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WHISTLEBLOWING

Whistleblowing: Definition
DEFINITION of 'Whistleblower'
Anyone who has and reports insider knowledge of illegal activities
occurring in an organization. Whistleblowers can be employees,
suppliers, contractors, clients or any individual who somehow
becomes aware of illegal activities taking place in a business either
through witnessing the behavior or being told about it.
Whistleblowers are protected from retaliation under various
programs created by the Occupational Safety and Health
Administration (OSHA) and the Securities and Exchange Commission
(SEC).
Two Cases
Sarbanes and Oxley Act
As a response to the Enron scandal, the Congress of the United
States adopted the Sarbanes and Oxley Act of 2002 (enacted 30 July,
2002; hereinafter: SOX), because the scandal shook public
confidence in the nations securities markets. As the whole scandal
was triggered off by an internal whistleblowing, no one was surprised
that SOX contains whistleblower sections (Questionnaire I/14). The
Act attempts to encourage and protect whistleblowers in a variety of
ways by providing channels for anonymous whistleblowing,
establishing criminal penalties for retaliation against whistleblowers,
and protection for whistleblowers in order to preserve their work
status. While SOX was passed in response to domestic issues, it was
written in haste, which allowed for potential extraterritorial
application. The SOX applies to every publicly registered company
issuing securities in an American secondary exchange market.
Former chairman of the Security Exchange Commission once told at
a conference, that our mandate is to implement the Sarbanes-Oxley
Act fully for all companies, foreign or domestic.[12] The provisions
of the SOX are mirrored in the Nasdaq and the New York Stock
Exchange (hereinafter: NYSE) rules.[13] If listed on NYSE, companies
must certify their accounts to those markets yearly, and this
certification process implies that companies are in position to assert
that they comply with whistleblowing rules (Questionnaire I/12). SOX
made hundreds of companies to adopt whistleblowing in their codes
of conduct, and not only companies listed in American exchange
markets (Questionnaire I/10-11). It became one symbol of
transparency and compliance. 1. Section 301 of the Act is a
distinctive part of the SOX for its requirement of a channel for
anonymous whistleblowing. The section requires audit committees of
covered companies to establish whistleblowing procedures whereby
employees can anonymously submit issues of concern regarding

questionable accounting or auditing matters: Section 301.4. 4)


COMPLAINTS.Each audit committee shall establish procedures for
(A) the receipt, retention, and treatment of complaints received
by the issuer regarding accounting, internal accounting controls, or
auditing matters; and (B) the confidential, anonymous submission
by employees of the issuer of concerns regarding questionable
accounting or auditing matters. This whistleblowing channel shall be
set up not later than 270 days after the date of enactment, and the
Securities Exchange Commission shall, by rule, direct the national
securities exchanges and national securities associations to prohibit
the listing of any security of an issuer that is not in compliance with
the requirements of any portion of paragraphs (2) through (6) of
section 301 of the Act. Section 301 requires the committees to have
procedures for retaining and treating the reports. Most commonly,
the organizational response to this requirement has been to contract
with an independent hotline company to receive the reports.
Experiences show that these hotlines are unlikely to spur
whistleblowing, but they greatly increase costs in time and money.
Unfortunately, we dont have much information on these internal
channels, because companies tend to treat relevant information as
trade secrets and consequently it is difficult to determine their
effectiveness. What information is available shows that hotlines and
other designated recipients of whistleblowing find that a large
percentage of the reports involve human resource issues, and only
very few case involve legal or ethical issues.[14] 2. If a whistleblower
suffers retaliation for reporting, Section 806 gives the employee the
right to seek protection. This section prohibits any kind of retaliation,
such as discharging, demoting, suspension, harassment, or any
other kind of discrimination against an employee in the terms and
conditions of the employment against a whistleblower who reports
covered information to someone within the organization who has the
authority to investigate, discover, or terminate misconduct. The
section specifies a process. First, the employee within 90 days
has to file a complaint with the Secretary of Labor. An administrative
law judge hears the evidence resulting from the investigation and
decides (Questionnaire II/9). The case will not go forward if the
employer can show clear evidence that the sanctions would have
taken place in the absence of the whistleblowing. As we already
mentioned, the law is vague enough that it may cover U.S. citizens
working for a foreign subsidiary or for a private foreign subsidiary of
a covered U.S. company, or a foreign employee working for a foreign
subsidiary. Section 806 virtually makes no distinction between
domestic and foreign companies that have securities registered or
listed in the USA. Even though it has the potential to reach foreign
companies, the jurisdiction interprets the SOX in a more restrictive
manner. In Carnero vs. Boston Scientific Corporation, the First Circuit
Court found that the SOX do not protect a foreign worker who
reported accounting irregularities at a foreign subsidiary of an
American corporation. The Court concluded that pertinent factors
would not support a finding of congressional intent in order to

