Chapter 07 - Blowing the Whistle

CHAPTER 7: ANSWER KEY FRONTLINE FOCUS: “Good Money” Ben is a sales team leader at a large chain of tire stores. The company is aggressive and is opening new stores every month. Ben is very ambitious and sees plenty of opportunities to move up in the organization – especially if he is able to make a name for himself as a star salesman. As with any retail organization, Ben’s company is driven by sales, and they are constantly experimenting with new sales campaigns and incentive programs for their salespeople. Ben didn’t expect this morning’s sales meeting to be any different – a new incentive tied to a new campaign, supported by a big media campaign in the local area. Ben’s boss, John, didn’t waste any time in getting to the point of the meeting: “OK guys, I have some big news. Rather than simply negotiating short-term incentives on specific brands to generate sales, the company has signed an exclusive contract with Benfield Tires to take every tire they can produce in their new ‘Voyager’ line. That exclusive contract comes with a huge discount based on serious volume. In other words, the more tires we sell, the more money we’ll make – and I’m talking about good money for the company and very good bonus money for you – so put everybody into these tires. If we do well in this first contract with Benfield, there could be other exclusives down the road. This could be the beginning of something big for us.” John then laid out the details on the sales incentive and showed Ben and his fellow team leaders how they could earn thousands of dollars in bonuses over the next couple of months if they pushed the new Benfield Voyagers. Ben could certainly use the money, but he was concerned about pushing a new tire model so aggressively when it was an unknown in the marketplace. He decided to talk to their most experienced tire mechanic, Rick. Rick had worked for the company for over 25 years – so long that many of the younger guys joked that he either had tire rubber in his veins or that he had apprenticed on Henry Ford’s Model T. “So, Rick, what do you think about these new Benfield Voyagers? asked Ben. “Are they really such a good deal for our customers or are they just a moneymaker for us?” Rick was very direct in his response: “I took a look at some of the specs on them and they don’t look good. I think Benfield is sacrificing quality to cut costs. By the standards of some of our other suppliers, these tires would qualify as ‘seconds’ – and pretty bad ones too. You couldn’t pay me to put them on my car – they’re good for 5,000 miles at the most. We’re taking a big risk promoting these tires as our top model.”

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1. If Ben decides to raise concerns about the product quality of the Benfield Voyagers, he will become a ‘whistle-blower’. Page XX explains the difference between ‘internal’ and ‘external’ whistle-blowing. Which approach should Ben follow if he does decide to raise his concerns? Ben should start by following the internal process if there is one. If not, he should approach the appropriate regulatory authorities to raise his concerns. If that doesn’t work, he should contact the media as a last resort. 2. Page XX outlines the 5 conditions that must exist for whistle-blowing to be ethical. Has Rick given Ben enough information to be concerned about the Benfield Voyagers? No. Rick has concerns about the design specifications and quality of the ‘Voyager’ tires, but even with his extensive work experience, Rick’s concerns wouldn’t count as definitive evidence of problems with the tires. 3. What should Ben do now? Ben has a tough decision to make. John is obviously expecting everyone in the store to push this deal, and with the lucrative bonus potential, Ben stands to make a lot of money. However, can he live with the knowledge that he is making all that extra money by putting people on tires that his most experienced tire mechanic thinks are dangerous? Progress Check Questions: 1. What is a Whistle-blower? An employee who discovers corporate misconduct and chooses to bring it to the attention of others. 2. What is Internal Whistle-blowing? When an employee discovers corporate misconduct and brings it to the attention of his supervisor, who then follows established procedures to address the misconduct within the organization. 3. What is External Whistle-blowing? When an employee discovers corporate misconduct and chooses to bring it to the attention of law enforcement agencies and/or the media. 4. Is Whistle-blowing a good thing? Answers will vary. Refer to ‘the ethics of whistleblowing’.

