Business, Ethics and Society

This article focuses on how corporations and the government have responded to unethical behavior by employees. There will be a discussion of the role of whistleblowers as well as how regulations such as the False Claims Act, Sarbanes-Oxley Act, and the Lloyd-La Follette Act have been implemented in order to encourage employees to report acts of misconduct. In addition, there will be a review of how employees use organizational justice as a factor in the whistle blowing process.

Keywords Cynthia Cooper; Ethics; Enron; False Claims Act; Lloyd-La Follette Act; Organizational Justice; Sarbanes-Oxley Act; Securities and Exchange Commission (SEC); Sherron Watkins; Whistleblowers; WorldCom

Business & Public Policy > Business, Ethics & Society

Overview

Given the competitiveness in the world today, many people are tempted to go outside of the rules and regulations of society in order to get ahead. Although many would argue that traits such as honesty and credibility are valued, temptations have lured some to act irresponsibly. Actions such as cheating, stealing, lying, and bribing have become common in the workplace. Good moral values and actions are becoming the exception rather than the rule. How can the trend turn? Organizations must put policies in place that will encourage employees to do the right thing and inform the proper authorities when illegal actions and dishonesty take place.

Unfortunately, when employees step forward and alert the organization of wrongdoings, they are labeled whistleblowers and negative labels are applied to them. Instead of being considered heroes for doing the right thing, they tend to be chastised and some never fully recover from the experience. For many of these individuals, there is a loss of trust in fellow employees and the organizations in which they work.

This can be a devastating moment for many. Everything that they have believed and trusted is turned upside down. In some cases, these employees may have been friends with the culprits outside of the workplace, which may place an additional burden on the potential whistleblower. It is unfortunate that society has come to a point where individuals with moral values and a sense of right and wrong are treated as outsiders of societal norms. Whistleblowers have been ostracized, reprimanded, forced to transfer, referred to receive psychiatric care, assigned to menial duties, dismissed and blacklisted. There are reports of where they have been unable to seek employment at other companies because there is a fear that the same situation will occur. Organizations respond to whistle blowers with hostility and fear.

The federal government and some states have passed legislation to protect employees who decide to become whistleblowers. According to Sheeder (2006), the federal False Claims Act provides protection for:

Many courts will provide protection when:

• An employee becomes a participant in a "protected activity" (i.e. when an employee decides to confront an employer about illegal activities such as fraud).

• The employer becomes aware of the "protected activity."

• The employee is penalized as a result of coming forth about the "protected activity" (i.e. termination, harassment). When it has been determined that an employee is a victim of retaliation, he or she may petition for:

• Reinstatement with the same seniority that he/she would have had if the adverse action did not occur.

• Two times back pay

• Interest on the back pay

• Special damages (i.e. compensation for emotional distress, recovery of litigation costs, and reasonable attorney's fees)

• Any type of relief that will assist the employee in becoming a whole person again (Sheeder, 2006, p. 39-40). An employee is entitled to all of the relief listed above as well as any recovery obtained by the government based on the regulations of the False Claims Act. Given the financial penalties for acts of wrongdoing, employers are encouraged to monitor the activities of their organization so that these fines are not imposed.

In order to avoid the costly expenses of these types of situations, many organizations are encouraged to draft policies that will assist employees in feeling comfortable about coming forward to advise the senior management team and the outside world of fraudulent behavior occurring in companies today. Tennebaum provided four elements of a good whistleblower policy. The four elements are:

1. A policy that has a clear purpose and a statement of intent to protect whistleblowers to the fullest extent possible. The purpose may include creating an environment where the whistleblower can feel safe.
2. Guidelines that provide a detailed explanation of how the organization will attempt to protect the whistleblower.
3. Procedures on who, when and how to contact the organization in order to report unethical and/or illegal behavior.
4. A statement declaring what the organization will do as a result of the whistle-blowing activity (Associations Now, 2007, p. 12).

In addition, employers should be proactive and see if they can determine the types of behaviors or situations that encourage employees to participate in unethical behavior and the types of actions that encourage employees to step up and become whistleblowers. Sheeder (2006) identified six common factors that have encouraged employees to become whistleblowers. In most cases, the lack of organizational support was enough for the employee to seek external assistance in correcting improper behavior. Each of the mentioned scenarios is based on a real life case study.

