Ethics and the Conduct of Business Eighth edition Chapter 4 Whistle-Blowing Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Modules Introduction: Whistle-Blowing 4.1: What Is Whistle-Blowing? 4.2: Justification of Whistle-Blowing 4.3: Right to Blow the Whistle 4.4: Developing a Policy Conclusion: Whistle-Blowing Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Learning Objectives 4.1: Define the significance of whistle-blowing and the act itself according to seven criteria 4.2: Assess situations where whistle-blowing may or may not be justified, given the duties and obligations of all parties and the potential consequences of the act 4.3: Describe the characteristics and importance of laws designed to protect whistle-blowers and key points in the debate over the moral justification of these laws 4.4: Identify the importance of developing an effective whistle-blowing policy for an organization and the key components of such a policy Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Introduction: Whistle-Blowing Time magazine’s persons of the year Similarities and differences Points to consider Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.1: What Is Whistle-Blowing? Objective: Define the significance of whistle-blowing and the act itself according to seven criteria What is whistle-blowing? Criteria for whistle-blowing 4.1: What Is Whistle-Blowing? Point 1– What is whistle-blowing? Release of information by member/former member of organization Evidence of illegal and/or immoral conduct in the organization Point 2 - Criteria for whistle-blowing Action by an individual inside an organization Involves the release of nonpublic information/ new unknown facts Reserved for matters of substantial importance Information must be released outside normal channels of communication To whom the whistle is blown Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Table 4.1: What Constitutes Whistle-Blowing? Criteria Whistle-Blowing Not Whistle-Blowing Who can blow the whistle? An individual inside an organization exposes wrongdoing to the outside world. A witness to a crime or a reporter What kind of information is involved? Nonpublic information that reveals new facts Facts that are already known to the public What is it reserved for? Calling attention to matters of substantial importance Exposing matters of minor importance, such as incompetent management Who is informed and how? External: An employee “goes public” to inform individuals or groups outside the organization. Internal: An employee informs others within the organization by going outside normal channels of communication. An employee follows established procedures to report wrongdoing through normal channels of communication. What is the immediate goal? To correct a wrong by bringing about a desired change To pass on information about wrongdoing to a supervisor, director, or a third party Was the person compelled to act? The release of information is voluntary. The testimony is legally compelled (by a court of law). What is the motive? To stage a moral protest. To seek revenge or personal advancement Who can blow the whistle? What kind of information is involved? Who is informed and how? What is the immediate goal? Was the person compelled to act? Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.2: Justification of Whistle-Blowing (1 of 2) Objective: Assess situations where whistle-blowing may or may not be justified, given the duties and obligations of all parties and the potential consequences of the act 4.2.1: Loyal Agent Argument Agent and principal Limits to agency duties 4.2.2: Meaning of Loyalty Pertinent questions Loyalty 4.2.1: Loyal Agent Argument Point 1– Agent and principal Employee is called an agent Employer is called a principal Point 2 - Limits to agency duties Does not impose absolute obligation on employees Does not require employees to do anything illegal or immoral Does not require employees to keep confidential information about the commission of a crime 4.2.2: Meaning of Loyalty Point 1- Pertinent questions Is whistle-blowing always an act of disloyalty? Can it sometimes be done out of loyalty to the organization Point 2- Loyalty Loyalty a factor that keeps people from exiting an organization It activates the voice option Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.2: Justification of Whistle-Blowing (2 of 2) Objective: Assess situations where whistle-blowing may or may not be justified, given the duties and obligations of all parties and the potential consequences of the act 4.2.3: Conditions for Justification Analyzing the situation Taking action Role-based responsibilities Chances for success 4.2.3: Conditions for Justification Point 1- Analyzing the situation Moral importance of the situation Availability of facts and understanding the significance Whistle-blowing should be the last step to be considered Point 2 - Taking action Determine the effective course of action Whom to inform How much information should be revealed Reveal information anonymously or accompanied with identity Point 3 - Role-based responsibilities Employee is more justified in whistle-blowing Professionals have greater obligation (professional ethics) Point 4 - Chances for success Analyze the chances for success Effective plan of action is of great