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

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When the company, through a product or decision, will cause serious and considerable harm to the public (as consumers or bystanders), or break existing laws, the employee should report the organization. When the employee identifies a serious threat of harm, he or she should report it and state his or her moral concern. When the employee’s immediate supervisor does not act, the employee should exhaust the internal procedures and chain of command to the board of directors. The employee must have documented evidence that is convincing to a reasonable, impartial observer that his or her view of the situation is accurate, and evidence that the firm’s practice, product or policy seriously threatens and puts in danger the public or product user. The employee must have valid reasons to believe that revealing the wrongdoing to the public will result in the changes necessary to remedy the situation. The chance of succeeding must be equal to the risk and danger the employee takes to blow the whistle.

6. Under what condition could whistle blowing be considered unethical? If there is evidence that the employee is motivated by the opportunity for financial gain, or media attention, or that the employee is carrying out an individual vendetta against the company, then the legitimacy of the act of whistle-blowing must be questioned. 7. If you ‘blow-the-whistle’ on a company for a personal vendetta against another employee but receive no financial reward, is that more or less ethical than doing it just for the money? Answers will vary. 8. Would the lack of any financial reward make you more or less willing to consider being a whistleblower? Why? Answers will vary. 9. If an employee ‘blows-the-whistle’ on an organization on the basis of a rumor, is that ethical? No - The employee must have documented evidence that is convincing to a reasonable, impartial observer that his or her view of the situation is accurate, and evidence that the firm’s practice, product or policy seriously threatens and puts in danger the public or product user. 10. If that information turns out to be false, should the employee be liable for damages? Explain your answer.

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Answers will vary. In any event, it would be unlikely that an organization could recover any large financial award from a single employee. 11. Compensation to “Make the employee whole” under Sox isn’t as clear as a percentage of the funds recovered for a government whistleblower. Does that make it less likely that we’ll see more whistle-blowing under Sox? Answers will vary. If you believe that whistleblowers are motivated more by principle than money, then it shouldn’t make a difference. However, continued media coverage of large whistleblower awards could increase the frequency of government exposés. 12. Under Sox, complaining to the media isn’t recognized as whistle-blowing. Is that ethical? Answers will vary. Often complaining to the media only occurs after the employee has exhausted all internal channels of communication. To be denied the legal status of a whsitleblower because you were given no option but to go to the media seems unfair. The purpose of the distinction is to make sure that regulatory agencies get involved before the media attention is brought to bear. 13. How should managers or supervisors respond to an employee who brings evidence of questionable behavior to their attention? All employers would be wise to put the following mechanisms in place: a) A well-defined process to document how such complaints are handled – a nominated contact person; clearly identified authority to respond to the complaints; firm assurances of confidentiality and non-retaliation to the employee. b) An employee hotline to file such complaints, again with firm assurances of confidentiality and non-retaliation to the employee. c) A prompt and thorough investigation of all complaints. d) A detailed report of all investigations, documenting all corporate officers involved and all action taken. 14. Should that employee be given any reassurances of protection for making the tough decision to come forward? Yes – anonymity, and no retaliation. 15. Do you think a hotline that guarantees the anonymity of the caller will encourage more employees to come forward? Yes but the strength of that anonymity would have to be proven before any other employees would be willing to come forward.

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16. Does your company have a whistleblower hotline? How did you find out that there is (or isn’t) one? Answers will vary.

Case 7.1: The Insider 1. Dr. Wigand was initially unwilling to go public with his information. What caused him to change his mind? The extreme reaction of his employers, Brown & Williamson (B&W) in enforcing the terms of his employment contract and aggressively seeking to ruin his reputation. In addition, Lowell Ganz’s assertions that it was ‘the right thing to do’. 2. Was CBS pursuing this because it was ‘the right thing to do’, or because it was a good story? Initially it was a very good story, but as the situation progressed and B&W began to resort to extreme tactics in their attempts to stifle the story, the issue of principle came into play and the notion of ‘the right thing to do’ became more important than the story – so much so that Ganz ultimately left his position with CBS. 3. Since CBS played such a large part in bringing Dr. Wigand’s story to the public, do you think they also had an obligation to support him once the story broke? Explain why or why not. Answers will vary. Some students will argue that Wigand was an adult and was intelligent enough to know what he was getting himself into. Others will argue that since CBS provided the opportunity for Wigand to speak-out, and since they benefited greatly from it in terms of an increased viewing audience, it was wrong for them to simply abandon him once the story broke. 4. Was CBS’ decision not to run the interview driven by any ethical concerns? CBS’ parent company had an obligation to their stakeholders, and the very real threat of an expensive lawsuit under ‘tortious interference’ could have had a dramatic impact on their financial performance. However, to choose to back down from the story after giving Wigand assurances about exposing the information he had sacrificed his career to give them was unethical. This ultimately led to the change-of-heart on CBS’ side and the eventual broadcast of the story.

