Largely under the public radar screen, the last decade has seen a legal revolution in corporate freedom of speech. Ironically, private sector whistleblowers now have far stronger rights than government employees to challenge institutional abuses of power that betray the public trust.
The implications are significant from every direction. To illustrate, citizen groups can work more freely with whistleblowers as the public's eyes and ears. Corporations who cling to repressive traditions risk unprecedented consequences. And there will be new opportunities to prevent avoidable disasters and attack internal fraud for leaders who listen to their messengers, instead of professionally killing them.
The breakthrough in corporate freedom of dissent began in 2002 with the Sarbanes Oxley law ("SOX"), which protected shareholders of publicly-traded corporations from unscrupulous managers who risked their investments through fraud. It since has spread to ten other major laws, covering the vast majority of the labor force -- the financial, transportation, health care, defense contractor, nuclear and food industries, as well as all retail commerce. The laws consistently protect workers who publicly or privately challenge wrongdoing, provide recourse through fair rules of play, offer jury trials if there is no speedy administrative decision, provide compensatory damages to make reprisal victims whole, and shield against gag orders or the waiver of legal rights required by many firms as a prerequisite for employment.
The potential benefits to the public are staggering. Even without rights, courageous whistleblowers have forced the withdrawal of dangerous prescription drugs such as Vioxx, whose 50,000 victims rivaled America's casualties in the Vietnam War; shut down toxic incinerators burning dioxin, arsenic and other poisons next to churches and schoolyards; prevented countless food poisoning epidemics at the hands of a deregulated government inspection regime; and abated nuclear power plant accidents and massive releases of radiation into urban water supplies.
The stakes are equally high for corporations. Consider Enron attorney Sherron Watkins' warning to Chief Executive Officer Ken Lay that the company would go bankrupt if it did not stop cooking the books. Mr. Lay order her terminated. Enron subsequently went bankrupt, and Lay died in disgrace before he could go to jail. At MCI, by contrast, the Board's Audit Committee listened to auditor Cynthia Cooper when she blew the whistle on similar fraud, and the firm survived. It is bad business to gag the miner's canary.
Some corporate leaders fear that whistleblower rights mean more public scandals. But employees overwhelmingly choose to work within the system. An Ethics Resource Center survey found that 96% of corporate whistleblowers first make their disclosures within the company, instead of breaking ranks. Despite the risk of retaliation, workplace loyalty and trust runs deep.
These employees are a wise executive's best resource. Whistleblowers can prevent unnecessary tragedies that blindside managers when it is too late for anything except damage control and scapegoating. Consider the repeated warnings of BP whistleblowers, which could have prevented the Gulf Oil spill, but went unheeded. A PricewaterhouseCoopers survey of 5,400 companies in 40 countries found that 40% were victimized by serious economic crimes averaging over $3 million in losses. Whistleblowers exposed 43% of this fraud -- more than corporate security, internal audits, and law enforcement combined. A corporate cultural revolution needs to join the legal one, or American companies will continue to waste their most significant dormant resource -- the labor force.
The legal revolution is a work in progress. Coherence is still lacking, with the 36 laws passed before 2002 creating a crazy patchwork of inconsistent hit-or-miss legal rights, often within the same company. Further, the legal revolution only has modernized rights for those who can afford a due process administrative hearing or jury trial in court. Most unemployed whistleblowers can't. They are limited to token investigations by the Occupational Safety and Health Administration, which rubber stamped retaliation in 98.6% of SOX cases from 2002 to 2008.
While there is a more work to be done, changes from the last decade have taken root. Whistleblowers have long felt they were "committing the truth," because they were treated like those who commit the crimes. But as a rule, the law is now on their side. The next challenge is for America's corporate leaders to listen to them.
Tom Devine, legal director at the Government Accountability Project, and Tarek Maassarani are co-authors of the recently-released Corporate Whistleblower Survival Guide: A Handbook for Committing the Truth.
http://www.sfweekly.com/2010-12-29/news/the-mad-quest-of-mr-wu/4/
Mr. Wu. was respected within this company. He worked hard putting in long hours. He had millions of stock options that he never cashed. He came across as committed to making this company grow.
My experience with him was good. I was a risk taker and he appreciated my approach and how I ran my department. This included article is not too favorable of the man. I liked the man and to me he appeared honest.
Some others officers of this company, in my opinion, were not so honest. The company I mentioned that would receive close to two million for that cost reduction plan? This top officer, not to be named, had previously worked for this accounting firm. Many would look at this as payback, taking care of his buddies at his old firm. How could the previous accounting firm, a law firm and myself and others find this plan illegal and yet this accounting firm found no fault with this plan?
As required under SOX I requested, from this accounting firm, the written memo and supporting documents which analyzed and provided the arguments for why this plan was now legal. No written documents were ever provided to me.
Whistle blowing? I think not, more like being honest, having integrity and trying to do your job as required under the law.
What does this real life example tell you about SOX?
http://www.uncoverage.net/2010/08/wheres-the-300m-united-commercial-bank-bailout/
A SOX violation? I talked with management and was told they wanted this new cost reduction plan. I had consulted other top accounting firms, law firms, and my peers and all of these resources told me this was not allowed under the law. I had communicated this to management six months prior. They and the current accounting firm agreed with me and the plan was dropped.
