Entering the beginning of the 21st century, we encounter several unethical business practices that are disclosed by the whistle blowers such as Enron, and WorldCom cases to name a few. While question about how the giant companies could not detect the possibility of such illegal acts at earlier stages is still an enigma, there are still many cases similar to Enron case waiting to be disclosed.
In order to ensure the creation of healthy working environment, employees as members of business organizations may take several actions. One of the actions that employees may take is whistle blowing. Considering that whistle blowing leads to negative impact for the blower, it is imperative that any person that intends to whistle blowing to do it effectively. Sherron Watkins, the person who blew the whistle on Enron, is considered an example of an effective whistle-blower.Due to the importance of whistleblower in preventing America into deep crisis and to bring back the stakeholder trust on stock market, the newly-elected U.S.
president, Barrack Obama states their promises to protecting workers who blow the whistle. His promises include bringing transparency and accountability of corporate America.Concerning the whistleblowers, this paper will discuss several aspects on whistleblowers that compose of several issues as following:Discuss the whistle blowing and describe some famous cases on the whistle blowing.Elaborate the development of laws by both congress and rules from organizationsExplain the necessity of having one’s employees feel safe enough to blow the whistle and how it can albeit in the long run help the organization.
Whistle blowing in Organizations and Their EffectsThere are so many reasons why we witness many enterprises going globalize in recent years. The booming of information technology that creates new way of doing business such as dotcom companies and electronic commerce, rapid economy growth of a country, unfulfilled customers’ demands, and the opportunity in particular markets are some underlying reasons for companies to expand their services or products while becoming bigger multinational companies of their dreams.Unfortunately, achieving the dreams is not an easy task since it takes great efforts. Under such circumstances, corporations must think of how to bring the firms into success, how much we pay employees that satisfy them, which kind of customers they target, what products/services they offer, when to launch specific product/services into the market, and so many other things to consider about and decide in considerably short period.
In addition, the growing stock markets in 20th century have driven the corporations to present the outstanding financial reports that further would attract investors to spend more money by buying the company’s stocks. In turn, the company will receive more money that can be spent to finance the company expansion and operation.Unfortunately, in some cases, corporations that are hungry for fresh money from the stock market commit illegal action by providing bogus reports with incredible profit figures in order to raise the company’s stock price and drag many investors’ money.
This situation becomes the basis for the 2005 movie Fun with Dick and Jane that cast by the comedian Jim Carrey and Téa Leoni, which satirizes the accounting fraud that happens in some well-known companies in the early 21st century – Enron and WorldCom.Behind the emerging case of accounting fraud lays a person who informs the wrong doing in the company; they are called whistleblowers. To date, there are several people usually insiders (internal employees of companies) that are considered to be whistleblowers in order to prevent misconduct in their respective companies.1.2. Aims and ObjectivesConcerning the whistleblowers, this paper will discuss several aspects on whistleblowers that compose of several issues as following:1.
Discuss the whistle blowing and describe some famous cases on the whistle blowing.2. Using the non-participant observation method, collecting data and analyzing qualitative information from journal, books, magazine and other online materials, this paper also jumps to the development of laws by both congress and rules from organizations that seek to protect those that blow the proverbial whistle including the pros and cons on these laws.3. In addition, the paper aims at discussing the necessity of having one’s employees feel safe enough to blow the whistle and how it can albeit in the long run help the organization.2.
Background of Whistle blowingOften, employees violate any Ethics Codes that a company has set. Under such circumstances, when an employee discovers unethical, immoral or illegal actions at work, the employee makes a decision about what to do with this information. One of the actions that employees may take is whistle blowing. According to Lisabeth England, “whistle blowing is the term used to define an employee’s decision to disclose this information to an authority figure (boss, media or government official)”.There are many reasons why employees take such action. The obvious one is that the employees want positive work environments.
In addition, most workers do not like to have disagreements with their bosses. At the same time, bosses and managers do not want employees to complain to others in the workplace about a problem that the manager might be able to solve (England, n.d).2.1. Whistle blowing at Enron2.1.1.
Background Information on Enron CaseEntering the beginning of the 21st century, we encounter several unethical business practices that are disclosed by the whistle blowers such as Enron, and WorldCom cases to name a few. While question about how the giant companies could not detect the possibility of such illegal acts at earlier stages is still an enigma, there are still many cases similar to Enron case waiting to be disclosed.Regarding the Enron Case, AFL reveals that amidst the ongoing investigation about what happened on Enron, the Enron case is not only a story in a company. It is more about a description regarding the wrong system that permeated by corporate power abuse, the incidences of conflicts of interest that further allow the personal interest above the corporate interests, and disrespect for workers and a flawed anti-government dogma.