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Case 7.2: The Cold Hard Reality 1. Who took the greater risk here – Christine Casey or David Welch? They both sacrificed their careers to bring attention to what they saw as evidence of corporate malfeasance. The result of their actions appears to be that both have been ‘blacklisted’ in their respective fields with no apparent hope of every returning to paid employment in their chosen careers. 2. Was the alleged behavior at Mattel more or less unethical than the behavior at the Bank of Floyd? Less unethical. The decision of Mattel managers to ignore corporate mandates and to keep two sets of books in order to ‘keep corporate happy’ reflects badly on the corporate culture of Mattel, but there is no evidence from the case study that those actions directly led to fraudulent behavior on the part of the Mattel Corporation. For the Bank of Floyd, however, David Welch’s claims alleged direct and intentional fraud in their financial reporting activities. 3. Do you think Christine and David regret their decision to go public with their information? Why or why not? Given what has happened to them both, probably yes. The satisfaction of ‘doing the right thing’ can only carry you so far when you are now struggling to earn gainful employment. 4. Do you think their behavior changed anything at either company? Answers will vary. Some students will feel that the additional scrutiny as a result of the whistleblowing cases will have prompted change. Others will feel that the degree to which each company aggressively pursued legal action against the whistleblowers is evidence that no changes are likely to have taken place.

FRONTLINE FOCUS: “Good Money” - Ben makes a decision Ben lost a lot of sleep that night. He trusted Rick as his most experienced tire mechanic, but he had never seen him be so negative about one particular tire model – and it wasn’t as if he had anything to gain by trashing the reputation of a tire that the company wanted to sell so aggressively. The company had sold seconds before – heck they even sold ‘used’ tires for those customers looking to save a few bucks. How was this any different? Plus, Rick didn’t

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have to deal with the sales pressure that John placed on his team leaders – you had to hit your quota every week or else – and if the company was pushing Benfield Voyagers, then John expected to see him sell Benfield Voyagers by the dozen. But what if Rick was right? What if Benfield had cut corners to save on costs? They could end up with another Firestone disaster on their hands. What was Ben supposed to do with this information? If Rick was so concerned, why wasn’t he speaking up? The company advertised their employee hotline for everyone to use if they had concerns about any business practices. Why was it Ben’s job to say something? He needed this job. He had bills to pay just like the other guys in the store – in fact, the bills were getting pretty high and that bonus money would really help right now. Ben tossed and turned for a few more hours before reaching a decision. Rick may be right to be concerned but he was only one guy. The guys at corporate looked at the same specs as Rick did, and if they could live with them, then so could Ben. He wasn’t going to put his neck on the block just on the basis of Rick’s concerns. If the company was putting their faith in Benfield Voyagers, then Ben was going to sell more of them than anyone else in the company. Two weeks later there was a fatal crash involving a minivan with three passengers – a husband and wife and their young son. The minivan had been fitted with Benfield Voyagers at Ben’s tire store just one week earlier… 1. What do you think will happen now? There will be a formal investigation to determine the cause of the accident, and if the tires are found to be at fault, the investigation will follow the chain of evidence and contact Ben’s store and then the Benfield Company to determine whether the faulty tire was just an unfortunate fluke or whether the problem is more serious than that. There will no doubt be a lawsuit against all parties involved (Benfield and Ben’s store) irrespective of whether any fault is identified or not. 2. What will be the consequences for Ben, Rick, their tire store, and Benfield? If it is determined that there was a design flaw in the tires that directly contributed to the crash, then there might be a complete recall of the tires with disastrous consequences for both Benfield and Ben’s store. Rick might have the satisfaction of knowing that his concerns about the design were completely accurate, but that would be little consolation to him when they shut down the store. The legal case would most probably revolve around whether or not the store “knowingly” sold a defective product. Any lawyer worth his license would argue that there was insufficient evidence at the time to make such a determination. 3. Should Ben have spoken out against the Voyager tires?

