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BUSINESS ETHICS

FIFTH EDITION

DAMIAN GRACE
STEPHEN COHEN

OXFORD
OXFORD
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Damian Grace and Stephen Cohen 2013
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National Library of Australia Cataloguing-in-Publication entry
Author: Grace, Damian, 1950- author.
Title: Business ethicsfDamian Grace; Stephen Cohen.
Edition: 5th edn.
ISBN: 9780195519549 (paperback)
Notes: Includes bibliogTaphical references and index.
Subjects: Business ethics-Australia.
Other Authors/Contributors: cohen. Stephen. 1947- author.
Dewey Number: 174.40994
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9 Whistleblowing 223

There were no laws to protect Alw!Jn Johnson, an anon!Jmous whistleblower. In Jul!J 1990 he
was called into the office of Paul Kemp, CEO of Trust Bank in Tasmania, told his services were
no longer required, and escorted from the building bid a securitld guard. Johnson had broken
the eleventh commandment: he had been found out. But Johnson was no criminal. Quite the
opposite; he was a whistleblower whose prompt action had probabl!J saved a bank, and with it
millions of the taxpa!Jers' dollars.
Johnson had a strong background in traditional banking. He had been underwriting manager
in the treasur!J department of the National Australia Bank (NAB) in Melbourne before moving to
the state-owned Tasmania Bank as a chief manager. At the NAB, Johnson had been marked for
rapid promotion, as attested in a letter to him bid John Astbur!J, treasur!J general manager: 'Your
high levels of performance and demonstrated application have again confirmed !JOUr forward
potential ... we are pleased !JOur efforts warrant our ongoing commitment towards !JOur career
progression.'
Shortl~J after arriving in Tasmania, Johnson became concerned about his bank's exposure to
non-performing loans to propert~J developers in its wholesale banking division. His warnings to
superiors were ignored, so in June 1990 he wrote anon!Jmousl!J to the premier, Michael Field,
warning that 'The bank is in serious financial trouble and immediate, decisive action is required
to rescue it from the present disastrous course.' Johnson wrote again in August predicting a run
on the bank unless Field intervened. The premier had alread!J brought in the auditors. At a board
meeting in November 1990 the auditors' findings were tabled, the bank's managing director
resigned, and the board passed a vote of thanks to the writer of the anonl,dmous letter. Premier
Field revealed a $150 million exposure due to 'serious management weaknesses'. Preventive
action had been taken just in time.
In March 1990 Tasmania Bank merged with the SBT Bank to create the Trust Bank. Johnson
wrote to the new CEO of Trust Bank, Paul Kemp, asking for an executive position and revealing
that he was the author of the anon~Jmous letter to Field. Johnson claims that from that da!J he
was cold-shouldered bid the bank.
The Trust Bank was unique in Australia in having no shareholders. And it was no longer owned
by the Tasmanian government. When Johnson became concerned about the loans operations
of the merged bank he felt he had nowhere to go except the Reserve Bank. On 1 Jul!J 1990 he
wrote to the governor of the Reserve Bank, Bernie Fraser, stating his concerns and offering to
elaborate on them personall!J b!J fl~Jing to S!Jdne!J. He also asked that the confidentialitld of the
communication be respected: 'Kindl!J do not contact management of SBT/Tasmania Bank until
IJOU are full!J acquainted with the facts, bid meeting with me personall!J.' 26 Fraser rang Kemp at
the Trust Bank the next da!J. This has been revealed in a Freedom of Information search, but it is
I
/
224 Business Ethics

not known if Fraser mentioned Johnson's name to Kemp. Neither Kemp nor Fraser will comment
on the conversation, and Freedom of Information access has been denied to the notes made of
it. On 3 Jul~ Johnson was sacked. Although Johnson was told that there was no place for him
in the restructured organisation, he was sent a letter on the da~ of his dismissal, which gave a
different impression of Kemp's reasons for firing him:

The Bank has been advised that \JOU have made contact with various individuals and bodies in
order to provide what can onl\J be described as scurrilous misinformation regarding the Bank's
affairs. At least some of the recipients of this most improper communication have expressed
their concern not onl\J as to the content, which was properl\J recognised for what it was, but also
regarding the fact that a senior emplo\Jee would see fit to embark upon an exercise which reflected
so poorl\J upon himself. 27