The illegal actions finally impact the employees in which over 6,100 of Enron employees have been unemployed with disappeared health care and retirement savings since their 401(k) plans are frozen and the company’s stock are grounded.2.1.2. Sherron Watkins: The Whistle blower at Enron CaseConsidering that whistle blowing leads to negative impact for the blower, it is imperative that any person that intends to whistle blowing to do it effectively. Sherron Watkins, the person who blew the whistle on Enron, is considered an example of an effective whistle-blower.Sherron Watkins is the former Vice President of Enron Corporation in which prior to the disclosure of the accounting fraud at Enron, she has already informed the CEO of Enron, Ken Lay, somewhere in August 2001 regarding the finding of accounting irregularities in Enron.
AT that time, she warns Lay that Enron may implode in a wave of accounting scandals (Sherron Watkins and Company, 2004).In addition, whistle- blowing also greatly affects the executives of a company who are given information from an employee. Executives have to deal with their duty of loyalty to the corporation and their duty of care to perform their job and know when to report wrongdoing. “The Sarbanes-Oxley Act prohibits discrimination against employees who reveal information of wrong conduct. However, it has many loopholes that need to be fixed in order to give more complete protection. This article has important information for those considering blowing the whistle at their company” (Hails).
Brian Cruver, an employee of Enron, reveals “he and other employees were treated during and after the time of Enron’s bankruptcy. The mood is strangely calm as thousands of employees are told they have thirty minutes to evacuate the building. They later find out that their 401(k) retirement plans have been canceled and their severance pay is $4500 each, no matter how many years they have worked at Enron” (Hails).
Moreover, employees are outraged by the 55 million in retention bonuses given to five hundred “critical” employees before bankruptcy. He describes the angry and frustrated feelings he has towards Enron executives, and the struggle of beginning a new job search in a poor job market. This book gives a very clear look into the bewilderment that employees faced after the collapse of Enron.2.2. Whistle blowing at WorldCom2.2.1.
Accounting Fraud at WorldComAccording to several articles discussing the WorldCom scandal, we find that this fraudulent happened due to support from the corporate managements. There are many underlying facts behind the scandals as following (‘How Did’, 2002):WorldCom executives committed accounting fraud that pushed the company to be the largest bankruptcy in the US. The insincerity was hidden from stakeholders and public but disclosed in 2002Several employments show evidences like hiding bad debt and understating costs that proven the insincerity discovered as early as 2001; however, WorldCom’s Board of Directors did not pay attention to this claim.In June 2001, there were stakeholders that do prosecution against WorldCom but it was elapsing due to lack of evidences.
WorldCom scandal represents the biggest mistake in Corporate American. WorldCom is proven to violate many ethical guidelines by committing insincerity in providing financial figures to stakeholders and public; some of the violations are as following:a) Commitment to stakeholders (employees, customers, and investors). Becoming a big multinational company, WorldCom must hold the trust given by customers by delivering good services and fake.
However, in the case of WorldCom, stakeholders’ trusts are violated for personal business.b) Commitment to public. As a public company, WorldCom are responsible to present true corporate figures. After WorldCom Bankruptcy, stakeholders and investors had low confidence towards financial statement of corporations that caused the slow growth of stock markets.2.2.
2. Whistleblower at WorldComLike the case of Enron, the disclosure of WorldCom accounting fraud is also under auspices of a whistleblower. In the WorldCom case, the whistleblower is Cynthia Cooper, vice president of internal audit at WorldCom.
At that time, she finds that there are anomalies in the company’s accounting entries that further attract her to conduct further investigation (Katz and Homer, 2008).3. Development of Laws protecting Whistleblowers3.
1. Impacts of Whistle BlowingMoreover, whistle blowing leads to good and bad results. The benefit of conducting whistle blowing is that carefully considered whistle blowing can lead to the end of unethical business practices.
Hence it set the whole organization into doing the right things. There are lots of examples of whistle blowing that have saved the lives of individuals and whole communities. In addition, whistle blowing also has prevented severe damage to the environment.Lizabeth England says there are several examples of unethical actions that end in whistle blowing by employees.
These examples represent significant consequences to businesses as followings:a) Dumping of toxic wasteb) Padding an expense reportc) Violating laws about hiring and firingd) Violating laws about workplace safetye) Violating health laws which lead to documented illness and even death Therefore, it is clear from the facts above that the actions of whistle blowing have potentially beneficial to society. This is due to the fact that businesses that engaged in unethical practices have been shut down because of the actions of whistleblowers.However, since the act of whistle blowing is considered to harm the immoral actors, therefore at the same time, there are several bad results that might impact the whistle blowers. The facts underlie the notions that employees should take the whistle blowing carefully and smartly before deciding to inform an authority of the practice.England says that the consequences of whistle blowing for the whistle blowers are often extreme and include possible firing, civil action, or even imprisonment. Furthermore, an employee may want to follow the rule of “chain of command” – that is, begin to discuss issues of whistle blowing with his or her immediate supervisor first, before discussing the matter with anyone else.3.2.
Development of Whistleblower LawsIn the incidences of accounting fraud that occurs at some American companies immediately provide the Congress with works to respond to such issues. At that time, the Congress is still busy passing new laws in response to the latest news about corporate misdeeds.Lynne Eisaguirre says “most of the recent corporate mischief — Enron, WorldCom, etc.
