Bigger bonuses for whistle-blowers: Are they ethical?
Under a new law, whistle-blowers can earn up to 30 percent of the funds the government recovers in fraud. For Wall Street whistle-blowers, that can mean big payouts.
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Companies, led by the likes of Microsoft and the US Chamber of Commerce, have roundly criticized the proposed rules for failing to require whistle-blowers to report internally before going to the SEC. In commenting to the SEC, an AT&T attorney writes that proposed rules "may actually undermine AT&T's programs and encourage unethical conduct."Skip to next paragraph
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For example: Instead of speaking up when there's a potential future violation, an employee could avoid voicing his concerns until a significant violation occurred – all in order to collect a reward, writes Wayne Watts, AT&T senior executive vice president and general counsel. "In a bizarre twist, the whistle-blower may be incented to encourage the violation."
The Securities and Exchange Commission is reviewing feedback on proposed rules that would allow whistle-blowers to collect as much as 30 percent of what the government recovers from violators. Payouts could be quite large since Wall Street frauds can reach into the hundreds of millions of dollars or more. Final rules are expected to be announced this month.
While it's true a worker might wait until he or she has enough evidence to bring a case (either internally or to the SEC), history with the False Claims Act suggests most whistle-blowers don't calculate their moves with payoffs in mind, says Terry Dworkin, a whistle-blowing expert and scholar-in-residence at Seattle University in Washington State. "There's not a lot of evidence that people are purposely spying on others in their company just to get a big reward."
For some scholars, the question isn't how best to realize an ethical ideal in corporate America. The ideal, Ms. Dworkin says, would be one in which workers report problems internally and resolve them without going to regulators. But, she notes, workers didn't come forward with information about government contracting fraud to any significant degree before bounties existed under the False Claims Act. Hence, in her view, there needs to be room for something less perfect – a monetary incentive system for those who take big personal risks – if regulators are going to smoke out wrongdoers.
"There may be some companies that would be perfectly well served if employees would come to them first," says Ann Buchholtz, research director at the Institute for Ethical Leadership at Rutgers Business School in Newark, N.J. "But there are other companies where [such a requirement] really does put the whistle-blower at risk.... And if we really want these problems brought to light, we can't put obstacles in the way of whistle-blowers."