THE BLOG
05/03/2011 08:45 am ET | Updated Jul 03, 2011

Corporate Whistleblowers Gain Legal Rights, But Remain a Wasted Asset

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.