— violated one of the “go-to-jail” laws United States already have. In addition, with every one of our recent corporate scandals, people inside the organization knew that what the company was doing was wrong, tried to tell the truth about it and yet their unpopular opinions were squelched” (2002).Moreover, Eisaguirre suggests corporations to do three points as presented below. This is because there will never be enough laws or enforcement money to prevent all possible corporate misconduct:Incubate what I call “good fights.”Educate all managers and executives about business law and ethics.Educate, encourage and protect whistleblowers.In addition, to protect whistleblower, both Congress and corporation also pass the laws governing the whistle blowing while protecting the person who acts as the whistleblower.
In the U.S, to be specific, there are three types of laws that aim at protecting whistleblowers from possible discouraging effects. The laws compose of federal whistleblower protection law, state whistleblower protection law, and also the corporate whistleblower policy.Currently, there are several federal laws that aim at protecting whistleblowers and those that protect workers form illegal treatment. In addition, there are also many states that also pass the similar whistleblower and workers’ protection3.
2.1. Federal Whistleblower Protection LawsThere are different regulation between the False Claims Act and Federal Whistleblower Protection Laws. In the False Claim Acts, whistleblowers are able to file a lawsuit in federal court meanwhile many of federal whistleblower laws prohibit the whistleblower to directly bring the case to the court but they are able to administratively to do so.
These federal laws come in the regulation since the Congress wants to enable individual, with or without an attorney, can make a complaint regarding the discrimination they experience in the workplace following the whistle blowing they make (WhistleblowerLaws.com, 2008).3.2.2. State Whistleblower Protection LawsLike the federal law, each state also encourages the whistleblower by issuing the state whistleblower protection law.
The objective of these state-level laws is to protect the workers that work in the state regarding the whistle blowing act.4. Necessity for Whistle blowers ProtectionThe role of whistleblowers is indispensably becoming the angel for corporate America.
Unfortunately, while their role is important to make the corporate healthier and complies with the good corporate governance, they are prone to negative effect. Since whistle blowing leads to negative impact for the blower as happen at Enron case, it is imperative that any person that intends to whistle blowing to do it effectively. Below is the list of guideline that will help an employee to determine if a situation merits whistle blowing as suggested by Lizabeth England.Magnitude of consequencesAn employee considering whistle blowing must ask himself or herself these questions: How much harm has been done or might be done to victims? Will the victims really be “beneficiaries”? If one person is or will be harmed, it is unlikely to be a situation that warrants whistle blowing.Probability of effectThe probability that the action will actually take place and will cause harm to many people must be considered. An employee should be very sure that the action in question will actually happen.
If the employee does not know if the action will happen and harm people (or the environment), the employee should reconsider his or her plan to blow the whistle.Temporal immediacyAn employee must consider the length of time between the present and the possibly harmful event. An employee must also consider the urgency of the problem in question. The more immediate the consequences of the potentially unethical practice happen, the stronger the case for whistle blowing.ProximityThe physical closeness of the potential victims must be considered. The question arises about matters of emotional proximity or situations in which the ethical question relates to a victim with some emotional attachment to the whistleblower.
Concentration of EffortA person must determine the intensity of the unethical practice or behaviour. The question is how much intensity does the specific infraction carry. For example, according to this principle, stealing $1,000 from one person is more unethical than stealing $1 from 1,000 people.5.
ConclusionSeveral cases on emerging case of accounting fraud that occurs in American corporation during the early 21st century have damaged the corporate America reputation. In order to prevent the incidence of fraud in corporate America while encouraging the transparency and accountability, federal government together with state government and companies encourage and protect whistleblowers.Due to the significant role of whistleblower in helping America rebounds from deep crisis, the newly-elected U.
S. president, Barrack Obama states their promises to protecting workers who blow the whistle. Concerning the whistleblowers, this paper has discusses several aspects on whistleblowers that compose of several issues as following:Discuss the whistle blowing and describe some famous cases on the whistle blowing.Elaborate the development of laws by both congress and rules from organizationsExplain the necessity of having one’s employees feel safe enough to blow the whistleReference:Australian National University. (2008). ANU E Press: Whistleblowers need better protection. Retrieved November 23, 2008 from
cfm/10590507/c_10598910Sherron Watkins and Company. (2004). About Sherron. Retrieved November 24, 2008 from http://www.sherronwatkins.com/default.asp?Mode=DirectoryDisplay&id=1&DirectoryUseAbsoluteOnSearch=TrueTjosvold, Dean, and Mary M. Tjosvold.
(1995). Psychology for Leaders: Using Motivation, Conflict, and Power to Manage More Effectively. John Wiley and Sons.
IncWhistleblowerLaws.com. (2008). The Law: An Overview.
Retrieved November 24, 2008 from http://whistleblowerlaws.com/protection.htm