• Expect employees to participate in fraudulent conduct. There have been many situations where senior managers are the culprits. In an effort to improve the organization's image and financial records, some executives have encouraged and mandated employees to participate in unethical behavior. Excuses such as "it's really not hurting anyone", "we are getting what we deserve," "be a team player," and "this action offsets the system" have been used in order to justify the organization's behavior. When an employee refuses to play the game, he/she may be terminated, which forces the former employee to file a retaliation lawsuit.
• Dismiss employee concerns or complaints. Some employees have attempted to alert the appropriate officials only to find out their concerns have been ignored. Once they have worked through the appropriate channels within the organization, they may feel as though their only recourse is to go externally and hire an attorney to champion their cause.
• Forget about a professional's ethical duty to report. Some employees may feel that they are obligated to report unethical practices in order to maintain the image of their profession. For example, a police officer may become aware of the fact that his partner is working with criminals. After attempting to reason with the partner, the police officer may feel a need to alert internal affairs in order to maintain a positive image of police officers in the eyes of the community and protect the public from criminal activities.
• Don't give "Public Duty" enough respect. There have been cases where an organization may be over billing another entity and the employee may not be able to support the deception. For example, some hospitals have been accused of overcharging Medicare programs. There may be an employee who believes that the process is unethical and innocent people may suffer as a result of the deceptive actions. Therefore, the employee feels obligated to turn the hospital in to the proper authorities. The employee may believe that it is their civic and public duty to do so.
• Fail to take prompt and proper action correction. Many employees have followed the company's policy on reporting fraudulent activity only to find out that their good deed has been ignored. They believe their only alternative is to expose the situation externally since the system has failed internally.
• Underestimate the perseverance of an employee. Some organizations wrongly assume that if they ignore the employee, the problem will go away. However, there are employees with a conscience and they will pursue their cause until the problem has been resolved.

Organizations need to realize there are people who value their conscience over their job. The government recognized that big business may not always do the right thing. Therefore, it has introduced and implemented some regulations to level the playing field and allow employees to come forth. Examples of such legislation are:

• False Claims Act A qui tam provision that was enacted during Abraham Lincoln’s tenure as president. This legislation was aimed at preventing the sale of faulty war equipment by fraudulent suppliers to the government (during the Civil War). Revisions were made to the Act in 1943 and 1986. In 1986, there was a significant expansion of the rights of whistleblowers and their attorneys. The law allows individuals to file actions against federal contractors claiming fraud against the government. People filing under the Act may receive 15-25 percent of any recovered damages.
• Sarbanes-Oxley Act Legislation passed in 2002 with the purpose of encouraging employees to become effective corporate monitors and report misconduct and unethical behavior in corporations. The Act has two approaches that encourage employees to become corporate whistleblowers (Moberly, 2006). The first step is a clause that provides protection to whistleblowers from employer retaliation once they have disclosed improper behavior. The second step requires employers to provide employees with guidelines, policies and procedures to report organizational misconduct within the organization.
• Lloyd-La Follette Act. This Act was enacted in 1912 and was designed to protect American civil servants from retaliation. The purpose was to ensure the right of employees when they wanted to provide the House of Congress, a committee or individual congressman with information about fraud. The intent was to provide conferring job protection rights to federal employees.
• No-FEAR Act The Notification and Federal Employee Antidiscrimination and Retaliation (No-FEAR) Act of 2002 went into effect on October 1, 2003. The law applies to Federal agencies and is aimed at keeping employees informed of their rights under anti-discrimination and whistleblower protection laws. The No-FEAR Act also protects against retaliatory actions on the part of employers and provides for the reimbursement of current and former federal employees and federal applicants for costs incurred in the course of asserting their rights under said anti-discrimination and whistleblower protection laws.

Application

Life of a Whistleblower

Two of the most discussed fraud cases in history have been Enron and Worldcom. Coincidentally, both of the whistleblowers in these two cases were women who had risen to the ranks of Vice President in their respective organizations. A study conducted by two professors at St. Mary's College in Indiana found that female business students value honesty and independence more than their male counterparts (Allen, 2002). Women may be more prone to expose wrongdoing due to their value system.

Cynthia Cooper was a vice president at Worldcom and Sherron Watkins was a vice president at Enron. The circumstances surrounding both cases were so shocking that it made the public acknowledge how corrupt some organizations had become. Worldcom would become known as the company that created the largest accounting fraud in history (Ripley, 2002). "Enron and Worldcom have become America's twin symbols of business malfeasance, but share a different kind of similarity: In each case the public learned the extent of the scandal in large part through the actions of a brave woman who did the right thing by going over her boss' head" (Colvin, 2002, p. 56).