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It would be unfair to place so much blame on Ben’s shoulders. He had his suspicions but no evidence. Should he really have placed his future and that of his family on the line for a suspicion? All the whistleblowers featured in this chapter found evidence before they acted – all Ben had were Rick’s concerns. When Ben was tossing and turning over the decision, he raised a valid point – Rick had the expertise and the experience to have a more accurate assessment of the situation – why didn’t he speak up? Review Questions: 1. You work for a meatpacking company. You have discovered credible evidence that your company’s delivery drivers have been stealing cuts of meat and replacing them with ice to ensure that the delivery meets the stated weight on the delivery invoice. The company has 12 drivers and, as far as you can tell, they are all in on this scheme. Your company has a well-advertised whistleblower hotline. What do you do? Answers will vary. Those that choose to act on the apparent unethical behavior should use the employee hotline before going to the media. 2. What would you do if your company did not have a whistleblower policy? Answers will vary. It will depend on how secure ‘you’ would feel in the company’s anticipated response – would your anonymity be secure? Would you be able to avoid retaliation on the part of the company? 3. You later discover that one of the drivers was not a part of the scheme but was fired anyway when the information was made public. What do you do? Answers will vary. Some students will see the driver as an unfortunate casualty who should have spoken out when he had the chance (and therefore ‘got what was coming to him’). Others will feel an obligation to speak out on his behalf to resolve the situation. In reality, once the case has broken and the company has acted, it would be unlikely for them to go back and amend the decisions made. 4. Should the driver get his job back? Why or why not? If he was innocent, it is wrong for him to be fired for actions he didn’t commit.

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Review Exercises: 1. Amalgamated Forest Products: Discussion Questions: 1. What should Frank do now? Frank is faced with a tough decision. The Senior Team has made it very clear that they intend to move forward with the ‘modified’ report data, so if Frank chooses to go public with his information, he will have to become an external whistleblower and contact the appropriate regulatory authorities. However, doing so will most likely have a negative impact on the company, his co-workers, his community, and his family if he ends up losing his job over this. 2. Considering the stakeholder model, who will be impacted by Letourneau’s bogus figures? In the short-term, life would go on as usual since the bogus figures would make it look as if Amalgamated had a convincing case for not being in compliance with the pollution control standards. However, over the longer term, the pollution would impact every stakeholder – employees who could lose their jobs; the community would suffer from the loss of jobs and perhaps even the entire plant; customers would see increased prices if penalties are enacted to clean-up the pollution; suppliers would suffer from the closure of the plant; and the local city and state agencies would lose the tax revenue if Amalgamated was forced to close. 3. If Frank goes public with the real figures, what do you think the likely consequences will be for all the parties involved? It would depend directly on Frank’s credibility as a whistleblower. If Amalgamated were to respond as aggressively towards Frank as B&W did to Jeffrey Wigand by attempting to discredit him, there may be no consequences other than Frank’s loss of employment. If Frank is successful, however, it is likely that there would be financial penalties involved for Amalgamated and the replacement of the Senior Team. 4. The Senior Team at Amalgamated obviously feels that their financial hardships justify their actions – is that a valid argument? Why or why not? The utilitarian argument of the end justifying the means is being used here. The Senior Team feels that they know their industry and their company better than the politicians. However, the fact that they are deliberately presenting data that they know to be false in order to manipulate those politicians rather than challenging them head-on suggests that they are rationalizing their decision. 5. How could Letourneau and his team have handled this in a more ethical manner?