overcome a presumption against extraterritorial application of the


SOX.[15] The judgment described the policy behind the presumption
as preventing unintended conflicts between U.S. law and laws of
other countries, and stated that congress is primarily concerned with
domestic conditions: We believe if Congress had intended that the
whistle-blower provision would apply abroad to foreign entities, it
would have said so and certainly would have considered, before
enacting the law, the problems and limits of extraterritorial
enforcement, wrote Judge Levin H. Campbell.[16] Scholars argue
that this interpretation denies the reality that over a thousand
foreign companies list their securities in the United States and
voluntarily subject themselves to U.S. laws.[17] In Penesso v. LLC
International, the administrative judge found that a U.S. citizen
working abroad could bring a claim under Section 806 of SOX. In this
case, the judgment stated that Cranero was not controlling on the
issue of extraterritoriality because Penesso was U.S. citizen working
abroad and some of the actions he complained of took place in the
USA.[18] 3. Despite the relative uncertainty as to the applicability of
all the SOX provisions to companies established in Europe,
companies want to be in a position to comply with the specific
whistleblowing provisions of the Act. However, in Europe,
whistleblowers are looked at as informants, and certainly not
considered as folk hero as in America. Some countries taken lead in
resisting provisions of the SOX that shield from retaliation and set up
channels to report.[19] Europeans tend to think that some core
provisions conflict with their national laws regulating labor and
privacy. German and French regulators in 2005 refused to approve
whistle-blower mechanisms sought by three U.S. companies
McDonalds Corp. and CEAC/Exide Techno-logies in France and WalMart in Germany.[20] The companies wanted to weave the
protections into their operations in those countries to comply with
Sarbanes and Oxley. A European Union committee composed of
privacy protection officials (Article 29 Working Group) from member
states expanded the debates scope to the rest of the continent with
a nonbinding opinion that offers suggestions for resolving the
conflict. U.S.-listed companies would have to deal separately with
the governments in each nation where they operate. The Sarbanes
and Oxley Act is only one an example, but maybe the most
important one for sectoral laws because of its worldwide effects.
Particular problems these laws arose from have also defined the
frames of whistleblower laws, so differences in regulation are
necessary. Approximately thirty countries around the world have
national whistleblowing laws.[21] A basic question is whether a
country needs a comprehensive whistleblower law, or only partial
regulation in specific fields. Comprehensive, free-standing laws are
not that widespread yet, only the United Kingdom, New Zealand and
South Africa have laws that can truly be considered as
comprehensive (Questionnaire I/2). Some countries have adopted
laws to cover only the public sector (eg. Romania), others like Japan
have a law for the private sector.

