Recently, the problem of corporate crime and ethical misconduct had seriously aggravated. More often ethical misconduct and non-compliance occurs in the field of environmental regulation, health care, securities law, and safety regulations. Nowadays whistleblowing is recognized as a tool of detection and prevention of malpractice and corruption. The motivations of whistleblowers are different including protection of human rights, fairly paly, disclosure of malpractices, human safety, and adherence to laws. Thank to whistleblowers, corruption practices are revealed. Meanwhile, whistleblowers often suffer from the disclosures they initiated because disclosure meets with resistance from the side of corrupted structures. Therefore, whistleblowers remain unprotected while pursuing the protection of public interest and their lives change dramatically after disclosures (Roberts, Olsen and Brown, 2009).
The mechanisms of disclosure and award for whistleblowing are not well-thought. Often, potential whistleblowers do not know what to do in a situation that occurs. As a result, they cause harm to themselves and are exposed to retaliation at work. The current paper investigates the practices of whistleblowing, their results and consequences. The main purpose of the paper is to answer the question: “Who benefits from whistleblowing?” It seems that the answer is obvious, but the issue is not as simple as it may seem at first sight. Several case studies will be considered in this paper to reveal whether whistleblowing is beneficial for initial whistleblowers. Also, the impact of whistleblowing on other stakeholders will be examined in the course of this study (Howse and Daniels, 1995).
Analysis of Case Studies and Empirical Research on Whistleblowing
According to Howse and Daniels (1995), whistleblowing is an instrument of corporate control that helps report misconduct in real time and prevent creating coalitions within a corporation. Whistleblowing help senior managers take advantage from internal information systems at low cost. However, whistleblowing may also distort information flow causing harm to decision-making within a corporation if whistleblowers provide distorted information. In this case, whistleblowing inflicts substantial costs thus decreasing productivity and efficiency of a company. Also, incorrect decisions made based on distorted information provided by whistleblowers can be harmful for competitive advantage of a company. Besides, whistleblowing does not comply with utilitarianism theory that suggests implementation of fair choices and ensures least harm done to all parties involved in a conflict. However, another postulate of utilitarianism suggests sacrificing one or several person to reach public weal. This postulate fully describes whistleblowing phenomenon (Clayton and Jeffrey Schloss, 2007).
The interest of low-level employees in whistleblowing is ambiguous since certain employees may benefit from it while others may not. Howse and Daniels (1995) stated that some companies reward whistleblowers. It means that one part of a team is rewarded at the expense of another part of the same team. In addition, vulnerability of certain employees increases because the risk of retaliation. Therefore, the employees that are involved in whistleblowing definitely benefit from it in the case if whistleblowing is relevant and reliable. In case of whistleblowing does not offer any reliable information, an employee may become vulnerable as well as his or her assumed culprit.
Moreover, whistleblowing may cause harm to the corporate culture, teamwork, and trust. As Howse and Daniels (1995) denoted, the firms that adopted practices for rewarding whistleblowing indicated weakening of corporate culture and worsening of coherence in teams. On the other hand, Howse and Daniels (1995) agreed that incentives for whistleblowing cannot undermine a culture based on fair play and honesty. Whistleblowing may destroy a corporate culture based on wrong values.
The ethical theory of relativism denotes that the level of moral obligations depends on environment. Therefore, organizational culture can help foster moral obligations and beliefs in a person. If organizational culture is based on whistleblowing in negative sense of the meaning, it could destroy corporate culture. If whistleblowing is lowered to the level of gossip and unjust accusation to pursue one’s low goals, it could destroy organizational culture (Clayton and Jeffrey Schloss, 2007).
According to the observations presented by Howse and Daniels (1995), whistleblowing awards are costly. These payments are supposed to influence conduct; therefore the announced reward is high. However, there is a possibility that the action will not be paid or awarded by a lesser payment. Thus, the major factors influencing the action and the reward are satisfaction with the information received and the responsibility of a whistleblower. The issue of responsibility is considered in denotology theory.
Transparency International (2010) emphasized the necessity to develop effective feedback mechanisms helping realize whistleblowing legislation. According to Transparency International (2010), the benefits from whistleblowing are obvious. However, the research conducted by Transparency International (2010) based on case studies showed that existing practices do not realize the potential of whistleblowing. Transparency International (2010) referred to case of Bernard L. Madoff, a hedge fund manager who committed ethical misconduct detected in 1992 when no actions to prevent or mitigate the consequences of misconduct were taken. The investigation presented by Transparency International (2010) revealed that there were six complaints filled. However, neither appropriate bodies nor the government responded to them. As a result, many investors lost billions of dollars while Madoff benefited from this situation. The situation changed when Sarbanes-Oxley Act was enacted in 2002. Obviously, anticorruption legislation that supports whistleblowing acts in the investors’ interests (Transparency International, 2010).