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By deliberately challenging the validity of the pollution studies that have produced the criteria that they seem to feel are punitive to the companies in the region. In this way, they could offer a true picture of Amalgamated’s situation rather than manipulate the data in order to take advantage of an assessment system that they feel is invalid. 6. Letourneau and McIntosh feel that Frank is the troublemaker here – is that a fair assessment? Frank is certainly making life difficult for them, but his role as ‘troublemaker’ has come about because he is raising valid concerns about the data that the company is presenting. The term ‘troublemaker’ suggests that a person goes out of his or her way to deliberately make trouble. In this case, Frank is responding emotionally to the discovery that the data he compiled is being deliberately altered to achieve an alternative goal. 2. Internet Exercise: Visit the Government Accountability Project (GAP) at www.whistleblower.org a) What is the Mission of GAP? “The Government Accountability Project (GAP) is a 29-year-old nonprofit public interest group that promotes government and corporate accountability by advancing occupational free speech, defending whistleblowers, and empowering citizen activists. (They) pursue this mission through (their) Nuclear Safety, International Reform, Corporate Accountability, Food & Drug Safety, and Federal Employee/National Security programs. GAP is the nation's leading whistleblower protection organization”. b) How is GAP funded? “GAP is a nonprofit 501(c)(3) organization with an operating budget of slightly over $2 million. Forty-six percent of (their) funds come from grantmaking foundations such as the Ford Foundation, Fund for Constitutional Government, the CS Fund, the Nathan Cummings Foundation and the Rockefeller Family Fund. Another 41% comes from as many as 8,000 generous individuals. The rest of GAP’s budget comes from legal fees, settlement awards, and services provided.” c) Select one case listed on the site and document the key events. Answers will vary.

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Team Exercises: 1. Guilt by Omission Divide into two groups and prepare arguments for and against the following behavior: You work for a large retail clothing company that spends a large amount of their advertising budget announcing that their clothes are ‘Made in America’. You discover that only 15% of their garments are actually ‘made’ in America. The other 85% are actually either cut from patterns overseas and assembled here in the USA, or cut and assembled overseas and imported as completed garments. Your hometown depends on this clothing company as the largest local employer. Several of your friends and family work at the local garment assembly factory. Should you go public with this information? YES:        

NO:     

It’s false advertising to state that the clothing is ‘made in America’. The company is misleading their customers. If they can lie about this, what else are they lying about? It’s wrong to support overseas jobs while claiming to be a patriotic organization. The public would believe one of the employees sooner than an investigative reporter. It’s the ‘right thing to do’ Your friends and family would support you in this. The town would not want its reputation associated with such deceptive business practices.

Does this deceptive advertising really constitute “serious and considerable harm” to the public? There’s no real danger to the end user – the customer – in this case. This isn’t a federal case, so there wouldn’t be a reward from any financial settlement. Do you have evidence that: “revealing the wrongdoing to the public will result in the changes necessary to remedy the situation”? If you go public with this information, the potential danger to your family, friends and the community in lost employment far outweighs the benefits of a modified ad campaign.

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2. ‘Tortious Interference’ Divide into two groups and prepare arguments for and against the following behavior: In the case of Dr. Jeffrey Wigand and the Brown & Williamson Tobacco Company, the CBS Broadcasting Company chose not to air Dr. Wigand’s ’60 minutes’ interview with Mike Wallace under threat of legal action for ‘tortious interference’ between B&W and Dr. Wigand. There were suspicions that CBS was more concerned about avoiding any potential legal action that could derail their pending sale to the Westinghouse Corporation. Was CBS behaving ethically in putting the welfare of their stakeholders in the Westinghouse deal, ahead of their obligation to support Dr. Wigand?

YES:    

CBS had a responsibility to their stakeholders. There was evidence that a legal action by B&W could cost CBS millions of dollars. There was a valid contract between B&W and Dr. Wigand that both parties had signed in good faith. The pending sale had nothing to do with it – that was just a coincidence in timing.

