Talk, or Walk?

Employees who try to bring to light unethical or illegal practices by their employers are often criticized, treated like outcasts, fired, or worse.

In 1999, as accounting manager at the division level, Stone concluded that he had an obligation to address the issue. “I made a strong case [that the accounting didn't comply with generally accepted accounting principles],” he recalls. But Stone’s superiors said that the decisions were final. “They never offered an explanation,” he says.

In 2001, Stone reported the issue to state regulators, and to company officials through an anonymous compliance channel. And while his identity was supposed to remain anonymous to his superiors, he believes the information was leaked. “You find that you are never really anonymous,” says Stone.

In response, utilities commissions in the Carolinas have appointed Grant Thornton to investigate if Duke used improper accounting to artificially keep returns low. And in February, Stone, who has worked for Duke since graduating from college in 1985, was forcibly transferred to a new job that he dislikes, and downsized from an office to a cubicle.

Duke says Stone has never been treated differently because he raised the issue. “Duke has a strong commitment to maintaining an open work environment and supporting the highest business ethics,” says Cathy Roche, director of external relations at Duke.

A Matter of Ethics

As bad as things have worked out for Stone, at least he still has a job. Often whistle-blowers find themselves without one, as well as without future prospects. “The kiss of death for a career is to get a reputation as someone who is not a team player,” says Fisher. “And whistle-blowers usually get labeled as troublemakers.”

So why do they do it? “It’s very easy to say to yourself, ‘The company has taken care of me; I’m not going to rock the boat,’ ” says Stone, whose salary and bonus of $90,000 to $100,000 has remained steady despite his job change. “But does that buy your integrity? For me it didn’t.”

Personal ethics and integrity are really the only incentives to come forward. That was the case with Watkins at Enron. “A number of people at Enron knew what was going on, but they were making too much money to say anything,” says Watkins’s attorney, Philip Hilder of Hilder & Associates, in Houston. “[Watkins] has a strong sense of obligation and duty instilled at a young age,” he adds.

Still, the fact remains that whistle-blowers have limited protections. “In these situations, the company has all the power,” says Fisher. “They can marshal more resources.” Further clouding the picture is that from outside the firm it’s often difficult to tell if an employee has purely noble reasons for stepping forward.

The Sarbanes-Oxley Act of 2002 contains a few provisions intended to better shield whistle-blowers: it creates both a private right of action and a source of criminal liability. “It broadens the scope of potential criminal liability for individuals who take action against whistle-blowers,” says Gregory Keating, a partner at Boston law firm Choate, Hall & Stewart. Already, though, the White House is pushing for a narrower interpretation of the law, and many insist that the new protections aren’t enough.

Fisher, for one, believes professional organizations and trade unions should take up the cause of protecting whistle-blowers. And others argue that companies should encourage those with knowledge of wrongdoing to come forward. “The goal should be to create a mechanism for getting information forward and hearing about problems,” says Keating. It just might be a company’s best chance to avoid becoming the next big scandal.

Joseph McCafferty is news editor of CFO.

Acts of Conscience

The fates of recent whistle-blowers.

Name Company Allegations Personal Outcome Company Outcome
David Chacon Salomon Smith Barney Improper IPO allotments Left firm, filed lawsuit

Subject of congressional and NASD probes

Cynthia Cooper WorldCom Massive accounting fraud Talking to U.S. Justice Department

Forced into bankruptcy

Roy Olofson Global Crossing Round-trip trades and improper accounting Fired, filed lawsuit

Forced into bankruptcy

Barron Stone Duke Energy Improper accounting Forced to change jobs at Duke

Awaiting results of an audit

Sherron Watkins Enron Massive accounting fraud Testified to Congress

Forced into bankruptcy

Source: News reports

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