The Corporate Whistleblower's Survival Guide: A Handbook for Committing the Truth

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9781605099866: The Corporate Whistleblower's Survival Guide: A Handbook for Committing the Truth
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A Step-by-Step Guide to Blowing the Whistle—and Surviving the Storm That Follows

Corporate whistleblowers save lives, prevent fraud, and preserve the environment. But these results come through a long, difficult, draining, and often frightening process that leads many unprepared would-be whistleblowers to give up. Fortunately, they now have the support they need. This unprecedented and authoritative guide covers every step of the process—finding information to support your claims, determining whom to blow the whistle to, dealing with attacks from opponents, enlisting allies, understanding the law, and more.

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About the Author:

Tom Devine is legal director of the Government Accountability Project, which since 1977 has helped over 5,000 people take on organizations like AIG, Bechtel, the World Bank, Procter & Gamble, and Wyeth Pharmaceuticals—and win. He has received the Fund for Constitutional Government’s Defender of the Constitution Award and is a member of the Freedom of Information Act Hall of Fame.

Tarek F. Maassarani is a practicing attorney and a former investigator with the Government Accountability Project. He is currently an adjunct professor at George Washington University.

Excerpt. Reprinted by permission. All rights reserved.:

Whistleblowing in Corporate America

The new millennium ushered in a wave of corporate scandals that cheated ordinary shareholders and employees out of billions of dollars in lifetime savings, investments, and pensions. More than two dozen major accounting scandals followed the October 2001 discovery of Enron’s sham bookkeeping, bribery, and energy market manipulation. Brought to light by whistleblowers at Enron, WorldCom, and other companies, these revelations seriously strained public confidence in the stock market and set off sweeping congressional reforms.

Legislators moved quickly to pass the Public Company Accounting Reform and Investor Protection Act of 2002—commonly known as Sarbanes-Oxley (SOX). Enforcement actions and criminal convictions continued apace. In 2003 the Securities and Exchange Commission (SEC) entered into a $1.435 billion settlement with 10 of the United States’ largest investment firms over charges that the firms’ bankers had inappropriate influence over their own analysts. In 2005 American International Group (AIG), the fourth-largest company in the world, came under investigation for accounting fraud in a scandal that cost the company $1.64 billion to settle with federal and state authorities and a $2.7 billion decline in its net worth.1

Corporate Whistleblowers Who Paved the Way for Reforms in the Twenty-First Century

Although governmental whistleblowers long have made headlines, the events surrounding Enron, WorldCom, and other corporate collapses in the early 2000s increasingly brought corporate whistleblowers into the limelight. The country became aware of corporate misdeeds occurring on an unprecedented level. Two women stood at the center of these realizations.

At Enron, Vice President of Corporate Development Sherron Watkins realized something was wrong with the company’s finances. The numbers didn’t add up. She wrote a memo to Enron Chief Executive Officer (CEO) and Chairman Ken Lay, trying to raise awareness of the problems before the company self-destructed. Enron’s management chose to seek her removal rather than deal with the issues she raised. When Enron came under scrutiny, Watkins was the key witness in bringing the fraud to light.2

Cynthia Cooper was vice president of internal audits at WorldCom, now MCI. Her audit of the company’s finances uncovered suspicious activities. After being told by her supervisor to delay her analysis for a financial quarter, she continued investigating with her team and took her findings directly to WorldCom’s board of directors.3 Her efforts exposed the corporate fraud that was occurring at the company, sparked serious corrective action that saved MCI from Enron’s fate, and focused attention on the questionable independence of corporate audits—an “oversight” mechanism that had come to enable widespread deception in corporate America.

Both of these women made the difficult choice to jeopardize their professional lives to bring wrongdoings they witnessed to the attention of their supervisors. Like most whistleblowers, they experienced tremendous stress and had difficulty retaining their positions, finding new ones, and maintaining their everyday lives outside of the office.4 Unlike many whistleblowers, however, they both made a difference and received the recognition they deserved. In 2002 they, along with Federal Bureau of Investigation (FBI) whistleblower Coleen Rowley, were named Time magazine’s Persons of the Year.5

Post-Enron government action did little to stave off the reckless lending practices that arose from decades of government deregulation of the financial industry. Most notably, mortgage companies had been issuing shaky subprime loans and passing on the risk to investors in the gilded form of securitized mortgage credit. The inevitable financial losses in 2007 exposed other precarious loans and inflated assets and triggered a global financial crisis. On September 15, 2008, Lehman Brothers caved, filing the largest bankruptcy in US history. A panic in the financial markets accompanied sagging stock and housing prices, sending many large investment and commercial banks reeling. Congress and the Federal Reserve spent $700 billion and $1.2 trillion, respectively, on bailouts and emergency loans to large corporations, including the scandal-mired, government-sponsored Fannie Mae and Freddie Mac that owned or guaranteed about half of the country’s $12 trillion mortgage market.