Call, Martin, Sharp and Wilde (2014) contended that whistleblowing is a valuable source of information primarily for regulators. Whistleblowing helps investigation of law violation security regulation field. Corporate policy makers make attempts to popularize whistleblowing by increasing intangible rewards for it. As well as Howse and Daniels (1995), Call, Martin, Sharp and Wilde (2014) stated that these programs offering tangible incentives for whistleblowing that reveals financial fraud are costly. Therefore, the impact of whistleblowing balances between the benefit for accountants and regulators and high cost of this information. On the other hand, penalties and monetary sanction for fraud and financial misrepresentation had significantly increased. Thus, 10%-30% of rewards that exceed $1 million for whistleblowing can be compared for billions of loss in case if a company is subject to a penalty for misinterpretation of financial data (Call, Martin, Sharp and Wilde, 2014).
According to Call, Martin, Sharp and Wilde (2014), the benefits of whistleblowing outweigh the cost of it because a company will have had to pay much more if misrepresentation is revealed. The involvement of whistleblowers helps Department of Justice and Securities and Exchange Commission investigate complicated cases and disclose executives and firms involved in financial fraud. The increase in penalties accounted for more than 30% resulted from whistleblowing was observed for the period from 1978 to 2012 (Call, Martin, Sharp and Wilde, 2014).
Also, the government indirectly benefits from whistleblowing since the penalties received from the firms with whistleblowing involvement were higher than from the firms that did not involve whistleblowing. Call, Martin, Sharp and Wilde (2014) stated that this difference made up 492.88 million that was a significant sum even on a national scale. Besides, the employees that were found guilty were fined for $56.50 million more than those who were exposed to allegations without participation of whistleblowers (Call, Martin, Sharp and Wilde, 2014).
Ettorre (1994) denoted changed attitude to whistleblowing. Previously, whistleblowers were presented as unsatisfied or unfairly fired employees carved for revenge. The statistics presented by Ettorre (1994) revealed that whistleblowers are often well-educated and committed who belong to middle and senior management. Also, whistleblowers were those who suffered first from whistleblowing in the past because the management of a company refused to accept the fact of fraud or financial misrepresentation (Ettorre, 1994).
Ettorre (1994) presented rare evidence of award assigned to the employees that contributed to fraud detection and disclosure. An employee of GE Aircraft Engine, Chester Walsh, revealed and produced evidence of a contract fraud. Walsh was awarded with $11.5 million for revealing a scheme of diverting the funds of the company created by senior managers of GE Aircraft Engine related the delivery of jet engines from US to Israel (Ettorre, 1994).
However, more often whistleblowers are persecuted and oppressed by those who are not interested in disclosure. For example, Billie Garde, an employee of a Census Bureau, was told to misrepresent test scores so her supervisor could hire incompetent employees. Also, she was encouraged by her supervisor to hire female employees as potential sex partners for political officials that visited the office. When Garde refused to perform these actions and blew the whistle, she was fired. Besides, her former supervisor helped her former husband to regain custody for her children. Thus, a conclusion can be drawn that in this case the Census Bureau supervisor benefited from whistleblowing, but not the person who was involved in it. This conclusion supports a conclusion made by Howse and Daniels (1995) who stated that the success of whistleblowing depends on organizational culture and willingness of senior managers to adopt positive changes in the organizations (Howse and Daniels, 1995).
A technician at the Oak Ridge National Laboratory, Charles D. Varnadore, expressed concern regarding radiation exposure. He accused his supervisor in giving him useless work at the room that full of radioactive substances and toxic elements. As a result, Varnadore had undergone an operation because of colon cancer provoked by high level of radiation. Martin Marietta Energy Systems was ordered to reimburse the expenditures of Varnadore. However, no evidence of execution of this order was found. Varnadore acted according to his moral principles outlined in denotology theory. Denotology considers the issues that arise from morality perspective. This theory states that one should operate according to his or her obligations or responsibility when facing life choices (Clayton and Jeffrey Schloss, 2007). In this case, Varnadore attempted to save lives and health of other employees by blowing a whistle.
Still, in most cases whistleblowing is perceive as undesired activity because it is not awarded, whistleblowers have to leave their careers after disclosure, and few people are willing to suffer tortuous legal processes (Transparency International, 2010).
