External Whistle-Blowing as an Issue in Management Ethics - Term Paper Example

ETHICS AND WHISTLEBLOWING INTRODUCTION Management of organizations entails setting up ethical standards that both management and employees must adhere to create a sense of decorum within the organization as well as set a standard of mutual respect and cohesion among employees. BNET Business Directory defined ethics in business also known as morality in business as a “system of moral principles applied in the commercial world”. It further said that “business ethics provide guidelines for acceptable behavior by organizations in both their strategy formulation and day-to-day operations” (http://dictionary.bnet.com). Loyalty is one of the basic tenets of business or corporate ethics. The concept of whistle blowing raises the issue of loyalty for the organization. However, such loyalty is questioned when the whistleblower refers the misconducts within the organization to outside entities such as the government, media or other independent parties. Objectives This essay discusses external whistle blowing as an issue in management ethics. The following are the specific objectives of this essay: a. To discuss the concept of whistleblowing, particularly external whistleblowing, in organizational ethics. Any reference to whistleblowing in the foregoing discussion refers to external whistleblowing unless otherwise stated. b. To discuss the advantages and disadvantages of external whistleblowing to the whistleblower and his employer. c. To cite examples in discussing the advantages and disadvantage of external whistleblowing. Limitation of Scope of Discussion Discussions on the essay are limited on sources found in journal articles in print and online. Further, the discussion is limited to external whistleblowing in the business sector. It also uses some general insights on external whistleblowing from the public sector to support the discussion related to the issue of external whistle blowing in the business sector. EXTERNAL WHISTLEBLOWING What is Whistleblowing? A commentator noted whistleblowing as the situation where the whistleblower discloses illegal, immoral, or illegitimate actions of their employers to a person or organization that can help him correct such action and provide effective solution (Miceli and Near, 1985 cited in Appelbaum, Kirandeep, Mousseau, 2006:7). It acts as an alarm within an organization to highlight abuses that threatens the interest of the public (Bok, 1980 cited in Beauchamp and Bowie, 1993: 305). External whistleblowing, then, is the disclosure of unethical practices within an organization by current or former employees to a person, group of persons or an organization that are not directly related or connected to the organization where unethical practices happened. It is actually the form of whistle blowing that generates much controversy than internal whistleblowing. The latter limits the report of unethical acts within the organization, thus, avoiding public scandal particularly for high profile companies. Whistleblowing basically involves unauthorized disclosure of company information. It means that the disclosure of information did not go through the standard channel of complaint outlined by business organizations in its company rules and regulations (Bakman, F., 2004). As a Controversial Issue Appelbaum, et al noted that “the main reason why whistleblowing is such an important issue is that it has to do with the fact that many public and corporate wrongdoings are never disclosed” (2006:7). The consequences of disclosing such wrongdoings might be detrimental to the operations of businesses and impact on various people and organizations directly or indirectly reliant to its operations. Thus, the organization itself and the public perceive external whistleblowing, in particular, differently. Advantages Whistleblowing provides advantages to the whistleblower, to the organization and to the public that the organization primarily provide its products and services. A survey conducted covering federal employees of the United States of America stated that “Whistleblowing resulted in policy, procedural, and personnel changes” (Jos, Thompkins & Hays, cited in AIMS-HILLS, 2006). The report specifically highlights the highest percentage of change in the reporting system within the organization and the use of external investigations to resolve the source of fraud within the organization. Also, there were changes seen in the area of management through reshuffling of employees to mitigate fraud. These reported changes in federal agencies are valid and correlates to the benefits of whistleblowing to business organizations as well as to the public that procure its products and services. Not blowing the whistle on defective products produced by business firms will surely result to harmful consequences to patronizing consumers which will consequently result to bigger costs on the part of the company arising from cases of damages filed by the harmed public. A classic case illustrated in the report of Markula Center for Public Ethics mentioned the case of top management not heeding the memo of Firestone Tire Director of Development Thomas A. Robertson on the inferior quality of hundreds of tires it produced in 1972 that led to a number of accidents from tire blow outs using Firestone products (Ravishankar, L.). The company eventually incurred higher cost of replacing tires and paying lawsuits related to personal injury. The advantage on the personal level of the whistleblower mainly involves recognition for his heroic contribution to safeguard public safety. The whistleblowers of WorldCom and Enron were appointed women of the year for 2002 by Time Magazine in recognition of their heroic acts to divulge anomalous practices conducted by their respective organizations for the benefit of the government and the public (Appelbaum, et al., 2006: 11) Also, it increases the whistleblower’s sense of ethical standard to stand up for what is right in the midst of negative comments and consequences for his actions. This sense of ethical accomplishment has positive psychological effect on one’s personality and ethical standards. Further, having internationally recognized entities such as international magazines and organizations recognize such act of ethical standards encourage the public to show the same act of ethics and not to be too harsh in their judgments of whistleblowers. Whistleblowers are also given protection under the Occupational Safety and Health Administration of the United States Department of Labor. Under the OSHA fact sheet rights of whistleblowers are highlighted and list of assistance are given to help whistleblowers fearing retaliation from employers in the exercise of their ethical and legal right to complain. OSHA provides protection to employees’ whistleblowing unethical practices of their companies related to the transportation industry, environment, and corporate frauds (http://www.osha.gov/OshDoc/data_General_Facts/whistleblower_rights.pdf). Disadvantages