Whistle-Blower Woes

Many companies think the whistle-blower provisions of Sarbanes-Oxley will spark nuisance suits by disgruntled employees. The truth is far more complex.

Even when the claims of fraud and retaliation are justified, it’s unclear what the whistle-blower will gain. Attorneys can name wildly different figures depending on whether the underlying assumption is that the whistle-blower will never work again, will work but won’t be promoted, or will have to retrain for a new profession. No one yet knows what civil juries or federal-court judges will accept.

Final Straw at Coke

From that perspective, Matthew Whitley represents all the reasons whistle-blowers are more to be pitied than feared. As he tells it, losing his $140,000-a-year job was the final straw in what had been a long personal battle against earnings management.

In his 11 years at Coke, 9 of them as an internal auditor, the 37-year-old Whitley claims he caught various attempts to minimize current expenses, using such techniques as stretching out capitalization periods or booking payments to bottlers as assets. Under previous CEO Robert Goizueta, he says, such concerns were heard and addressed. Since Goizueta’s death in late 1997, though, Whitley says he has seen a progressive deterioration in accounting controls and an increasing reluctance to fully correct problems.

For example, Whitley led an internal investigation in 2001 that found vice president John Fisher had used fraudulent marketing schemes to sell Frozen Coke products and equipment to Burger King. Since the scheme violated Coke’s code of conduct, among other problems, Whitley recommended the executive be fired. Instead, Coke’s audit committee, which includes Warren Buffett, simply demanded that Fisher forfeit half of his 2000 bonus and 2001 stock-option award. Fisher was later promoted to a senior vice president post, while Burger King was allegedly never informed of the incident.

When outsider Steve Heyer (he had been COO of Turner Broadcasting) was promoted to COO in December 2002, Whitley saw hope for more systemic changes. On December 30, Whitley sent an E-mail to Heyer outlining some of his concerns about recent incidents. Heyer mailed back an invitation to provide more details, and a month later Whitley sent Heyer an E-mail with a nine-page memo attached, listing many of the violations of Coke’s code of conduct he had helped investigate and the subsequent light punishments that generally resulted.

Heyer, who through a spokesperson claims he received but never opened the twice-sent attachment, never responded, according to the complaints Whitley filed in May. Nor did any word come from CFO Fayard, with whom Heyer had indicated he would share the memo. But in mid-February 2003, Whitley received the worst performance review of his career, according to his complaint, after a history of above-average marks and positive comments about his integrity. On March 26, he was laid off as part of a companywide reorganization.

When Heyer stopped responding to Whitley’s ongoing attempts to follow up by E-mail, Whitley sent a copy of the memo to Coke’s general counsel, Deval Patrick, in mid-March, offering to meet with him. Whitley says he continued to press for a meeting after his layoff, but finally gave up in order to file for whistle-blower protection within the 90-day window.

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