A Whistleblower at Lehman Brothers

As heavy losses pushed Lehman Brothers down the road toward eventual bankruptcy, Senior Vice President Matthew Lee, a 14-year company veteran, sent a letter to senior management in May 2008, warning of accounting irregularities. Lehman’s board instructed its auditor, Ernst & Young, to look into the matter. Lee told Ernst & Young investigators that Lehman temporarily moved $50 billion in assets off its balance sheet to help hide the firm’s risks from Wall Street investors and regulators. These concerns faced a dead end when Ernst & Young announced that Lee’s allegations were unfounded. In late June, Lee was laid off as part of broader downsizing at the firm, according to Lehman. Lee’s concerns were ultimately vindicated by a federal bankruptcy examiner’s report released in March 2010.6

In March 2009 corporate America again broke records when Wall Street investment adviser Bernard Madoff pled guilty to running the largest Ponzi scheme in history. After nearly two decades, the house of cards finally collapsed—leaving thousands of investors defrauded of $65 billion and forcing businesses, charities, and foundations around the world to close shop. Sadly, a whistleblower had spent 10 years trying to alert the government, industry, and press about the fraud. Damaged by the 2008–2009 economic implosion, scandals, and bailouts, public trust in corporate America has yet to be regained.

Unfortunately, corporate wrongdoing is not limited to large accounting firms, financial lenders, and publicly traded corporations. Every year thousands of employees from the full range of business organizations witness wrongdoing on the job. These discoveries may jeopardize the physical or financial well-being of others and endanger our shared environment and economy. Whistleblowers may see managers at a nuclear facility violate safety codes, a chemical company dump hazardous waste unlawfully, or a food-processing plant attempt to sell contaminated meat to consumers.

Most employees remain silent, concluding that it is not their concern or that nothing they could do would stop the problem. Often they cannot afford to get themselves into trouble. Remaining an uninvolved bystander, however, risks serious consequences for all but the tiny circle that profits from the abuse and deceit. Others choose to bear witness and speak out, seeking to make a difference by “blowing the whistle” on unethical conduct in the workplace. This may sound like an elaborate undertaking, but even a simple note or a frank discussion with one’s supervisors can sometimes suffice to bring about real change or spark retaliation.

At the Government Accountability Project (GAP), we define whistleblowers as individuals who use free-speech rights to challenge abuses of power that betray the public trust. Under the Whistleblower Protection Act (WPA), the legal definition of whistleblowing as applied to government workers is disclosing information that an employee reasonably believes is evidence of illegality, gross waste, gross mismanagement, abuse of power, or substantial and specific danger to public health or safety.7 Corporate whistleblower rights, including SOX, are generally organized as witness protection clauses in enforcement provisions of selected parent statutes. Whatever the context, whistleblowers typically are insiders who learn of wrongdoing and decide to speak up about what they know—people of conscience who act for the good of the public at great personal risk.

Whistleblowers’ actions have saved the lives of employees, consumers, and the general public, as well as billions of dollars in shareholder and taxpayer funds. Whistleblowers have averted nuclear accidents, exposed large-scale corporate fraud, and reversed the approval of unsafe prescription drugs. But rather than receive praise for their integrity, they are often targeted for retaliatory investigations, harassment, intimidation, demotion, or dismissal and blacklisting. Ernie Fitzgerald, a whistleblower who exposed billions of dollars of cost overruns at the Pentagon, described whistleblowing as “committing the truth,” because employers often react as if speaking the truth about wrongdoing were tantamount to committing a crime.8

GAP was created to help employees “commit the truth” and thereby serve the public interest. Since 1977 we have provided legal and advocacy assistance to thousands of employees who have blown the whistle on lawlessness and threats to public health, safety, and the environment. This experience has given GAP attorneys and organizers valuable insights into the strategies and the hazards of whistleblowing.

The Need for This Handbook

In 1977 GAP produced its first whistleblower primer, titled A Federal Employee’s Guide to the Federal Bureaucracy. Twenty years later GAP distilled the knowledge it had accumulated into a publication titled The Whistleblower’s Survival Guide: Courage without Martyrdom. Then in 2002 GAP, the Project on Government Oversight (POGO), and Public Employees for Environmental Responsibility (PEER) collaborated to write The Art of Anonymous Activism: Serving the Public while Surviving Public Service. Now, with corporate scandals continuing and the development of new private-sector whistleblower protections, we believe it is time to write a handbook tailored to the corporate whistleblower.

