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7.2 Third-Party Obligations: Tattling, Reporting, and Whistle-Blowing

Learning Objectives

  1. Define third-party obligations.
  2. Elaborate three standard responses to third-party obligations.
  3. Define whistle-blowing.
  4. Consider justifications and requirements for whistle-blowing.

Caught in the Crossfire

A hypothetical situation. You work at Omnicom, at the desk next to Chris Foreman. Like him, you’re an assistant media buyer. Though your area of concentration is distinct (you’re in charge of placing ads on radio stations) you team up with him from time to time to run numbers, and you know enough about how it all works to recognize when something’s going wrong. In your opinion, it is. Chris is sending ads to Forbes that would deliver more for the client if they’d been placed in BusinessWeek. Further, you believe he’s doing it in exchange for the gifts. You can’t prove that but you do know this: he’s occasionally supplementing his lousy income by selling some of what he’s receiving—concert tickets, vouchers for limo service, things like that—on eBay. You’ve tried talking about it, bringing the subject up one way or another, but he doesn’t want to talk back. And when you say it directly, when you ask whether it’s right to accept gifts from Forbes and convert them to money, he laughs. “Everyone does it,” he says.

This situation is different from most of those discussed so far for an important reason: you’re not directly faced with an ethical dilemma; you’re not the one placing the ads or accepting the gifts. Still, you do work with Chris, sometimes even sending over marketing data that he uses for his accounts. You’re a third partyA person exposed to, and caught up in a situation of conflict or ethical tension between others., which in this situation means you’re not directly responsible for what’s going on but you’re caught in the cross fire between Foreman and Forbes magazine.

There are infinite variations on this kind of predicament. The financier-fraudster Bernie Madoff asked his secretary to cover up his affairs by answering his wife’s phone calls and saying he was in a meeting and couldn’t be interrupted. In the student union of your campus, maybe the breakfast menu offers omelets cooked with fresh eggs, but you work there and know the manager occasionally messes up the stocking order and so ends up selling omelets made from a preordered mix of egg-like chemicals. What do you do? It can be a hard call and at least two questions arise on the way to making it:

  1. You need to decide if something truly unacceptable is happening.
  2. You’ve got to determine whether it’s any of your business.

If, finally, something unacceptable is happening and you should do something about it, you’re facing a third-party obligationAn obligation by a third party to respond to an ethical tension directly caused by others.. This is an ethical responsibility to correct something you’re not actually doing.

Why Should I Get Involved? Ethics and Self-Interest

When confronted with a third-party obligation, employees may get involved for a number of reasons. One is as a response to an ethical responsibility. Another: as an opportunity to benefit themselves.

TattlingUsing a third-party obligation as an excuse for sabotaging a workmate., as any child knows, is revealing an ethical transgression involving others, and revealing it for your own benefit. Take the case of assistant media buyer Chris Foreman and another assistant media buyer who learns that Foreman is shortchanging the ad agency’s client for personal benefit. If you’re that other assistant media buyer and you’re crafty, you may see not only an ethical lapse here but also your own personal chance. Every senior media buyer has several assistants underneath, and when the time comes for promotion, there’ll be space, presumably, for only one assistant to advance. Getting Foreman out of the way may not be a bad career move.

It’s an extremely ambiguous ethical move, however. On one hand, there’s solid justification for getting the truth known about Foreman. He’s clearly not fulfilling his professional obligations to the company. However, if you turn him in because that’ll give you a leg up on the promotion ladder, you can hardly say that ethical righteousness has driven your action. On the other side, this should also be noted: the fact that you may benefit from revealing unethical behavior probably can’t justify keeping everyone in the dark.

Typically, we think of ethical restrictions as painful, as obstacles you put between yourself and what you really want. That’s not always the case, though; they don’t necessarily make you suffer, they may make others suffer and serve your interests. When they do, you have weaponized ethicsUsing ethical rules against the interests of others for personal gain.—that is, perfectly reasonable moral dictates used to attack others and benefit yourself. Tattling, finally, is the use of weaponized ethics, it’s doing the right thing for selfish reasons.

Responding to a Third-Party Obligation: Reporting

Regardless of the motivation for responding to a third-party obligation, there are two broad paths the response can take: reporting and whistle-blowing.

ReportingBringing to light only within the organization information about misdeeds by the organization or by an individual within the organization. ethical transgressions means bringing them to light, but only within the organization. In most situations, this route is the most direct way for third parties to balance their basic and immediate obligations. Staying with the advertising scenario where you believe Foreman is essentially accepting bribes from Forbes, you have an obligation not only to halt the bribery but also to protect the agency’s interests. Obviously, a noisy public blowup about Foreman misspending a client’s money is going to damage the advertising company’s business. Reporting—because it stays inside agency walls—promises to rectify the bribery without causing larger publicity problems.

