Lecture 2 WhistleBlowing BBA 361 Business Ethics Corporate

Lecture 2: Whistle-Blowing BBA 361 Business Ethics & Corporate Governance Please refer to “Ethics and the Conduct of Business” by John R. Boatright 1

What is Whistle-blowers? -People who expose some wrong doing in a corporate, often at great personal risk. Risk/Price? ? ? Retaliation: -Poor evaluations, demotion, outright dismissal, career disruption, financial hardship resulted from job dislocation and legal expenses, severe emotional strain, being crowded out… 2

A proper definition of Whistle -Blowing I -A disclosure of information in which the action takes place within an organization, while the employees have obligations to maintain confidentiality; -Necessarily involves the release of nonpublic information; -Information should be evidence of significant misconduct on the part of an organization/members. 3

A proper definition of Whistle-Blowing II -Information must be released outside normal channels of communication, i. e. internal/external whistle blowing: *report to immediate superiors *submit suspicions of misconduct to CEO with assurance of confidentiality *ombudsman- designated official handling employee complaints 4

A proper definition of Whistle -Blowing III -To whom the whistle is blown: information must be revealed in ways that can reasonably be expected to bring about a desired change. -The release of information must be something which is done voluntarily. -It must be undertaken as moral protest: motive must be to correct some wrong and not to seek revenge or personal advancement. 5

Ethical Justification of Whistle-Blowing I Three concerns: 1. Whether it will create suspicion, disharmony and conflict 2. Does a person who blow the whistle have a greater obligation to the public or to the organization? 3. Violation of loyalty? 6

Ethical Justification of Whistle-Blowing II The Loyal Agent Argument I: Are Whistle-Blowers Disloyal Agents? Apparently: ¨ Employee is an agent of an employer. ¨ Agent: act in the interests of employer. Employee / agent has an obligation to work as directed, to protect confidential information, and to be loyal. ¨ E. g. Lawyers agree for a fee to represent clients; employees are hired with understanding that they will work for the benefit of an employer. ¨ A lawyer who sells out a client—clearly a violation of legal profession’s code of ethics. 7

Ethical Justification of Whistle-Blowing II The Loyal Agent Argument II: Are Whistle-Blowers Disloyal Agents? Justification: ¨ Obligation is not without limits. It can be justified. ¨ An agent has an obligation to obey all reasonable directives of the principal (employer), but not obligated to do anything illegal/immoral, even instructed by employer. ¨ An agent are not obligated to keep confidential any information about the commission of a crime. “If the confidential information is to the effect that the principal is committing or is about to commit a crime, the agent is under no duty not to reveal it. ” 8

Ethical Justification of Whistle-Blowing II The Loyal Agent Argument II: Are Whistle-Blowers Disloyal Agents? Justification: ¨ Obligations of an agent are confined to the needs of the relationship. Conclusion: Obligations that employees have as agents of a company are of great moral importance, but they have limits. The agency relationship does not require employees to involve in illegal/immoral activities. 9

Developing a Whistle-Blowing Policy Benefits of an effective policy: ¨ ¨ ¨ Learn about problems early and take corrective action before problems become public Affirm a company’s commitment to good ethics and creating an ethical corporate climate Help employees perceive what is wrong doing in organization Dangers of such policy: ¨ ¨ Create an environment of mistrust and intimidation Over-caution towards work, due to the possibility of accusations 10

Developing a Whistle-Blowing Policy Components of an effective Whistle-Blowing Policy 1) ¨ 2. ¨ An effectively communicated statement of responsibility Employees have responsibility to report all concerns about serious unethical or illegal conduct through appropriate internal channel. Clearly defined procedure for reporting Employees should be notified a procedure that allows them to report in a confidential manner, and specify the persons to whom reports are to be made, i. e. hotline, anonymous, report to direct supervisor etc. 11

Developing a Whistle-Blowing Policy Components of an effective Whistle-Blowing Policy 3) Well-trained personnel to receive and investigate report ¨ Skills of personnel are very important, need to maintain ¨ 4) ¨ ¨ 5) ¨ confidentiality, and conduct fair and thorough investigation Need to be well-trained and have sufficient authority Commitment to take appropriate action Employees must be ensured by both word and deed that suspected wrongdoing will not be ignored and misused. Reporting employees will be informed about the outcome of an investigation and the action taken. A guarantee against retaliation Assure that employees will not suffer retaliation for making reports in good faith. 12

CAN ONE PERSON MAKE A DIFFERENCE? Edward Everett Hale wrote: I am only one. But still I am one. I cannot do everything, But still I can do something; And because I cannot do everything I will not refuse to do the something that I can do. 13