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Chapter 7
Blowing the
Whistle
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What is Whistle-Blowing?
Whistleblower
• Employee who discovers corporate misconduct and chooses to
bring it to the attention of others
Internal whistle-blowing
• Employee discovering corporate misconduct and bringing it to the
attention of his or her supervisor, who then follows established
procedures to address the misconduct within the organization
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
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Ethics of Whistle-Blowing
• In contrast to whistle-blowers being brave and
praiseworthy, they are considered to:
• Be motivated by money or personal egos
• Have breached he trust and loyalty they owe to
their employers
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When is Whistle-Blowing Ethical?
• When the company, through a product or
decision, will cause considerable harm to the
public or break existing laws
• When the employee identifies a serious threat
of harm
• 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
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When is Whistle-Blowing Ethical?
• Employee must have documented evidence
that:
• His or her view of the situation is accurate
• The firm’s practice, product or policy threatens the
public or product user
• Employee must have valid reasons to believe
that revealing the wrongdoing to the public will
result in the changes necessary to remedy the
situation
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When is Whistle-Blowing
Unethical?
• Motivation is the opportunity for financial gain
or media attention
• Employee is carrying out a vendetta against the
company
• Qui tam lawsuit: Brought on behalf of the
federal government by a whistle-blower under
the False Claims Act of 1863
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The Duty to Respond
• Responding to whistle-blowers means
addressing their concerns and not firing them
• Prior to 2002
• Legal protection for whistle-blowers existed
only through legislation
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The Whistleblower Protection Act
• Addressed the issue of retaliation against
federal employees
• Imposed specific processing deadlines of
complaints
• Guaranteed anonymity of the whistle-blower
• Required prompt payment of any portion of the
settlement entitled to the whistle-blower
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Sarbanes-Oxley Act of 2002
• An integrated approach of whistle-blowing by:
• Prohibiting retaliation against whistle-blowers
• Encouraging the act of whistle-blowing itself
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Dodd-Frank Wall Street Reform
and Protection Act
• Introduced a new reward program for whistle-
blowers who report securities law violations to:
• The Securities and Exchange Commission (SEC)
• The Commodity Futures Trading Commission
(CFTC)
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Addressing the Needs of Whistle-
Blowers
• Well-defined process to document how such
complaints are handled
• Whistle-blower hotline: Telephone line by
which employees can leave messages to alert a
company of suspected misconduct without
revealing their identity
• Prompt and thorough investigation of all
complaints
• Detailed report of all investigations
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Whistle Blowing As a Last Resort
• Unceasing media attention and the terminal
damage should be considered a catalyst for the
organization to take remedial steps
• Unfortunately executives prefer to:
• Bury the information
• Discredit the evidence
• Tie their employees in restrictive confidentiality
agreements
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