Bringing this into the real world, because reporting ethical problems does allow them to be addressed without harming the agency, the Omnicom Code of Conduct includes this:

All reports of possible violations about which management becomes aware will be promptly considered. We will not punish any employee or representative for making any report in good faith.“Code of Conduct,” OmnicomGroup, last updated October 16, 2008, accessed May 19, 2011, http://www.omnicomgroup.com/corporategovernance/codeofconduct.

It’s in Omnicom’s interest to get ethical dirty laundry washed in-house.

Up to here, the situation’s resolution has come easily. But there’s another, potentially complicating, obligation to consider: the human link to Chris Foreman. Almost all organizations rely on and seek to nurture bonds of shared responsibility and dependence between employees: in working life, when someone’s sick or just having a bad day, the others have to pick up the slack. That nurturing explains why anyone who’s entered a fast-food restaurant knows the workers aren’t “coworkers” but “teammates.” In most organizations, some form of the camaraderie holds, and you can’t just break those bonds from one moment to the next. That means if you’re working with Foreman and you know he’s doing wrong, you may well feel an obligation to not report anything because you don’t want to cause him problems. Reporting, the conclusion is, a coworker for ethical lapses is easy. But in the real world there are no coworkers; there are only flesh and blood people.

Next, even if those human connections to others don’t move you, you also have obligations to yourself and your own welfare to consider, and turning others in to company authorities can ultimately come back against you. By giving rise to distrust and possibly resentment among other colleagues who fear they may be the next ones to get reported, you may be in essence isolating yourself in your own cubicle.

In the end, seeing what Foreman is doing and stretching ethical obligations through the situation, you may find yourself torn between reporting him and not. There’s no automatic resolution to this dilemma, only the attempt to weigh the obligations and get a sense of which outweigh the others.

Responding to a Third-Party Obligation: Whistle-Blowing

Whistle-blowingBringing to light outside the organization information about misdeeds by the organization or by an individual within the organization. is bringing ethical transgressions to light publicly outside the organization. A recent case involved one of the many advertising agencies gathered under the Omnicom umbrella, Leo Burnett. Two employees—Vice President Greg Hamilton and Comptroller Michelle Casey—alleged, and a subsequent federal investigation backed them up, that Leo Burnett was overbilling the government for their work on the US Army’s “Army of One” recruiting campaign.

The agency was supposed to calculate its hourly rate with a formula dividing charges between the more expensive work done directly in Leo Burnett’s offices and the less costly hourly labor performed by subcontractors. What Leo Burnett did was simple: they billed subcontractor work at the higher in-house rate. The accounting in these massive campaigns—TV, radio, and print ads as well as sponsorships and events—is so knotted that a virtual army of accountants is required to keep track of where all the money is going. In that kind of numerical chaos, the agency could expect that switching a few hours from one column to another deep inside the mountain of paperwork would go unnoticed by outside auditors. It did go unnoticed—until Hamilton and Casey told the government what was going on.

Almost inevitably a lot of dust gets kicked up when employees turn on their employers noisily and publicly. In this case, the US Justice Department lawyers rode in, and they probably wanted a scalp on their wall: they have limited resources, limited time and money, and when they take something on they want to win, and they want people to know about it. Back on the agency’s side, they’re going to defend themselves, and that typically entails attacking their accusers, maybe labeling them disgruntled, incompetent, or worse. In this case, there was also a tug-of-war over money. The agency obviously wanted to keep as much as it could, the government wanted money back, and thanks to the False Claims Act, Hamilton and Casey also demanded their share, which came to almost $3 million.

The False Claims Act is a federal law designed to encourage whistle-blowing on private contractors who are attempting to defraud the government. Whistle-blowers are entitled, under the law, to 30 percent of the damages the government obtains. The incentive doesn’t apply to situations involving only private companies, but even there whistle-blowers may encounter suspicions that ulterior motives—not a dedication to doing the right thing—finally spurred their loud assertions about misdeeds.

Finally, with respect to the Leo Burnett fraud, the full details will never be known. Because the case never went to trial, there was little public exhibition of evidence and testimony. To head the whole mess off, Leo Burnett agreed to settle. In the words of a published report, “Leo Burnett denied any wrongdoing and said in a statement that it agreed to the settlement ‘to avoid the distraction, burden and expense of litigation.’”Mehhen Streit, “Leo Burnett Settles Suit for $15.5 Million,” Chicago Business, January 6, 2009, accessed May 19, 2011, http://www.chicagobusiness.com/cgi-bin/news.pl?id=32498.