Moral Guidelines
The following three statements are obviously true, but their
relative importance is debated. (1) I exist. (2) Others exist. (3) I am
not someone else. Morality stresses 2 (e.g. duty to the population)
and undermines 1 and 3 as much as possible. For instance, Harris et
al. (2005) take self-interest as one of the impediments to
responsible action (p. 37). Rejection of 3 is obvious in the
universalization at the core of Kants categorical imperative and in
the utilitarian view that my welfare is on a par with that of others. As
writes Rawls (1971), utilitarianism does not take seriously the
distinction between persons (p. 24). In other words, the fact that it
is me and not someone else we are talking about should not be
brought into the picture (or rather should be taken out of the
picture): there is a tendency to associate professionalism with
setting aside personal values in order to be objective and to meet
shared standards of the profession (Martin, 2002). Codes embody
this view: they pile up duties for professionals without
acknowledging that professionals are individuals, rather than mere
vectors for duty. It is then clear that the question of whistle-blowing
is just a matter of comparing duty toward the public to duty toward
the employer. But this view relies on a bias in favor of alienation: it
assumes that I do not exist, that I do not count, or that I am
someone else. So the employee must account for the interests of the
public and of the company only thinking of oneself is selfish, i.e.
wrong. In any deliberative contest between a moral obligation and
some other consideration, the moral obligation will always win out,
according to the morality system. (Chappell, 2006). For instance,
Fleddermann (1999) never mentions possible harm to the employee:
to him whistle-blowing is determined wholly on external criteria.
Likewise, to DeGeorge (2005) the difference between possible and
mandatory whistle-blowing is independent of the employee. The
whistle blower is part of the implementation, not part of the
decision.2 As Martin (2000) points out, final judgments about
obligations to whistleblow must be made contextually, not as a
matter of general rule. And they must take into account the burdens
imposed on whistleblowers an their families. One may decide to
reject codes of morality so that whistle-blowing is optional. But this is
difficult since, even though a code is just a consensual opinion not
the repository of objective truths (Bouville, 2007), the fact that a
given agent would prefer not to be in [the morality] Whistle-blowing
and morality 5 system or bound by its rules will not excuse him
(Williams, 1985, p. 177). Alternatively, one may abide by the
mandatory requirements expressed in codes of ethics (Martin,
2002) and make whistle-blowing a moral obligation. A third option is
to change the meaning of obligation so that whistle-blowing is a
moral obligation without being obligatory. We will now examine this
paradoxical view.

Protecting Whistleblowers
To Prevent Whistleblowing, Encourage Whistleblowing As the
preceding sections illustrate, whistleblowing to an external entity,
such as the media or government agencies, has been a hazardous
activity, both for the individual and the organization. The ambivalent
attitude toward whistleblowers ensures that, even with legal
protection, they may face retaliation in subtle ways: being shunned
by co-workers, being closely supervised, or just feeling alienated. So,
the question is, How do organizations encourage internal
whistleblowingthat is, to an authority within the organizationto
preclude external whistleblowing and the resulting damage to an
organization? This section provides some best practices for
encouraging employees to bring unethical or illegal practices to the
forefront and addressing them before they become fatal to an
organization. The objectives of an internal whistleblowing program
are To encourage employees to bring ethical and legal violations
they are aware of to an internal authority so that action can be taken
immediately to resolve the problem To minimize the organization's
exposure to the damage that can occur when employees circumvent
internal mechanisms To let employees know the organization is
serious about adherence to codes of conduct The barriers to a
successful internal whistleblowing program are A lack of trust in the
internal system Unwillingness of employees to be "snitches"
Misguided union solidarity Belief that management is not held to the
same standard Fear of retaliation Fear of alienation from peers
Although companies should seek to remove these barriers, it is also
important to acknowledge that some whistleblowers have less-thanhonorable motives. What if the whistleblower is retaliating against a
supervisor with false accusations? What if the whistleblower is
bringing genuine problems to the fore but is also a subpar
employee? In that case, does the whistleblower get a free pass just
because he or she exposed an issue? What should be done when it
becomes clear that encouraging employees to bypass the proper
channels is undermining management decision making? What if
whistleblowers participated in the very actions they are now
exposing, perhaps as a means of escaping the consequences of their
participation? What if there is reason to suspect a whistleblower is
targeting a specific employee because of his or her race, gender, or
ethnicity? These are just a few of the issues to be considered in
creating a whistleblowing culture.
Commonsense Procedures
Work though established channels first;
understand formal and informal procedures.
Do it right away!
Keep it very impersonal and in professional
tones (use soft rhetoric); this helps to minimize
accusations of personality attacks.

Martin, Mike W. and Roland Schinzinger, "Ethics in Engineering", Third


Edition, McGraw-Hill
Companies, Inc. 1996(Page
Use memos, which record your concerns at all possible,
times and copy yourself. When sending email, copy
yourself at all times (a good thing to do anytime)
Be meticulous in your calculations or observations; keep
an accurate diary with dates and events document
Martin, Mike W. and Roland Schinzinger, "Ethics in Engineering", Third
Edition, McGraw-Hill Companies, Inc.
1996(Page
Consult colleagues for advice technical and personal;
be careful, they now are obligated to report issues if the
safety of the public is of concerned. If information is not
confidential, then have a consultant look at your work
but at your own expense
Go to your professional organization for assistance and
help
Get a lawyer (all professionals should have a good
lawyer that they can consult at all times).
Beyond Whistleblowing

