Rewards for Whistle Blowers: A Solution for SOX? (By Guest Blogger Terry Morehead Dworkin)
As promised, here is a guest post by whistle blowing scholar Terry Morehead Dworkin:
"Merck to pay $671 million for bilking Medicaid." This headline from Friday's paper illustrates the tremendous success the False Claims Act has had in recovering large sums for the federal treasury. In this case Merck settled charges that it routinely overcharged the government for its most popular medicines. The whistleblower who brought the evidence forward will receive about $68 million for his role. The Justice Department is looking into 630 other whistleblowing claims. In almost all False Claims Act cases in which there is a recovery, the whistleblower gets a million or more. The reward structure has greatly increased whistleblowing about fraudulent claims for federal funds.
The Sarbanes-Oxley Act (SOX) relies on whistleblowers to help enforce it. It tries to promote whistleblowing through requiring companies to set up anonymous whistleblowing procedures, protecting whistleblowers from retaliation, and providing criminal penalties for intentional retaliation. It does not give rewards though. While most employees who work in companies covered by SOX thought they were protected when they blew the whistle, this has proved to be an illusion. SOX whistleblowers are most commonly fired, and they have been unable for a variety of reasons to get redress. Not surprisingly, whistleblowing has gone down under SOX. Because of these problems, many are calling for changes in the law, including a reward system similar to that in the FCA.
Suppose that you are working for a company and that you discover that it is misleading shareholders and the public about its financial stability. Would you blow the whistle? Would you be more likely to if you got a reward? If your answer to the latter is yes, how much do you think would be just compensation for the risks invovled? Who should have to pay for the reward?
"Merck to pay $671 million for bilking Medicaid." This headline from Friday's paper illustrates the tremendous success the False Claims Act has had in recovering large sums for the federal treasury. In this case Merck settled charges that it routinely overcharged the government for its most popular medicines. The whistleblower who brought the evidence forward will receive about $68 million for his role. The Justice Department is looking into 630 other whistleblowing claims. In almost all False Claims Act cases in which there is a recovery, the whistleblower gets a million or more. The reward structure has greatly increased whistleblowing about fraudulent claims for federal funds.
The Sarbanes-Oxley Act (SOX) relies on whistleblowers to help enforce it. It tries to promote whistleblowing through requiring companies to set up anonymous whistleblowing procedures, protecting whistleblowers from retaliation, and providing criminal penalties for intentional retaliation. It does not give rewards though. While most employees who work in companies covered by SOX thought they were protected when they blew the whistle, this has proved to be an illusion. SOX whistleblowers are most commonly fired, and they have been unable for a variety of reasons to get redress. Not surprisingly, whistleblowing has gone down under SOX. Because of these problems, many are calling for changes in the law, including a reward system similar to that in the FCA.
Suppose that you are working for a company and that you discover that it is misleading shareholders and the public about its financial stability. Would you blow the whistle? Would you be more likely to if you got a reward? If your answer to the latter is yes, how much do you think would be just compensation for the risks invovled? Who should have to pay for the reward?
posted by Professor Prenkert at
1:21 PM
2 Comments:
Personally, if I knew there was illegal activity going on within the company I was working for, I would blow the whistle, regardless of any money that would be given to me. I think many people believe that money is a wonderful motivator in getting employees to come forward with information or to promote employee satisfaction. This to me would not be the case. I would think that open communication between an employee and their bosses or higher-ups within the corporation would be a better way in solving problems. If there was an open communication between the two parties I feel like the company would be better equipped in handling situations that would involve whistle blowing. If the employee – employer relationship is built on trust whistle blowing might not be needed in many situations.
For those who seek compensation for doing the right thing, it might be possible to award this in regards to time lost or job loss, if that occurred. It might be the employee’s yearly salary plus something monetary that would be on a sliding scale depending on how much of a risk the whistle blower took. I think the corporation should be the one to pay the whistle blower, especially if the whistle blower does not draw media attention and keeps it in house. I still feel like money is not the key to promote whistle blowing. By having cooperation and interest in employee issues this would promote a better work environment and thus allows whistle blowers the opportunity to speak their mind without living in fear that they could lose their job in order to better the company.
I think that in many cases the wrongful act by the company would have to be fairly severe for many people to blow the whistle without compensation. What I'm trying to say is that when a company is doing minor infractions employees would likely not blow the whistle if the only thing that they got out of it was a good night's sleep and being fired.
Because of that I feel that the FCA does do a good job of getting employees to come forward with incriminating evidence while the SOX almost hinders this activity.
As for who should then compensate the whistleblowers is very intriguing. In small claims issues, I feel the company should pay but what happens when the company is in way over its head like an Enron. After Sherron Watkins blew the whistle Enron could hardly pay the parking meter yet alone employees.
I understand why people think that employees would blow the whistle when ever they get the chance. Everyone wants to believe that society as a whole is honest and trustworthy. But it is not that easy, which is why compensating whistleblowers would be helpful in controlling these companies but where the compensation comes from is a difficult question. It's just not that easy.
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