NO:  

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CBS had aggressively pursued Dr. Wigand in order to break a story that they believed would dramatically increase the ratings for ’60 Minutes’. Assurances were given to Dr. Wigand that his story would be broadcast and that he would be able to make his concerns about the manipulation of nicotine levels in cigarettes known to as wide a population as possible. The ‘tortious interference’ lawsuit was nothing more than a scare tactic by B&W after their attempt to discredit Dr. Wigand in the media had been unsuccessful. CBS was more concerned about the pending sale of the organization to the Westinghouse Corporation (and the lucrative share option bonuses for those involved in the transaction).

Discussion Exercise 7.1 Whistle Blowing and the Professional Discussion Questions: 1. Do you think that Barbara Reznik has a right to expect the state to pay the full $20.4 million? How does the ‘public interest’ enter into your assessment of the

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appropriateness of the state’s offer? If you were in Reznik’s position, would you accept the offer? Be sure to incorporate ethical reasoning into your responses. Answers will vary. Some students will feel that Reznik is right to stand her ground on the principles involved and that the state should not be allowed to get away with their obvious tactic of trying to simply wait her out. Others will feel that the only people hurt in this stalemate are the taxpayers, since it is their money that is being used to pay this financial settlement. Given the extensive investigation into Reznik’s behavior at the DoT and the eventual dismissal of the cases against her, there is no evidence of any attempted profiteering on her part. However, the situation has now become so entrenched on both sides that she is refusing employment as a justification of her entitlement to the funds. 2. Notwithstanding the existence of the Whistleblower Act, assume that Reznik is an accountant CPA working in the accounting office at the Department of Transportation, and the fraud that she identifies concerns financial statement items. Would you advise Reznik to blow the whistle on the financial wrongdoing? What if she were a Certified Management Accountant (CMA) or a Certified Internal Auditor (CIA)? What ethical and professional considerations are relevant in making such a decision, and what action would you advise? As a designated professional in her field (CPA, CMA, or CIA), she would hopefully abide by the ethical code of conduct to expose such unethical behavior and act accordingly. Discussion Exercise 7.2 James Alderson Discussion Questions: 1. Do you think Alderson and his family would have made as many sacrifices if the federal False Claims Act did not allow whistleblowers to receive the 15-25% ‘compensation’ on any settlement? Connie Anderson provides her own answer to this question: “Knowing what I know now and knowing how long it’s been, I’m not sure I would have agreed to pursuing the case. I don’t think any amount of money is going to take care of what we’ve been through”. 2. If you were faced with the same situation, would the money make a difference to you? Explain your answer. Answers will vary. 3. Do you think the compensation provides an unethical incentive for prospective whistleblowers to ‘go public’ with proprietary information?

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It’s likely that there are whistleblowers who are motivated solely by the prospect of financial gain, but removing such compensation to thwart the unethical minority would do more harm by preventing the ethical majority from coming forward and ‘doing the right thing’. 4. The prospect of a long, drawn-out legal battle is probably a major obstacle to many prospective whistleblowers. If legislation existed to expedite such cases, do you think there would be more corporate scandals revealed by insiders? Why or why not? The prospect of surviving with no income and the likelihood of being unable to find employment in the field for which you are most qualified is a significant de-motivator for any employee who is contemplating becoming a ‘whistleblower’. Expediting such cases would definitely help. 5. In many cases, whistleblowers face the loss of their careers as a result of their actions. What could be done to prevent this? Answers will vary. Attempts to preserve anonymity and protect the whistleblower against retaliation from his or her employer are a good start. However, the prospect of losing your career is a significant de-motivator for any employee who is contemplating bringing evidence of unethical corporate behavior to the attention of the appropriate regulatory authorities. Financial protection in the form of a reward could be seen as suitable compensation, but the legal delays involved in awarding these settlements can also be prohibitive. Perhaps the government could use some of those penalties to establish a ‘whistleblower fund’ where designated whistleblowers could be paid a subsistence wage until the case is settled? 6. Could you go back to work for the same company after you had revealed unethical corporate behavior? What about a similar job with a different company? Answers will vary.

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