The BART Case Study


The cities surrounding San Francisco Bay form one of the largest
metropolitan areas in the United States. Due to the geographical limits
imposed by the bay, much of the commuting that takes place in this area
must be across just a few bridges. The Bay Area Rapid Transit system
(BART) had its genesis in late 1947 when a joint ArmyNavy review board
recommended the construction of a tunnel underneath San Francisco Bay
for high-speed train service between San Francisco and Oakland
[Friedlander, 1972]. The California state legislature then formed the San
Francisco Bay Area Rapid Transit Commission, which was to study the
transportation needs of the Bay area and make recommendations to the
legislature. This effort culminated in the formation of the Bay Area Rapid
Transit district in 1957. By 1962, this group had done a preliminary design
of a rapid train system, including a transbay tube, and had laid the
groundwork for fundraising for the project. In 1962, a bond issue to fund
the project was approved by the voters and the project was begun.
As envisioned, BART was to be a high-tech rail system serving many of the
outlying communities along San Francisco Bay. There were three distinct
engineering issues involved in BART: the design and construction of
railbeds, tunnels, bridges, etc.; the design and manufacture of the railcars;
and design and implementation of a system for controlling the trains. The
control system will be the focus of our discussion.

BART was to incorporate much new technology, including fully automated


control systems. The trains would have "attendants," but would not be
under direct control by humans. In many respects, BART was an
experiment on a very large scale. None of the control technologies that
were to be used had been previously tested in a commuter rail system. Of
course, any innovative engineering design is like this and has components
that have not been previously tested.
The Automatic Train-Control (ATC) system was an innovative method for
controlling train speed and access to stations. In most urban mass transit
systems, this function is performed by human drivers reading trackside
signals and receiving instructions via radio from dispatchers. Instead, BART
relied on a series of onboard sensors that determined the train's position
and the location of other trains. Speeds on the track were automatically
maintained by monitoring the location of the train and detecting allowed
speed information. One of the unique and problematic features of the
system was that there were no fail-safe methods of train control
[Friedlander, 1972]. Rather, all control was based on redundancy. This
distinction is very important. "Fail safe" implies that if there is a failure, the
system will revert to a safe state. In the case of BART, this would mean
that a failure would cause the trains to stop. Redundancy, on the other
hand, relies on switching failed components or systems to backups in
order to keep the trains running.
There are two distinct phases of this type of engineering project,
construction and operation, each requiring different skills. For this reason,
early on, BART decided to keep its own staff relatively small and
subcontract most of the design and construction work. This way, there
wouldn't be the need to lay off hundreds of workers during the transition
from construction to operation [Anderson, 1980]. This system also
encouraged the engineers who worked for BART not only to oversee the
design and construction of the system, but also to learn the skills required
to run and manage this complex transportation system. Contracts for
design and construction of the railroad infrastructure were awarded to a
consortium of large engineering firms known as Parsons, Brinkerhoff,
Tudor, and Bechtel (PBTB). PBTB began construction on the system in
January of 1967. The transbay tube was started in November of that year.
Also in 1967, a contract was awarded to Westinghouse to design and build
the ATC. In 1969, Rohr industries was awarded a contract to supply 250
railroad cars.
A little bit should be said about the management structure at BART. By
design, BART was organized with a very open management structure.
Employees were given great freedom to define what their jobs entailed
and to work independently and were encouraged to take any concerns
that they had to management Unfortunately, there was also a very diffuse
and unclear chain of command that made it difficult for employees to take
their concerns to the right person [Anderson, 1980].