On the Individual. The disadvantages of whistleblowing to both the whistleblower and the organization can be severe that could lead to an end of a career for the whistleblower or an end to the operation of the business organization. Take for example the case posted by the report of Manitoba Pediatric Cardiac Surgery Inquest of “the ethical dilemmas faced by individuals working in health working in health care fields is the potential conflict between loyalty to their employers, colleagues and professional standards versus duty to protect their patients against incompetent, illegal or unethical behavior” (2001:79) which shows the inherent disadvantage for an individual to blow the whistle against his own organization. He will only not lose his job but also threatened his opportunity to get the same job on the same field given that his colleagues and potential employers in the industry are wary of his loyalty when questions on the industry’s ethical standards arises. Also, employer retaliation in the form of legal suit can harm the financial situation of a whistleblower particularly if the company requires him to pay damages for the effect of his whistleblowing acts to the financial and moral condition of the organization. Further, social support to whistleblowers might not be that strong to help him go through the challenges of process of testifying and proving his case. His friends and family might not be that supportive on his decision and create conflict within his inner social circles that can cause tremendous psychological pressure in him. On the Organization. John Wright wrote in his personal analysis of whistleblowing said “management resents whistleblowing because it is implies… a threat of exposure of fraud or competence. It threatens harmony and makes for untidiness and confusion in management” (2005:1). Exposure of fraud as well as incompetence in business organizations might threaten its market performance thereby resulting to financial mishap. Management might need to file for bankruptcy as what Enron Corporation did because of accounting malpractices which resulted to its employees barred from selling their shares from their retirement accounts making them lose their future financial security (www.CNN.com). The impact of whistle blowing to business organizations might be tremendous affecting the future of its employees and other entities directly dependent on it. This is the high price of whistleblowing which shows that it is not only a case between the whistleblower and the management. It’s a complex situation involving many people and depending on its magnitude can create a significant impact to a country’s macro and micro economic fundamentals. It can lead to increase in unemployment, threaten job security and overall domestic output. Also, the underlying reason for fraud leading to whistleblowing might reveal the solidity of support and monitoring system established to effectively supervise the operation of certain industries in the economy. The case of Enron Company conniving with an accounting firm to hide the true nature of its earnings showed the lack of accountability and professionalism in the practice of accounting profession in the country that puts into doubt the credibility of respective agencies to monitor it and comply with professional regulations. Such doubt could lead to public cynicism that can be detrimental for healthy political and economic endeavors. CONCLUSION This essay tried to discuss the idea of external whistleblowing as an issue of ethical standards in business or corporate organizations. It discussed the advantages and disadvantages it posed to the whistleblower and the organization where fraud, incompetence or illegal activities are being done. The disadvantages of external whistleblowing are heavier than the advantages it provides as shown in the salient examples of the case of Enron Company and its impact on the micro and macro economic states of both its employees, its own company and to the economy in general. Its advantages mainly focus on its individual benefits to the whistleblower and to the public in general. Thus, discounting the effect it will have on various employees who rely on their income from the very organization being put into question publicly. External whistleblowing is a complex issue that merits complex consequences. The complexity and veracity of its consequences, however, makes it the last situation that every individual and business organization want to be in. Thus, it is better for organizations to set up a system that encourages internal reporting of discrepancies and fraud within the organization such that problems are settled internally and resort only for outside help when settling issues that can be dealt with by third parties. Support systems from the government and other independent parties must be strengthened to ensure that business organization in various industries follow industry standards. Business organizations, government agencies and other independent parties must work hand in hand in setting up effective monitoring tools to ensure compliance to regulations and professionalism in the provision of products and services in every industry. REFERENCES 1. AIM-HILLS. Whistleblowing in the Philippines: Awareness, Attitudes and Structures. May 19, 2006. http://www.aim-hills.ph/projectpage/prs/research36.html, 05 May. 2. Appelbaum, S.H., Grewal, K. & Mousseau, H. 2006. Whistleblowing: International Implications and Critical Case Incidents. The Journal of American Academy of Business, 10(1):7-13. 3. Beauchamp, T, & Bowie, N. 1993. Ethical Theory and Business. New Jersey: Prentice-Hall, Inc. 4. BNET Business Dictionary. Business Definition for: Business Ethics http://dictionary.bnet.com/definition/business+ethics.html 5. Chapter 6: The duty of Loyalty Versus the Duty to Inform. Report of the Review and Implementation Committee for the Report of the Manitoba Pediatric Cardiac Surgery Inquest. http://www.gov.mb.ca/health/documents/cardiac/07prc6.pdf 05 May 6. Bakman, F. 2004. The Management of Whistleblowing in the Financial Sector, Chapter 2: Whistleblowing and How It Can Become the Management of Confidential Reporting System. Electronic Theses and Dissertation Database. University of Johannesburg. http://etd.rau.ac.za/theses/available/etd-09012004-101646/restricted/chapter2.pdf, 09 May. 7. Explaining the Enron Bankruptcy. CNN.com/US. http://archives.cnn.com/2002/US/01/12/enron.qanda.focus, 09 May. 8. Lilanthi Ravishankar; Encouraging Internal Whistleblowing in Organizations; Markula Center for Applied Ethics. Santa Clara University, http://www/scu.edu/ethics/publications/submitted/whistleblowing.html, 03 May. 9. OSHA FACTSHEET: Your Rights as a Whistleblower. http://www.osha.gov/OshDoc/data_General_Facts/whistleblower_rights.pdf 09 May 10. Wright, J.; Looking Back a Personal Analysis of Whistleblowing. Sydney, December 2005. http://www.uow.edu.au/arts/sts/bmartin/dissent/documents/Wright/Wright05.pdf, 09 May. Read More