Support for Whistle-Blowers

Whistle-blowing takes guts. If you're aware of some shenanigans at your company, for example, sounding an alarm isn't a surefire way to be profiled on "60 Minutes," to be named Time magazine's Person of the Year, and to earn the thanks and respect of thousands, if not millions. Instead, many whistle-blowers simply find themselves punished for heeding their consciences. At work they may be discriminated against, harassed, or fired. They may even find it difficult to land another job, what with the recommendation-from-your-former-employer issue and all.

Fortunately, media exposure surrounding some high-profile whistle-blowers over the past few years has helped usher in new protections for whistle-blowers. (In 2002, for example, Time named three whistle-blowing women, who exposed the underbellies of Enron, WorldCom, and the FBI, as "Persons of the Year.") The new rules were introduced with the 2002 Sarbanes-Oxley investor protection legislation that protects whistle-blowers from, among other things, retaliation.

Bill Mann noted some drawbacks to the "Sarb-Ox" rules recently, and he made some good points. Notably, it's expensive for companies to comply with all the new rules, so some companies (especially smaller ones) are finding it hard to remain public. Still, there's good with the bad. Back in 2002, Daniel Westman, who litigates whistle-blower cases, penned an article for the Fool explaining that protecting whistle-blowers is critical if we're to maintain trust in our markets.

If you're wondering how this new protection is being presented to the world, look no further than many companies' "whistle-blower policies," often available on corporate websites. Here are a few examples:

RadioShack says, among other things, "It is the policy of RadioShack Corporation that it will not tolerate harassment, retaliation or any type of discrimination or adverse action against an employee ('whistle-blower') who. makes a good-faith complaint." Herman Miller says, "Retaliation against any employee that files a Report or voices a concern under this policy is strictly prohibited." Smith & Wesson explains that it will protect those who report possible violations in good faith, "even if the report is mistaken."

Many companies encourage whistle-blowers to speak out via independent, third-party companies that specialize in such communications. An example is EthicsPoint, whose technology "was developed specifically to expose and combat employee fraud and other workplace malfeasance."

Assuming that corporate whistle-blower policies across the nation are effectively enforced, they're very encouraging developments for investors. Investing in a firm always requires a degree of trust on the part of investors, as we're expected to believe information presented by management. It can only help if we know that employees feel more free to raise red flags.

LongtimeFoolcontributorSelena Maranjian does not own shares of any companies mentioned in this article.

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  • Report this Comment On February 08, 2012, at 9:00 PM, MHedgeFundTrader wrote:

    Buried in the recently passed Dodd-Frank financial reform bill are massive financial rewards for turning in your crooked boss. The SEC is hoping that multimillion dollar rewards amounting to 10%-30% of sanction amounts will drive a stampede of whistleblowers to their doors with evidence of malfeasance and fraud by their employers.

    If such rules were in place at the time of the settlement with Goldman Sachs (GS), the bonus, in theory, could have been worth up to $500 million. Wall Street firms are bracing themselves for an onslaught of claims, legitimate and otherwise, by droves of hungry gold diggers looking for an early retirement.

    Don't count on this as a get rich quick scheme. Government hurdles to meet the requirement of a true stoolie can be daunting. The standard of evidence demanded is high, and must be matched with the violation of specific federal laws. Idle chit chat at the water cooler won't do. Litigation can stretch out over five years, involve substantial legal costs, and often lead to a non-financial settlement with no reward. For those who do deliver the goods, death threats from defendants are not unheard of.

    Having 'rat' on your resume doesn't exactly look inviting either. Just ask Sherron Watkins, the in-house CPA who turned in energy giant Enron's Ken Lay, Andy Fastow, and Jeffrey Skilling just before it crashed in flames. Nearly a decade later, Sherron earns a modest living on the lecture circuit warning of the risks of false accounting, and whistleblowing. There have been no job offers.

    The Mad Hedge Fund Trader

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