The key players in this case were three BART engineers working on various
aspects of the ATC: Roger Hjortsvang, Robert Bruder, and Max Blankenzee.
The first to be employed by BART was Hjortsvang. As part of his duties for
BART, Hjortsvang spent 10 months in 196970 in Pittsburgh at the
Westinghouse plant working with the engineers who were designing the
ATC. During this time, he became concerned about the lack of testing of
some of the components of the ATC and also about the lack of oversight of
Westinghouse by BART. After returning to San Francisco, Hjortsvang began
raising some of these concerns with his management.
Soon after Hjortsvang returned from Pittsburgh, Bruder joined BART,
working in a different group than Hjortsvang. He also became concerned
about the Westinghouse test procedures and about the testing schedule,
but was unable to get his concerns addressed by BART management. Both
Hjortsvang and Bruder were told that BART management was satisfied
with the test procedures Westinghouse was employing. Management felt
that Westinghouse had been awarded the contract because of its
experience and engineering skills and should be trusted to deliver what
was promised.
Around this time, both engineers also became concerned about the
documentation that Westinghouse was providing. Would the
documentation be sufficient for BART engineers to understand how the
system worked? Would they be able to repair it or modify it once the
system was delivered and Westinghouse was out of the picture? Being
unable to get satisfaction, Hjortsvang and Bruder dropped the matter. It is
important to note that the concerns here were not just about testing, per
se, but also about the effect that untested components might have on the
safety and reliability of BART.
Blankenzee then joined BART and worked at the same location as
Hjortsvang. Before joining BART, Blankenzee had worked for Westinghouse
on the BART project, and so he knew about how Westinghouse was
approaching its work. He too was concerned about the testing and
documentation of the ATC. When Blankenzee joined BART, it rekindled
Hortsvang's and Bruder's interest in these problems. To attempt to resolve
these concerns, Hortsvang wrote an unsigned memo in November of 1971
to several levels of BART management that summarized the problems he
perceived. Distribution of an anonymous memo was, of course, viewed
with suspicion by management.
In January 1972, the three engineers contacted members of the BART
board of directors, indicating that their concerns were not being taken
seriously by lower management. This action was in direct conflict with the
general manager of BART, whose policy was to allow only himself and a
few others to deal directly with the board [Anderson, 1980]. As defined
previously in this chapter, this action by the engineers constituted
"internal whistleblowing." The engineers also consulted with an outside
engineering consultant, Edward Burfine, who evaluated the ATC on his own
and came to conclusions similar to those of the three engineers.

One of the members of the board of directors, Dan Helix, spoke with the
engineers and appeared to take them seriously. Helix took the engineer's
memos and the report of the consultant and distributed them to other
members of the board. Unfortunately, he also released them to a local
newspaper, a surprising act of external whistleblowing by a member of the
board of directors. Naturally, BART management was upset by this action
and tried to locate the source of this information. The three engineers
initially lied about their involvement. They later agreed to take their
concerns directly to the board, thus revealing themselves as the source of
the leaks. The board was skeptical of the importance of their concerns.
Once the matter was in the open, the engineers' positions within BART
became tenuous.
On March 2 and 3, 1972, all three engineers were offered the choice of
resignation or firing. They all refused to resign and were dismissed on the
grounds of insubordination, lying to their superiors (they had denied being
the source of the leaks), and failing to follow organizational procedures.
They all suffered as a result of their dismissal. None was able to find work
for a number of months, and all suffered financial and emotional problems
as a result. They sued BART for $875,000, but were forced to settle out of
court, since it was likely that their lying to superiors would be very
detrimental to the case. Each received just $25,000 [Anderson, 1980].
As the legal proceedings were taking place, the IEEE attempted to assist
the three engineers by filing an amicus curiae (friend of the court) brief in
their support. The IEEE asserted that each of the engineers had a
professional duty to keep the safety of the public paramount and that their
actions were therefore justified. Based on the IEEE code of ethics, the brief
stated that engineers must "notify the proper authority of any observed
conditions which endanger public safety and health." The brief interpreted
this statement to mean that in the case of public employment, the proper
authority is the public itself [Anderson, 1980]. This was perhaps the first
time that a national engineering professional society had intervened in a
legal proceeding on behalf of engineers who had apparently been fulfilling
their duties according to a professional code of ethics.
Safety concerns continued to mount as BART was put into operation. For
example, on October 2, 1972, less than a month after BART was put into
revenue service, a BART train overshot the station at Fremont, California
and crashed into a sand embankment. There were no fatalities, but five
persons were injured. The accident was attributed to a malfunction of a
crystal oscillator, part of the ATC, which controlled the speed commands
for the train. Subsequent to this accident, there were several
investigations and reports on the operation of BART. These revealed that
there had been other problems and malfunctions in the system. Trains had
often been allowed too close to each other; sometimes a track was
indicated to be occupied when it wasn't and was indicated not to be
occupied when it was. The safety concerns of the three engineers seemed
to be borne out by the early operation of the system [Friedlander, 1972,
1973].

Ultimately, the ATC was improved and the bugs worked out. In the years
since, BART has accumulated an excellent safety record and has served as
the model for other high-tech mass transit systems around the country.