After Johnson had declared rlimself to be a whistleblower it would have been no great
feat of inference to conclude that he was the person who had approached the Reserve Bank,
even if Fraser did not disclose his name. Still, there is an unresolved problem here. When
public authorities hold inquiries into institutional failures the~ often comment on the braver~ of
those who speak out and lament that others do nothing or cover for their mates. For example,
Commissioner Samuel Jacobs of the Ro~al Commission into the failed State Bank of South
Australia asked wh~ no bank officers alerted the government or public to the bank's problems.
lronicall~, the Reserve Bank has been unable to help Johnson. In Januari,J 1993, he wrote to
Fraser about possible Reserve Bank action 'to protect people like m~self who act in the public
interest, from being summaril~ dismissed from the bank the~ seek to protect'. Johnson made
the point,

No bank officer will ever follow m\J lead and act in the public interest and advise the Reserve Bank
of Australia of problems within a bank if the Governor of the Reserve Bank of Australia is going to
immediatel\J ring the bank concerned and divulge the identit\J of that bank officer. If bank officers
have nowhere to turn in confidence when the\J identif\J problems within their bank, then taxpa\Jers
will be destined to continue to pa\J out billions of dollars as banks fail or are badl\J managed in the
future 28

This is a fair point, although it must be stressed that there is no evidence that Fraser
informed Kemp that Johnson had written to him. If high standards of public responsibilit~ are to
be demanded of people in private positions there should be public protections for them. But in
this case there is the added complication that Fraser, as well, had a clear public responsibilit~.

Whatever he said to Kemp on the da~ after he received Johnson's fax, Fraser had a clear fiduciar~
and moral responsibilit~ to ensure that the Trust Bank was not in danger. It might have been
difficult to do that without indirectl~ disclosing that Johnson was the source of the Reserve Bank's
alert. Moreover, Johnson's request for confidentialit~ and a dela~ in response until a personal
interview could be arranged could not bind Fraser in an~ wa~. As governor of the Reserve Bank,
9 Whistleblowing 225

he is akin to a banking police officer, and while attempting to ascertain the facts, he cannot allow
the publ.ic interest to be jeopardised. 29

Questions
What should Johnson have done? Should he have disclosed his identity at the time of writing
to the premier?
2 Would you base your view about his conduct on a consideration of Johnson's responsibilities
as an executive of the bank or on the fate that befell him?

Johnson's case illustrates that protections for whistleblowers are inherently difficult to devise, so
that changes in public policy will never remove the need for personal courage, sometimes of a high
order, in bringing to light institutional failures that prejudice the public interest. The report of the
Martin Committee into banking did not believe that whistleblower legislation was 'necessary at this
stage', but did recommend that 'banks establish internal processes that allow staff to report instances
of suspected fraud to senior management without fear of retribution: 30
After the abrupt end ofJohnson's career, Field was unsupportive, Kemp claimed that he 'had been
over promoted within the Tasmania Bank' and Fraser denied involvement in his dismissal. Kemp's
claim is at variance with Johnson's previous record, but it fits the classic pattern for whistleblowers
both in Australia and the United States. Kemp claimed that Johnson had been administered a series
of personality tests by consultants Chandler and Macleod, which found him 'unsuited' to a position
in the new bank. In the light of Kemp's letter to Johnson, doubt is certainly cast on any claim that
this personality test played much of a part in Johnson's dismissal or the appraisal of his performance
(it would be odd to check a manager's performance against a battery of tests), but subjection to
psychological testing is a standard way of dealing with 'troublemakers: as whistleblowers are
traditionally called in Australia. 31
Johnson's case fits the typical profile of whistleblowers in most respects. In general, publicity
can offer some protection because it increases the whistleblower's visibility. It also lends credibility
to the whistleblower's claims and puts a face to them. In Johnson's case, his mistake was to reveal
his action in the belief that it would make him more acceptable to the bank he saved. But this also
made him 'unsafe' in any future incidents of whistleblowing, such as his in-confidence fax to the
Reserve Bank.
'Aberrant behaviour' has long been used to explain away whistleblowing in Australia. In one
of the most famous historical cases of whistleblowing in New South Wales, Sergeant Philip Arantz
revealed in 1971 that the Police Department had for many years deliberately published false
crime clear-up statistics. When he took his findings to superior officers, he was rebuffed. He then
attempted to have the information disclosed in Parliament by feeding information to MPs, but this,