Worldcom

Worldcom's headquarters was located in Clinton, Mississippi. The founder, Bernie Ebbers, went to college there and wanted to move his company to the area. Cynthia Cooper had grown up in the area as well and was proud of the organization. She became the Vice President of Internal Auditing. Unfortunately, in June of 2002, she had to tell the audit committee of Worldcom's board that the organization was unethical in its accounting practices (Ripley, 2002).

Worldcom had started out as a small company in 1983, but became a major powerhouse in the 1990s. Most of the executives were in their late thirties and making millions of dollars. However, there was a glut of companies like Worldcom by early 2001. Many believe that this was the time that the organization started to use creative accounting practices. Cooper was not a part of the illegal activities, but many of the people who she had respected were a part of the scandal. Even the organization's external auditor, Arthur Andersen, was alleged to be a part of the cover-up. Many of the activities were geared toward providing fraudulent information to the Securities Exchange Commission (SEC).

Cooper stayed at Worldcom once she became a whistleblower. Although she became physically and emotionally exhausted, she persevered because she did not want the innocent employees of the company to suffer. Even though Cooper can be credited as a major influence for the country starting to take corporate governance to heart, no one from the senior management team at Worldcom acknowledged the sacrifice that she had made. When speaking at different conferences, she has offered the following advice to corporations:

• Protect whistleblowers so that they can continue to provide information to support their allegations.
• Set an ethical tone at the top. In the Worldcom situation, the deceitful few were members of the senior management team.
• Hold more committee meetings and consider going into executive sessions.
• Remain flexible in the course of auditing and maintain an element of surprise (Peterson, 2005).

Viewpoint

Organizational Justice

Alford (2001) has been quoted as saying that "the whistleblower is a political actor in a nonpolitical world" (p. 97). This statement should be interpreted as meaning that the whistleblower responds to his/her value system in an organization where the value system has no role. Employees may view situations in terms of right or wrong, whereas, the employer may view situations in terms of the bottom line and financial profit. In essence, the purpose of the employee is to make sure that the business makes money. The end justifies the means. What can an organization do to support employees who want to do the right thing and view the organization as a fair and ethical place to work?

Organizational justice is a concept that explores an employee's perception about whether or not an organization is fair in making decisions and/or the decision making processes within organizations and the influences of those perceptions on behavior. Research has shown that organizational performance is improved as a result of improved ethical decision making (Hatcher, 2002; Swanson, 1999). Many have researched this area in hope of understanding why and how ethical decisions are made in order. By understanding the thought process behind an employee's decision making, human resource professionals may be able to create an environment that encourages ethical actions in the organization. “According to a national business ethics survey, 40% of professionals in human resource management and development roles must respond to their organization's ethical situations and in 70% of organizations, these same professionals are viewed as their organization's experts on ethics” (Joseph & Esen, 2003).

As the business community embraces a global economy, there has been a push to speed up processes in order to make more profit. As a result, some employees see taking shortcuts as the only way to stay on top in a competitive environment. In order to accomplish ambitious goals, some may be tempted to participate in unethical behavior. Thus, organizational acceptance may be a factor as to why some people make unethical decisions. Research supporting the understanding of the ethical decision-making process may assist human resource professionals in creating an environment where employees are encouraged to make ethical decisions.

“The result of justice research suggests that the effects of injustice within organizations may be much broader than previously thought” (Cropanzano, Golman & Folger, 2003). “Not only do victims directly affected by organizational injustice consider and sometimes take retributive actions, but so do neutral observers” (Kray & Lind, 2002). As a result of the recent scandals, institutions of higher education have been challenged to teach students the virtues of ethical behavior and organizations have been challenged to create an ethical environment. Those who have devoted their time to researching the importance of organizational justice may be of assistance to this cause.

Conclusion

Given the competitiveness in the world today, many people are tempted to go outside of the rules and regulations of society in order to get ahead. Although many would argue that traits such as honesty and credibility are valued, temptations have lured some to act irresponsibly. Unfortunately, when employees step forward and alert the organization of wrongdoings, they are labeled whistleblowers and negative labels are applied to them. Instead of being considered heroes for doing the right thing, they tend to be chastised and some never fully recover from the experience. Once Cynthia Cooper realized her work had been done at Worldcom, she left and formed her own consulting firm. Cynthia decided to branch out and speak at corporations, associations, and universities about ethics and leadership and how it related to her situation at Worldcom (Amer, 2007).