Every case of whistle-blowing is different, but a few questions get to the heart of most instances:

  • What, exactly, is whistle-blowing?
  • What justifies whistle-blowing?
  • What weighs against whistle-blowing?
  • Can the whistle-blower expect protection?
  • Is whistle-blowing morally required?

What Is Whistle-Blowing?

Whistle-blowing is bringing an organization’s ethical transgressions to public light. Spilling the beans to the family over dinner, however, doesn’t count; the truth must be exposed to an authority or institution capable of taking action. In the case of the advertising agency, Hamilton and Casey took their information to the federal government. They also could have selected one of the important industry publications—say, Advertising Age magazine. Any information published there would draw attention from those involved and give the client (in this case the US Army) the opportunity to act on behalf of its own interests. The news media—a newspaper, a TV station—may have been a possibility in this case, given the large scope of the fraud and the national interest underneath it. Other possibilities could be listed, but what’s important is that the report of misdeeds goes to someone who can do something about it (or at least provoke others to do something). Finally, whistle-blowing may be anonymous. However, in practical terms, that’s frequently not a real option because government authorities, like private ones (editors of industry publications and so on), are far less likely to spend time tracking down the truth about accusations when even the accuser is unwilling to stand behind them.

What Justifies Whistle-Blowing?

Whistle-blowing needs careful justification because it requires violating the obligation any employee has to protect the interests of the employer. Here are five items that could be checked before publicly lighting up an organization’s misdeeds from the inside. Importantly, the fact that the items may all be checked doesn’t oblige action, but it does raise the possibility as ethically justifiable.

  1. There is clear evidence of continuing wrongdoing by the organization or continuing effects of past wrongdoing. In the business world, actions that are entirely locked in the past are the subject of history, not ethics.
  2. The wrongdoing must be serious. In the case of Leo Burnett, the case wouldn’t cross this threshold if only one hour of labor had been attributed to the higher-cost office. But the threshold would be crossed if the agency significantly overcharged many hours for years, bleeding the account of its resources and ultimately damaging the army’s ability to recruit new, top-flight soldiers.
  3. The organization’s established, internal channels for reporting and correcting problems have been exhausted. Most organizations provide clear ways for employees to voice concerns internally. A conversation with a supervisor is an obvious example. At larger organizations, sometimes an entire internal department has been mounted to receive and act on the concerns of employees. Here’s the web page of a typical example; it links to Walmart’s internal department for ethics: http://ethics.walmartstores.com/Statementofethics/RaiseAConcern.aspx. Whether, finally, there’s a clear, formal route for internal reporting or not, employees have a responsibility to try to resolve problems in ways that benefit—or do the least possible damage to—the organization, and therefore the possibility of raising concerns internally needs to be explored fully. (As always, there are special cases. If, for example, the CEO of a small advertising company is robbing its client’s money, there may be no internal route to resolution, leaving external whistle-blowing as the only moral corrective. Also, though whistle-blowing is defined as taking action outside the organization, the definition could be stretched to include the act of bringing wrongdoing to light directly before high officials within an organization by skipping over the normal chain of authority.)
  4. There’s unmistakable and convincing evidence of misconduct. The evidence must be unmistakable in the sense that it clearly indicates wrongdoing; it can’t be that an innocent explanation seems as likely as a guilty one. In the Leo Burnett accounting books, if it turns out that on one page all the internal hours are in the external hours column and vice versa, that may be an attempt to defraud the government, or it may just be that the data-entry guy came to work one morning hung over and ended up confusing the numbers. Further, the evidence must also be compelling in the sense that there’s enough of it for a reasonable person to conclude the misdeeds are actually occurring. So even if you’re certain numbers are being entered incorrectly intentionally, but it turns out that the difference—the amount of extra money Leo Burnett is making—is trivial, then it’s going to be hard to justify creating a stink. It may be, for example, that someone in the accounting department is making small adjustments in order to balance errors found elsewhere in the giant balance sheet.
  5. There’s reason to believe that whistle-blowing will resolve the problem. In the case of Leo Burnett—or any business that’s overcharging a client—you can be pretty sure that bringing the fraud to light will spark action, at least by the defrauded client. On the other hand, if you’re in the production department of the advertising agency (in other words, you’re actually filming commercials) and you regularly get shipped down to Mexico to shoot campaigns because everything’s cheaper down there and you learn that some of the extras in the commercial’s background are working longer hours than local regulations allow, you might reasonably figure that you can talk all you want in public, but it’s not going to make any difference.

What Weighs against Whistle-Blowing?

The three heaviest arguments against whistle-blowing are

  1. legal requirements for confidentiality,
  2. prudential concern for one’s career and personal welfare,
  3. an employee’s sense of loyalty to the organization.