concern Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.3: Right to Blow the Whistle (1 of 2) Objective: Describe the characteristics and importance of laws designed to protect whistle-blowers and key points in the debate over the moral justification of these laws 4.3.1: Existing Legal Protection Existing legal protection Other federal acts with anti-retaliatory provisions Sarbanes-Oxley Act False Claims Act The 2010 Wall Street Reform and Consumer Protection Act 4.3.1: Existing Legal Protection Point 1 - Existing legal protection Complex patchwork of state and federal laws Federal and state employee receive much protection Legal protection is limited and uncertain Civil service reform act of 1978: prohibits retaliation Merit System Protection Board (MSPB) receives and acts on complaints of retaliation Point 2 - Other federal acts with antiretaliatory provisions Surface Mining Act Railway Safety Act Surface Transportation Safety Act Safe Drinking Water Act Toxic Substance Control Act Point 3 - Sarbanes-Oxley Act First whistle-blower protection for private sector employees Mandatory reporting procedures for employees to make confidential allegations Point 4 - False Claims Act Encourages individuals to report any fraud against the government 10–30% of funds awarded to whistle-blowers from recovered suit Qui tam action whistle-blower can file legal action on behalf of government Point 5 - The 2010 Wall Street Reform and Consumer Protection Act Strengthens existing protection in other federal legislation Introduces new provisions for financial markets Awards whistle-blowers on disclosing violations to Consumer Financial Protection Bureau Directs the Securities and Exchange Commission to create a special whistle-blower office Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Table 4.2: Legal Protections for Whistle-Blowers Federal Laws Provisions/Protections The Sarbanes-Oxley Act of 2002 Prohibits retaliation against whistle-blowers who are private sector employees, and entitles them to compensation for retaliation Requires all companies to have confidential reporting procedures The National Labor Relations Act of 1935 (NLRA) Prohibits retaliation against any employee who files a charge with the National Labor Relations Board (NLRB) The False Claims Act Entitles whistle-blowers to file a qui tam action against a company and receive 10–30% of the funds recovered in any suit, plus compensation for legal expenses The 2010 Wall Street Reform and Consumer Protection Act (Dodd-Frank Bill) Strengthens protections in other laws and enforces new provisions for financial markets Entitles whistle-blowers to monetary awards for violations of security laws and rules enforced by the new Consumer Financial Protection Bureau Creates a special SEC whistle-blower office State laws Most protect only state employees Most specify whistle-blowing procedures and requirements for protection Federal laws Provisions/Protections Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.3: Right to Blow the Whistle (2 of 2) Objective: Describe the characteristics and importance of laws designed to protect whistle-blowers and key points in the debate over the moral justification of these laws 4.3.2: Arguments against Protection Encroach on the rights of employer Reinstatement 4.3.3: Arguments for Protection Contribution to the society Freedom of speech 4.3.2: Arguments against Protection Point 1- Encroach on the rights of employer Affects the traditional rights of employers to conduct business efficiently Creates informer ethos at workplace threatening the spirit of cooperation Point 2- Reinstatement Reinstatement may not be feasible Dismissed employee may even sue the employer for being wrongly injured 4.3.3: Arguments for Protection Point 1- Contribution to the society Illegal corporate conduct Gross waste and mismanagement Dangers to the public brought to light Point 2- Freedom of speech Right to follow one’s own conscience Speak out on moral issues Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

4.4: Developing a Policy 4.4.1: Benefits and Dangers Objective: Identify the importance of developing an effective whistle-blowing policy for an organization and the key components of such a policy 4.4.1: Benefits and Dangers Benefits and dangers 4.4.2: Components of a Policy Clearly defined procedure for reporting Well-trained personnel to receive and investigate reports Commitment to take appropriate action 4.4.1: Benefits and Dangers Point 1- Benefits and dangers Benefit of learning about problems early and corrective actions Effective policy creates an ethical environment Involves danger by encouraging false accusations 4.4.2: Components of a Policy Point 1 - Clearly defined procedure for reporting  Whom to report Awareness of procedure Point 2 - Well-trained personnel to receive and investigate reports  Maintain confidentiality Conduct a fair and thorough investigation Point 3 - Commitment to take appropriate action  Reports- not to be ignored/misused Whistle-blower informed on investigation and action taken Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved

Conclusion: Whistle-Blowing Whistle-blowing is ethical Under certain carefully specified conditions When revealed in a justified manner Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved