Whistleblowers Pay a Price for Coming Forward

The Ethics Resource Center recently issued its 2011 National Business Ethics Survey (NBES) and the results are mixed. Here are some of the major results reported in its Executive Summary.

• The percentage of employees who witnessed misconduct at work fell to a new low of 45 percent.  That compares to 49 percent in 2009 and is well down from the record high of 55 percent in 2007.

• Those who reported the bad behavior they saw reached a record high of 65 percent, up from 63 percent two years earlier and 12 percentage points higher than the record low of 53 percent in 2005.

• Retaliation against employee whistleblowers rose sharply.  More than one in five employees (22 percent) who reported misconduct say they experienced some form of retaliation in return.  That compares to 12 percent who experienced retaliation in 2007 and 15 percent in 2009.

• The percentage of employees who perceived pressure to compromise standards in order to do their jobs climbed five points to 13 percent, just shy of the all-time high of 14 percent in 2000.

• The share of companies with weak ethics cultures also climbed to near record levels at 42 percent, up from 35 percent two years ago.

In this blog I focus on the issue of whistleblowing in the workplace and increased instances of retaliation against whistle-blowers. I have previously blogged about the results of the survey with respect to building an ethical corporate culture.

Among employees who reported workplace misconduct, more than one in five (22 percent) say they experienced some form of retaliation in return. That compares to 12 percent who reported retaliation in 2007 and 15 percent who said retaliation was a problem in 2009. When all employees were asked whether they could question management without fear of retaliation, 19 percent said it was not safe to do so.

Heading the list of retaliatory actions are the exclusion from decision-making or other workplace activities, a cold shoulder from co-workers, and verbal abuse from a supervisor or other manager. Here are the results from the survey.

Retaliation contributes to workplace instability including losing well-trained and heretofore dedicated employees, and it may deprive businesses of key skills and talented people. About seven of 10 employees who experienced retaliation plan to leave their current place of employment within five years, compared to about four in 10 of employees who were not victims of retaliation.

I understand the reasons for increased instances of whistleblowing in the workplace. There are laws such as the Sarbanes-Oxley Act and The Dodd-Frank Wall Street Reform and Consumer Protection Act that protect whistleblowers. Dodd Frank includes an incentive for whistleblowers to spill the beans on their employers. The rules says that “[y]ou are a whistleblower if, alone or jointly with others, you provide the [SEC] with information pursuant to the procedures set forth in [the rule] and the information relates to a possible violation of the federal securities laws (including any rules or regulations) that has occurred, is ongoing, or is about to occur.”

To be considered for an award, a whistleblower must voluntarily provide the SEC with original information that leads to the SEC’s successful enforcement of a federal court or administrative action in which the SEC obtains monetary sanctions greater than $1 million. An individual whistleblower may be eligible for an award of 10 percent to 30 percent of the monetary sanctions. Some have called this a "bounty hunter provision".

The final rule, with some exceptions, excludes from eligibility original information obtained by a person with legal, compliance, audit, supervisory, or governance responsibilities for an entity, such as an officer, director, or partner, if the information was communicated to the whistleblower through the company’s internal compliance mechanisms, and information gained by an independent public accountant through the performance of an engagement that is required under the securities laws. The purpose here is to ensure the whistleblower exhausts all internal means before taking his or her concerns outside the organization.

Is whistleblowing a good thing? Is it an ethical practice? Notwithstanding the confidentiality and non-disclosure agreements that might work against full disclosure, it is important to encourage whistleblowing especially when the public interest is at stake. An ethical person should not stand idly by while a company dumps toxic waste in lakes thereby poisoning the water supply, or when fraudulent financial statements exist affecting the "true" value of ownership in the hands of investors. All we need do is reflect on the Penn State/Joe Paterno situation to understand the potential damage that can be done to others when those in the know – authority figures – stand idly by while others are harmed.

Blog posted by Steven Mintz, aka Ethics Sage, on January 12, 2012