The government recognized that big business may not always do the right thing. Therefore, it has introduced and implemented some regulations to level the playing field and allow employees to come forth. The federal government and some states have passed legislation to protect employees who decide to become whistle blowers. In order to avoid the costly expenses of litigation, many organizations are encouraged to draft policies that will help employees feel comfortable about coming forward to advise the senior management team and the outside world of fraudulent behavior occurring in companies today.

Organizational justice is a concept that explores an employee's perception about whether or not an organization is fair in making decisions and/or the decision making processes within organizations and the influences of those perceptions on behavior. By understanding the thought process behind an employee's decision making, human resource professionals may be able to create an environment that encourages ethical actions in the organization.

Terms & Concepts

Cynthia Cooper: The whistleblower who exposed the corporate scandal at Worldcom.

Ethics: The philosophical study which concentrates on tenants of right and wrong, good and evil, and responsibility within groups or cultures; has a strong correlation with the values and customs of individuals and groups alike.

Enron: Formerly applauded and successful electricity, natural gas, pulp and paper, and communications supplier based out of Houston, Texas. In 2001, it was discovered that Enron’s financial status was maintained through carefully executed accounting fraud; the company now serves as an infamous example of corruption.

False Claims Act: A qui tam provision that was enacted during Abraham Lincoln’s tenure as president. This legislation was aimed at preventing the sale of faulty war equipment by fraudulent suppliers to the government (during the Civil War). Revisions were made to the Act in 1943 and 1986. In 1986, there was a significant expansion of the rights of whistleblowers and their attorneys.

Lloyd-La Follette Act: This Act was enacted in 1912 and was designed to protect American civil servants from retaliation.

Organizational Justice: An umbrella term used to refer to individuals' perceptions about the fairness of decisions and decision-making processes within organizations and the influences of those perceptions on behavior

Sarbanes-Oxley Act: Legislation passed in 2002 with the purpose of encouraging employees to become effective corporate monitors and report misconduct and unethical behavior in corporations.

No-FEAR Act Legislation passed in 2002 that ensures federal agencies keep employees informed of their rights under anti-discrimination and whistleblower protection laws, and seeks to create a workplace free from discrimination or retaliation.

Securities & Exchange Commission (SEC): Government body which is tasked with enforcing federal securities laws as well as industry and stock market regulation.

Sherron Watkins: Former Vice President of Corporate Development at the Enron Corporation; rumored to have been the whistleblower of the 2001 Enron scandal.

Whistleblowers: An employee, former employee, or member of an organization, especially a business or government agency, who reports misconduct to people or entities that have the power and presumed willingness to take corrective action. Generally, the misconduct is a violation of law, rule, regulation and/or a direct threat to public interest — fraud, health, safety violations, and corruption are just a few examples.

Bibliography

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Hatcher, T. (2002). Ethics and HRD: A new approach to leading responsible organizations. Cambridge, MA: Perseus Publishers.

Joseph, J., & Esen, E. (2003). SHRM/Ethics resource center 2003 business ethics survey. Alexandria, VA: SHRM.

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Kray, L., & Lind, A. (2002). The injustices of others: Social reports and the integration of others' experiences in organizational justice judgments. Organizational Behavior and Human Decision Processes, 89, 906-924.

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Suggested Reading

Abend, G. (2013). The origins of business ethics in American universities, 1902-1936. Business Ethics Quarterly, 23, 171-205. Retrieved November 10, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87352405

Aguilera, R., Rupp, D., Williams, C., & Ganapathi, J. (2007). Putting the S back in corporate social responsibility: A multilevel theory of social change in organizations. Academy of Management Review, 32, 836-863. Retrieved June 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25275678&site=ehost-live

Barrier, M., & Cooper, C. (2003). One right path. Internal Auditor, 60, 52-57. Retrieved June 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=11603045&site=ehost-live

Gleeson, W., & Minier, J. (2003). Why companies need to adopt whistleblower policies now. Banking & Financial Services Policy Report, 22, 1-6. Retrieved June 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9037470&site=ehost-live

McNamee, M., & Fleming, S. (2007). Ethics audits and corporate governance: The case of public sector sports organizations. Journal of Business Ethics, 73, 425-437. Retrieved June 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25369516&site=ehost-live