The Corporate Whistleblower’s Survival Guide draws from prior publications and GAP’s experience assisting some 5,000 whistleblowers over the past 33 years. Our goal is to share lessons learned so that potential corporate whistleblowers know what they are getting into and can develop proactive strategies both to make a difference and to survive. We hope that a broad audience including concerned citizens, policymakers, journalists, and public interest groups will find its contents helpful in understanding the difficulties and the social significance of whistleblowing. Nevertheless, this handbook was written primarily with one set of readers in mind: private-sector employees of conscience.

Chapter 1 of this survival guide provides guidance for those who are making the weighty decision whether to blow the whistle. Chapter 2 discusses the dangers that whistleblowers face and should weigh into their decision making. Chapter 3 covers survival strategies for how best to blow the whistle and make a difference. It contains tips on how to go forward, often in the absence of adequate legal safeguards, without sacrificing your career. Chapter 4 discusses where to blow the whistle. Chapter 5 suggests possible allies along the way. Chapter 6 details the legal landscape in which the whistleblower stands. Chapter 7 makes recommendations for legislative and corporate reform, providing a blueprint for government and corporate leaders who recognize that it is bad business to silence or eliminate what is often their only warning signal of impending disaster.

The current patchwork of corporate laws fails to provide a coherent and functional system of legal rights. As a rule, instead of protection, whistleblowers who assert their “rights” attract retaliation. The good news is that corporate whistleblowers can and do survive while bringing about positive change. But survival seldom comes from lawsuits in isolation. The key to committing the truth and getting away with it is strategic legal campaigns grounded in public solidarity that effectively turn information into power. This handbook reviews lessons learned and tactics that have worked despite the law.

Fortunately, times are a-changin’. When GAP was founded in 1977, whistleblowers were considered traitors. It was a weathervane of change when Sherron Watkins and Cynthia Cooper joined FBI attorney Coleen Rowley as the 2002 Persons of the Year. After the 2006 congressional elections, a Democracy Corps survey of likely voters rated strengthening whistleblowers’ rights as one of their highest priorities for the new Congress, only behind eliminating illegal government spending.9

Accompanying this sea change have been promising shifts in the legal landscape. In 2002 Sarbanes-Oxley pioneered jury access for whistleblowers, which has since been emulated in nine significant laws covering the nuclear, ground transportation, retail commerce, health, and financial industries as well as defense contractors. These more refined statutes have perfected the relatively crude SOX 2002 pioneer statute, which itself was updated in the financial Dodd-Frank law. The Obama administration has appointed the strongest, most experienced team in history to enforce corporate whistleblower laws through administrative adjudication.

And yet the promised land of comprehensive, consistent whistleblower rights is still on the other side of the rainbow. Until that goal is reached, whistleblowers will have to rely on their wits, not necessarily their rights. Hopefully, this book will provide critical guidance on whether and how to commit the truth and thus turn information into power.

A Message to Corporate Leaders

While this handbook is a corporate survival guide for whistleblowers, there is an overarching lesson to be learned by corporate leaders: it is bad business to kill or silence the messenger. Rarely do whistleblowers want to break ranks with their employer or risk being exiled from the workplace. The overwhelming majority are motivated by loyalty to the company and professional pride in its positive role in society. They first try to work within the corporate system. A 2010 Ethics Resource Center report, supplementing its 2009 National Business Ethics Survey, found that only 4 percent of whistleblowers made their disclosures outside the corporate system, and only 3 percent even to hotlines; 46 percent went to their supervisor.10 If you respond constructively and in good faith, all the sections in this handbook about strategy, advocacy, and legal rights become irrelevant.

Whistleblowers fear personal and institutional liability. They are concerned with the consequences of nearsighted corporate bureaucrats whose internal misconduct creates long-term threats to the company or society. Instead of remaining silent due to fear of retaliation or cynicism, whistleblowers should be an invaluable asset to corporate leadership in exposing corruption that betrays the company’s own interests and the public trust.

When whistleblowers who overwhelmingly are loyal to the company remain “silent observers,” you lose. The 2010 Ethics Resource Center report also found that while some 50 percent of employees witness misconduct on the job, roughly 40 percent do not act on their knowledge.11 Those 40 percent have tremendous potential to prevent or recoup losses. A 2007 PricewaterhouseCoopers global crime survey of more than 5,400 corporations in 40 countries found that over 40 percent had been...

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