02/29/2024
A Cautionary Tale
I’ve always been intrigued by the philosophy of whistleblowing. It is an act of conscience and not
motivated by self-interest.
A broad view of whistleblowing is the disclosure by organization members (former or current) of illegal,
immoral, or illegitimate practices under the control of their employers, to persons or organizations that
may be able to affect action. This definition includes whistle-blowers who use internal channels (e.g., a
hot line or ombudsperson) or external channels (e.g., the external auditors or the SEC) to blow the
whistle.
The Whistleblowing Process
There are four elements of the whistleblowing process: the whistleblower, the whistleblowing act or
complaint, the party to whom the complaint is made, and the organization against which the complaint
is lodged. The act might be labeled as one of “dissidence,” somewhat analogous to civil disobedience. It
may be seen as disloyal by some but in the public interest by others.
Given that the act of whistleblowing is a personal choice, the key to whether an individual will blow the
whistle on wrongdoing is whether the whistle-blower perceives organizational policies are designed to
encourage whistleblowing.
Research has shown that what whistleblowers hope and believe their speaking out will achieve, is the
correction of what they perceive as an organizational wrongdoing (e.g., fraudulent financial statements).
This research also found that not everyone who perceives a wrongdoing, acts upon that perception. In
fact, only 42 percent said they were ready to blow the whistle.
Detection
The Association of Certified Fraud Examiner report data on organizational culture that includes
whistleblowing. The results for 2022 are as follows.
Initial Detection of Occupational Frauds from the ACFE 2022 Global Study on Occupational Fraud and
Abuse
Detection Method Percentage Reported Median Loss
Tip 42% $117,000
Internal Audit 16% $108,000
Management Review 12% $105,000
Documentation Examination 6% $200,000
By Accident 5% $100,000
Account Reconciliation 5% $74,000
External Audit 4% $219,000
Automated Transaction/Data Monitoring 4% $50,000
Surveillance/Monitoring 3% $60,000
Notified by Law Enforcement 2% $500,000
Confession 1% $159,000
As you can see, most of the whistleblowers come from within the organization. In fact, only 4% of
whistleblowing is done by external auditors, which raises the question: What is the purpose of an audit?
This is a complex issue and the subject of future blogs.
Regulations
Whistleblowing regulations attempt to protect individuals when they behave responsibly towards
society in light of irresponsible behavior by their organizations. This certainly is the motivation for the
anti-retaliation provisions of both the Sarbanes-Oxley Act and the Dodd-Frank Financial Reform Act. The
acknowledgement of the need for such protection, however, implies that moral agency, autonomy and
responsibility are problematic in organizations, or at the very least, that they do not come naturally and
are not welcomed when they arrive. When organizations establish an ethical culture and anonymous
channels to report wrongdoing, they create an environment that supports whistleblowing and whistle-
blowers while controlling possible retaliation.
Ethical Issues
Whistleblowing always involves an actual or at least declared intention to prevent something bad that
would otherwise occur. It always involves information that would not ordinarily be revealed. Most
ethicists agree whistleblowing is an ethical action. According to the “standard theory” on
whistleblowing, whistleblowing is morally required when it is required at all; people have a moral
obligation to prevent serious harm to others if they can do so with little costs to themselves.
The morality of whistleblowing might be viewed from the perspective that corporations have a moral
obligation not to harm. De George identifies five criteria when whistleblowing is morally permitted.
Briefly, (1) the firm’s actions will do serious and considerable harm to others; (2) the whistleblowing act
is justifiable once the employee reports it to her immediate supervisor and makes her moral concerns
known; (3) absent any action by the supervisor, the employee should take the matter all the way up to
the board, if necessary; (4) documented evidence must exist that would convince a reasonable and
impartial observer that one’s views of the situation is correct and that serious harm may occur; and (5)
the employee must reasonably believe that going public will create the necessary change to protect the
public and is worth the risk to oneself.
De George’s criteria establish the foundation for moral behavior to occur when contemplating
whistleblowing. He rejects the position that external whistleblowing is always morally justifiable, and
also rejects the position that external whistleblowing is never morally justifiable. Basically, his position is
that the whistleblower should have a moral motivation to engage in the act (i.e., to expose unnecessary
harm, and illegal or immoral actions).
One question that has always interested me is how a whistleblower can bounce back after blowing the
whistle, which is a painstaking process. It requires resilience. In other words:
Commitment: The desire to do the right thing regardless of the consequences.
Consciousness: Awareness: Act
consistently and apply moral convictions to your daily behavior.
Competence: The ability to collect and evaluate information, and to foresee the potential consequences
of actions on others.
Would-be whistleblowers should ask: How they could take an action that family and loved ones would
be proud of and how they would want to be remembered.
Ethics and morality go hand in hand. If you face an ethical crisis in the workplace, consider first whether
real harm may be done to others if you don’t do everything in your power to correct the situation. Then,
commit to acting ethically; first considering the consequences of your actions on others including
yourself. No one is obligated to take actions that might harm one’s own interests. However, our moral
obligation to society does obligate us to right a wrong when we see one that has occurred.
Posted by Steven Mintz, Ph.D., aka Ethics Sage, on February 29, 2024. You can sign up for his
newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.