Later I felt pressure from many sources within this company. I was aggressive which they liked but I was not a yes man. Top management believed since the accounting firm sold this plan that it must be legal. This same firm would reap over a million dollars for selling this plan to this company. Conflict of interest? Was I wrong? I didn't think so and neither did the previous accounting firm or the law firm I talked with as approved by management.
After finding out they had gone ahead with this plan I contacted the SOX director. She did not understand my area of expertise and told me I was making a mistake in bringing this up, that their would may be repercussions. There were repercussions.
What does this story tell you? Do you believe that upper management committed fraud in a different area unrelated to my department? Later top management was sacked and replaced after I left this company. Accounting firms were replaced. Many people were let go. What did I learn from this?
Greed rules over everything else.
As I mentioned this Company went belly up costing taxpayers $1.7 billion dollars. This Company was a bank. They were loaned $300 million from the US Treasury after four Controllers had left and lawsuits had been filled by some of these Controllers and other employees. Even after PwC left stating again if I remember correctly that they were not comfortable with the FS's. They were loaned $300 million and later cost the taxpayers an additional $1.4 billion. Top management was accused of fraud and later one employee was sent to jail. What is the lesson here?
You had OM pitted against NM. You had wall street demanding constant growth. You had new acquisitions, new systems, employees who had been there for many years lost in this new environment and cut throat politics. Many people lost their savings trusting this company. Did management commit fraud? I can only speak about my department.
As I mentioned I am very aggressive, hugging the line so to speak but I never cross the line. One day top management called me to a special meeting. They were working with a top accounting firm and asked me my thoughts on a cost reduction plan. I told them that this crossed the line. They were surprised as I am Mr. aggressive but again I don't ever cross the line. Later coming back from vacation I found they had implemented this new plan behind my back with the blessing of this accounting firm.
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As I mentioned I was in charge of SOX working directly with PwC. In every Company politics play a big part. When I was hired after doing consulting work for this company I reported to "old management" (OM). By OM I mean the original founders of the Company who had taken a small company and turned it into a multi billion dollar company. With rapid growth comes problems.
Generally as the Company rapidly grows you don't hire enough people as you under-estimate the additional amount of work required. Mergers come rapidly as you acquire other company's. Incompatible systems, different policy's and procedures, and sometimes new employees with different personalities from these company's create serious problems for your department and for management. You do your best and try to keep you head above water.
In this company I reported to OM as I mentioned. However, pressure to continually perform, to meet wall street expectations, put pressure on the board of directors to make changes, and they did.
Bringing in "new management" (NM) I watched the original founders of the Company struggle. NM with a gusto pushed to have many people replaced with their buddies. Politics became a big part of the game. OM not only had to struggle with mergers, wall street expectations, additional work loads but also to deal with dirty politics. This lead to mistakes and over aggressiveness by both OM and NM and later lead to a $1.7 billion dollar loss to taxpayers.
Two years later, not a single line of actual production code had been produced; in fact, the project was on its third implementation language decision! After the project had spent $100,000,000 (yes, one hundred million dollars) with absolutely nothing to show for it but a stack of half-baked design documents, senior management canceled the project and fired department management. Yes, I was right. But $100M is a lot of money to throw away. It ended up being the last straw, and the company was (after another couple of years) sold in bits and pieces, then quietly closed up shop entirely. All because management refused to listen to a whistle-blowing report even enough to investigate the claims I made.
I remember once where a PwC Senior Manager complained about management. He said the books were sloppy, management was not following the rules, the company was taking risks it should not, etc. What do you think happened to this PwC Senior Manager? He was sent to an anger management course and taken off the audit engagement. Upper management laughed when they heard this and PwC was kept as their auditor. After four new Controllers in two years, three new CFO's and after changing from PwC to E&Y and later KPMG if I remember correctly this company went belly up.
What is the lesson here? Whistle Blowing though it may sound like the correct approach is doomed to failure. This was a simple example yet I have seen this type of behavior in many company's. How do you fix this? People's jobs are at stake. They do not want your honesty. They are under tremendous pressure to make earnings from the top down. What you generally hear is, we will fix it next quarter, and than next quarter, etc. Band aid approaches.
I don't know what the answer is.
I have a similar story to yours except the numbers are much bigger. How does $1.7 billion sound?
I don't know if their was actual fraud as the issues that sank the company were out of my scope of responsibility. My department, as I was the Vice President in charge of this department, relied on the financial statements, the Controller and CFO for information. However even in a different department you get a feel for how other departments / top management think and operate.
We were under constant pressure from the top to perform. I am a risk taker however unlike some of my peers in Industry I bust my ass to make sure I'm right before I take any risks. I work with the accounting firms, law firms, talk to my peers who are VP's or Directors of other company's, in other words I do my homework. I really do my homework sometimes working through the night to make sure their are no mistakes in my work and sometimes I get legal opinions from law firms to back up my work.
The comment I previously made about the PwC Senior Manager was at this company. This story was told to me by another VP in management and even though I met this PwC Manager and he later left the engagement I can not verify if that story is true but I believe it.
I was in charge of SOX in my department working directly with PwC.
Once you "blow" that whistle you will be condemned and ostracized by the vast majority of those around you..... until you leave.............. either of your own accord, or that of those in charge.
Fighting corruption sure sounds nice in civics class, until you find out that when you do, you're the one that becomes stigmatized, not those carrying out the actual act.
Crime doesn't pay?
Kind of depends on how much power you have.
We all live under the Golden Rule. He who has the gold, makes the rules.