Incentivizing Whistle-blowing: Another Point of View

I encourage readers of my “Workplace Ethics Advice” blog to write to me with questions about workplace ethics that I respond to in a confidential manner. From time to time I receive replies to one of my blogs that is thought-provoking and may present an alternative point of view. Today’s blog is such a case that was sent to me by Rose Tala ([email protected]).

You state that the most troubling provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act is the offer of financial incentives basically in exchange for the disregard of an employee’s own company processes, and reporting fraudulent instances directly to government.  I agree with you in so far as saying that I believe this to be the most troubling provision, however my reasoning for this unlike yours, is not because it has the potential to attract the ‘vultures’ to circle overhead but more so due to the fact that the financial incentives have been authorized at a nations’ top-most ‘management’ level - Government. 

I find it most concerning that at this level, the resolution that they have come up with to deter fraudulent behavior, is in effect to replace one unethical action (i.e. fraud) with yet another unethical practice (i.e. incentivizing the reporting of fraud with monetary reward) rather than to encourage whistle-blowing for the sole purpose of being the morally correct thing to do.  

So, when you ask ‘is whistle-blowing’ ethical?  I think that in order to answer this correctly, one must take into account the context.  If the question is asked in the context of the Dodd-Frank reform, personally, I would answer no. In order to justify my answer, I will momentarily set aside the Dodd-Frank reform and speak from a ‘general’ perspective.  I will also draw on the Utilitarian ethical theory test to back up my answer.

At the foundation of a Utilitarian’s justification of ethicalness, is the question ‘what action would maximize happiness, and minimize harm?’  In the case of reporting fraudulent behavior, the Utilitarian’s options would be firstly to say nothing, secondly, to report the incident to a manager (internal whistle-blowing), and thirdly to report outside the organization, otherwise known as ‘external whistle-blowing’.

Now, let’s pick up these options one by one, and analyze their possible results.  The first option – saying nothing, would likely result in the continuation of the fraudulent behavior, and there could also be negative ramifications for the would-be whistle-blower if the fraud were discovered by other means, and part of potential whistle-blowers’ employment obligations would have required that they report the behavior.

The second option – reporting the incident to a manager, could result in putting a stop to the fraud, praise for the whistle-blower, praise for the manager, and the likely negative consequences would be the loss of employment of the person committing the fraud, and possibly some co-workers treating the whistle-blower with a degree of distrust in the future. 

Lastly, the likely results of the whistle-blower reporting fraudulent behavior outside of the organization would result in negative publicity for the organization, financial loss for the owners/stake holders, and at worst the loss of jobs at the organization resulting from business decline and/or legal action against it (the company).  The only foreseeable positive consequence from taking this action would be the cessation of the fraudulent behavior. Given these options, the Utilitarian would be morally obliged to take the second option – report the incident to a manager, as this option would foreseeably bring about the most happiness, and minimize harm.

Now, to summarize – let’s bring back the Dodd-Frank reform which was temporarily set aside and add this to the analysis of whether whistle-blowing is ethical, remembering that I believe that it has to be asked in consideration of the context in order to be answered accurately. 

Bearing in mind that in a ‘general’ context as illustrated above, and put against the Utilitarian theory test, the option of reporting fraud to a manager was the morally correct action to take.  If we now look at the same situation in the context of an environment where the Dodd-Frank reform is law, this would then expand the negative ramifications of the last option – reporting fraudulent behavior outside of the organization. 

The negative ramifications would be magnified as there would be added possibilities such as potential whistle-blowers being motivated not by doing the morally correct thing, but by financial gain.  Furthermore, it could lead to distrust among employees and managers as there could be the fear amongst staff that everybody is being watched.  These examples of possible negative consequences are only the tip of the ice-berg so to speak of external whistle-blowing.

So, in conclusion I do believe that whistle-blowing is ethical if done in the right way for instance, as above -- reporting to the manager --, and also if done for the correct reasons (i.e. because it is morally the correct thing to do) rather than for monetary reward.  In fact, not only is whistle-blowing ethical if it meets the previous criteria, but often necessary for the continued success of a company such as many of the failed finance companies in New Zealand, for example, in recent times. 

‘Honest and ethical behavior by employees should be encouraged and comprehensive whistleblower protection could well have encouraged finance company employees to come forward’ writes Susan Watson & Rebecca Hirsch in the New Zealand Herald Sunday May 27, 2012.  I do not however, feel that as you put it – the means (i.e. spying on co-workers and aggressively seeking out dodgy transactions), justify the ends (i.e. putting a stop to corporate fraud). 

In short, this resolution merely replaces one unethical practice with another so as I see it, whistle-blowing with the motivation of a financial incentive cannot possibly be considered ethical.

Blog posted on Workplace Ethics Advice by Steven Mintz, aka Ethics Sage, on June 6, 2012

Written by Rose Tala ([email protected])