However, Silverman (2014) presented evidence that whistleblowers can succeed for many years. Thus, William LaCorte initiated 12 lawsuits against several health care companies that misused hundreds of millions on Medicare. Five of these lawsuits led to recovering the funds by the government. In this case, a whistleblower benefited from fraud disclosure. Meanwhile, the goal of Silverman (2014) was to reveal whether the actions of LaCorte were driven by virtue or an anticipation of personal gain. According to virtue theory, whistleblowers are guided by virtuous motivations if they have had good reputation in the past. Also, virtuous behavior depends on personal traits and interpersonal skills (Clayton and Jeffrey Schloss, 2007). On the other hand, award for doing the right things seems to be normal. If a person commits the rightful action, it does not matter whether he or she was motivated by his personality or opportunity to receive personal gains. Therefore, the evaluation of LaCorte’s behavior should be connected with investigation of his previous behavior and reputation. Interestingly, 74% of 5,400 lawsuits that were filed from 1987 to 2010 did not result in judgments or settlements meaning that probably the whistleblowers were more interested in profits rather than revealing fraud. LaCorte was one of few people who insisted on fraud disclosure probably not only because of personal gain. A high percentage of declined cases testify in favor of this statement (Silverman, 2014).
Oliver and Daly (2003) emphasized the necessity of creating healthy environment at the working place supporting the theory of relativism. Oliver and Daly (2003) stated that appropriate organizational culture helps eliminate both whistleblowing and the reasons that led to whistleblowing. Despite whistleblowing is seemingly the only way out, people are often inclined to express negative attitude to this phenomenon. According to Oliver and Daly (2003), whistleblowers are often seen as betrayers and are subject to retaliation. (Roberts, Olsen and Brown, 2009) and Howse and Daniels (1995) also stated that the careers of whistleblowers are often ruined as a results of their disclosing actions. Also, when a company is involved in international business, it faces strong resistance against whistleblowing because of cultural differences. Thus, there is a difference in perceptions: on the one hand, whistleblowing is the rightful action and favors the majority of the stakeholders; on the other hand, few people and entities are interested in it (Oliver and Daly, 2003).
As whistleblowing does not seem to contribute to anyone, Oliver and Daly (2003) suggested several ways to eliminate the need in internal and external whistleblowing. Oliver and Daly (2003) argued that fostering ethical conduct and building organizational culture on trust will eliminate the need in whistleblowing (Oliver and Daly, 2003).
Hewlett Packard faced a problem of ethical sensitivity when security department considered the necessity of tracking phones calls of employees and obtaining call data to predict external whistleblowing. In this case whistleblowing was marginally negative, but the problem was solved in a positive way. A chief of security department stated that collecting cell phone calls data was unethical and required to stop this activity. Presently, organizational culture of Hewlett Packard is considered the most viable among other similar companies supporting the statement that viable organizational culture based on trust and fair play eliminates the necessity to perfrom whistleblowing. Unfortunately, similar practices can be rarely met in real life, but the companies that succeeded to build flawless organizational culture usually belong to the top of the most prosperous companies of the world (Oliver and Daly, 2003).
There were several cases related benefits and harm of whistleblowing considered. Whistleblowing remains a contradictory issue in corporate environment because it may either benefit or cause harm to the organization. Benefits of whistleblowing depend on concrete situation. If corporate culture is strong supporting proper values, whistleblowing benefits its development. However, it may not be needed since the employees are responsible and comply with the code of ethical conduct. If corporate culture is weak, whistleblowing may even cause harm because of wrong values fostered in the organization.
Also, the impact of whistleblowing to several stakeholders of the organizations was examined. Senior managers are commonly assumed to benefit from whistleblowing. However, whistleblowing sometimes provides misleading information that does not conform to reality. In this case, whistleblowing can lead to wrong decision making. Wrong decision making may decrease value of a competitive advantage of a company.
The impact of whistleblowing on the employees is ambiguous as well. On the one hand, whistleblowing can be performed by the responsible employees. On the other hand, the employees can be driven by award for whistleblowing.
Therefore, whistleblowers should be provided legal protection against retaliation, adequate mechanisms of working with whistleblowers’ disclosures should be ensured, and whistleblowing initiatives should be supported by appropriate training and public research (Transparency International, 2010).
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Clayton, P. and Jeffrey Schloss, J., 2007. Evolution and ethics: human morality in biological & religious perspective. Cambridge: MIT Press.
Ettorre, B., 1994. Whistleblowers: who's the real bad guy? Management Review, 83. pp. 18-24.
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Oliver, C.R. and Daly, F.J., 2003. Encouraging internal whistleblowing (and more!).
Available from <http://www.scu.edu/ethics/practicing/focusareas/business/whistleblowing-update.html> [Accessed 13 December 2014].
Roberts, P., Olsen, J. and Brown A.J., 2009. Whistling while they work. Griffith University.
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Silverman, E., 2014. Are serial whistleblowers useful tipsters or only in it for the money?
The Wall Street Journal. Available from <http://blogs.wsj.com/pharmalot/2014/07/24/are-serial-whistleblowers-useful-tipsters-or-only-in-it-for-the-money/> [Accessed 13 December 2014].
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<http://transparency.ie/sites/default/files/TIWhistleblowing.pdf> [Accessed 13 December 2014].