been few protections for whistleblowers in private industry. If an employee suffered retaliation because of whistleblowing, some legal recourse was available under state laws, especially in specific industries or classes of people such as employees exposed to hazardous waste. According to whistleblower advocates like Tom Devine of the Government Accountability Project, such protections have been inadequate, and whistleblowers spend many years and dollars trying to prove retaliation. Unless they were able to gain media attention, whistleblowers in industry faced retaliation from their employers in the form of dismissal or other personal hardships.
In the 1980s, states began to provide whistleblower protection to employees as a result of the erosion of the at-will employment doctrine, which until very recently meant that private, nonunionized employees could be fired for any reason, including blowing the whistle. The courts began to recognize it was against public policy for employees to be subject to termination for the exercise of a legislatively created right, such as refusing to break the law on behalf of an employer. Thus, courts considered it a contravention of the law for an employer to be able to fire an employee at will for reporting unsafe or illegal conduct. Currently, all but 15 states provide whistleblower protection.
With the enactment of the Sarbanes-Oxley Corporate Reform Act of 2002, internal and external whistleblower protection has been extended to all employees in publicly traded companies for the first time. The provisions of Sarbanes-Oxley
- Make it illegal to "discharge, demote, suspend, threaten, harass or in any manner discriminate against" whistleblowers
- Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers
- Require board audit committees to establish procedures for hearing whistleblower complaints
- Allow the secretary of labor to order a company to rehire a terminated employee with no court hearing
- Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings
The passage of this act has created an environment in which many organizations have realized the importance of instituting ethics policies and codes of conduct to address issues related to unethical or illegal conduct. The business climate in the wake of Enron and WorldCom, coupled with Sarbanes-Oxley, is one in which employees can feel more empowered to report ethical or legal violations.
To Prevent Whistleblowing, Encourage Whistleblowing
As the preceding sections illustrate, whistleblowing to an external entity, such as the media or government agencies, has been a hazardous activity, both for the individual and the organization. The ambivalent attitude toward whistleblowers ensures that, even with legal protection, they may face retaliation in subtle ways: being shunned by co-workers, being closely supervised, or just feeling alienated.
So, the question is, How do organizations encourage internal whistleblowing—that is, to an authority within the organization—to preclude external whistleblowing and the resulting damage to an organization? This section provides some best practices for encouraging employees to bring unethical or illegal practices to the forefront and addressing them before they become fatal to an organization.
The objectives of an internal whistleblowing program are
- To encourage employees to bring ethical and legal violations they are aware of to an internal authority so that action can be taken immediately to resolve the problem
- To minimize the organization's exposure to the damage that can occur when employees circumvent internal mechanisms
- To let employees know the organization is serious about adherence to codes of conduct
The barriers to a successful internal whistleblowing program are
- A lack of trust in the internal system
- Unwillingness of employees to be "snitches"
- Misguided union solidarity
- Belief that management is not held to the same standard
- Fear of retaliation
- Fear of alienation from peers
Although companies should seek to remove these barriers, it is also important to acknowledge that some whistleblowers have less-than-honorable motives. What if the whistleblower is retaliating against a supervisor with false accusations? What if the whistleblower is bringing genuine problems to the fore but is also a subpar employee? In that case, does the whistleblower get a free pass just because he or she exposed an issue? What should be done when it becomes clear that encouraging employees to bypass the proper channels is undermining management decision making? What if whistleblowers participated in the very actions they are now exposing, perhaps as a means of escaping the consequences of their participation? What if there is reason to suspect a whistleblower is targeting a specific employee because of his or her race, gender, or ethnicity? These are just a few of the issues to be considered in creating a whistleblowing culture.
Steps for Creating a Whistleblowing Culture
Create a Policy
A policy about reporting illegal or unethical practices should include
- Formal mechanisms for reporting violations, such as hotlines and mailboxes
- Clear communications about the process of voicing concerns, such as a specific chain of command, or the identification of a specific person in the organization, such as an ombudsman or a human resources professional
- Clear communications about bans on retaliation
In addition, a clear connection should exist between an organization's code of ethics and performance measures. For example, in the performance review process, employees can be held accountable not only for meeting their goals and objectives but also for doing so in accordance with the stated values or business standards of the company.
Get Endorsement From Top Management
Top management, starting with the CEO, should demonstrate a strong commitment to encouraging whistleblowing. This message must be communicated by line managers at all levels, who are trained continuously in creating an open-door policy regarding employee complaints.
Publicize the Organization's Commitment
To create a culture of openness and honesty, it is important that employees hear about the policy regularly. Top management should make every effort to talk about the commitment to ethical behavior in memos, newsletters, and speeches to company personnel. Publicly acknowledging and rewarding employees who pinpoint ethical issues is one way to send the message that management is serious about addressing issues before they become endemic.
Investigate and Follow Up
Managers should be required to investigate all allegations promptly and thoroughly, and report the origins and the results of the investigation to a higher authority. For example, at IBM, a long-standing open-door policy requires that any complaint received must be investigated within a certain number of hours. Inaction is the best way to create cynicism about the seriousness of an organization's ethics policy.
Assess the Organization's Internal Whistleblowing System
Find out employees' opinions about the organization's culture vis-à-vis its commitment to ethics and values. For example, Sears conducts an annual employee survey related to ethics. Some questions are: Do you believe unethical issues are tolerated here? Do you know how to report an ethical issue?
Given the prevalence of corporate misconduct in the recent past, whistleblowing incidents have been on the rise. A 2002 article in Business Week called 2002 the "Year of the Whistleblower" and quoted Stephen Meagher, a former federal prosecutor who represents whistleblowers, as saying that "the business of whistleblowing is booming." This trend is likely to be bolstered by the provisions of the Sarbanes-Oxley Act, which for the first time, accords legal protections to whistleblowers in publicly traded companies. This means organizations will have to institute rigorous policies to allow employees to bring unethical and illegal practices to the forefront. Companies will have to train managers and executives on how to encourage openness, not unlike the sexual harassment training of a decade ago. Putting processes in place will not be quick, but it is certainly necessary given the increased public scrutiny of corporate behavior.
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Lilanthi Ravishankar is a researcher for the Business and Organizational Ethics Partnership. This report was prepared for the partnership.
February 4, 2003
Ethics Center announces faculty Hackworth grantees
The Ethics Center is please to announce its Hackworth Grant Faculty recipients, awarded to selected Santa Clara University staff who will focus on ethics-related projects.
Young Park New Global Jesuit Network Scholar
Professor Young Park from Sogang University in Seoul, Korea has been named Global Jesuit Network Visiting Scholar at the Ethics Center, thanks to a generous gift from Chuck and Nan Geschke.