A legal requirement for confidentiality may weigh against whistle-blowing by binding employees to not share a company’s internal information. The requirement traces back to a section contained in many work contracts. Called a confidentiality clauseA clause in many work contracts wherein employees promise not to share certain information with those outside the organization., here’s a basic version:

Employees may have access to records and other information about customers and other employees, including proprietary information, trade secrets, and intellectual property to which the Company holds rights. Employee agrees to keep all such information strictly confidential and to refrain from discussing this information with anyone else without proper authority.

While this is most directly aimed at protecting consumer information (say, credit card numbers) and company trade secrets (Coke’s secret formula), it may also be read as safeguarding the kind of information a whistle-blower wants to make public. In the case of the Leo Burnett agency, what Vice President Hamilton and Comptroller Casey told the government did, in fact, involve “records and other information about customers.”

The second major argument against whistle-blowing, self-interest, operates in both the professional and personal sense. Turning against the company may be the right thing to do, but it’s almost inevitably a painful thing to do, at least according to a survey published in the New York Times. What condition, the study sought to determine, do whistle-blowers find themselves in a few years afterward?

  • One hundred percent who worked for private business were fired.
  • Twenty percent could still not find work at the time this survey was taken.
  • Seventeen percent lost their homes.
  • Fifty-four percent had been harassed by peers at work.
  • Fifteen percent viewed their subsequent divorce as a result of whistle-blowing.
  • Eighty percent suffered physical deterioration.
  • Eighty-six percent reported significant emotional stress (depression, anxiety).
  • Ten percent reported having attempted suicide.Survey cited in Manuel Velasquez, Business Ethics: Concepts and Cases, 6th ed. (Upper Saddle River, NJ: Pearson, 2006), 378.

It doesn’t sound good. Of course every case is different, and if you look on the other side of these numbers, they leave room for the possibility that at least some people do the right thing and get on with their lives just fine. Still, there are no guarantees and ethics isn’t only about duties to others and the world outside, all of us have equal duties to ourselves: duties to maximize our potential, protect those nearest to us, and defend our own welfare.

Finally, the values and reasons supporting loyalty as a reason for not blowing the whistle will be considered in their own section further on.

Protecting the Whistle-Blower

As the survey data about whistle-blowers reveal, there’s not a lot of protection for them. That isn’t for a lack of trying, however. At both the state and federal levels, reams of laws have been enacted to protect those who expose wrongdoing organizations. Perhaps the most notable is the Sarbanes-Oxley ActPassed in 2002 by the federal government, the legislation regulates some businesses’ finances and transparency. The act also provides some protection to some whistle-blowers.. Passed in 2002 by the federal government as a response to a series of disastrous accounting frauds at large companies, Sarbanes-Oxley is a massive piece of legislation intervening in many parts of the business world, and especially in aspects connecting to an organization’s finances and transparency.

Specifically with respect to whistle-blowers, the law attempts to encourage it by protecting whistle-blowers at publicly traded companies that report activities to government agencies. (The act doesn’t apply to privately held firms dealing exclusively with other private firms.) Employers are prohibited from taking retaliatory action (firing, demoting, harassing), and whistle-blowers are provided clear avenues for lawsuits should such retaliation occur. Here’s the legislative language: “In order to establish a case under Sarbanes-Oxley, an employee must prove that she (1) reasonably believed that her employer was breaking the law; (2) engaged in whistleblowing activity as defined by the statute; (3) suffered an adverse employment action; and (4) that there was a causal connection between the whistleblowing activity and the adverse employment action.”Welch v. Cardinal Bankshares Corp., 2003-SOX-15 at 35 (ALJ 2004).

The problem is that last clause. Everyone who’s ever had a job knows that mistakes happen every day. Deadlines are missed, projects contain errors, goals aren’t met. Bosses who have it in for you aren’t going to have many difficulties converting those mishaps into reasons for denying wage hikes and even outright firing. In your heart you may know—everyone may know—that you’re suffering retaliation for reporting the company, but proving it can be difficult.

The bottom line is—and as the previous survey shows—if you publicly divulge information seriously damaging your employer, you’re probably going to be gone. And even if you find some protection in one or another law, it’s difficult to imagine that your career is going anywhere inside the company. Worse still, prospective new employers are, very likely, going to hesitate before extending a job to someone who has already caused serious problems for a former employer. Taken all together, the bleak reality is that in most cases whistle-blowers can’t count on getting back the life they had before they publicly disclosed their organization’s misdeeds.

Is Whistle-Blowing Morally Required?

Given the abundant reasons—financial, professional, emotional, and ethical—against whistle-blowing, are there any cases where a moral argument can be formed to require publicizing an organization’s unethical actions? Probably, but they’re few. Here’s a possible rule of thumb: whistle-blowing is required when the act can prevent harm to others in ways that are serious and go beyond the bottom line. If someone is getting ripped off, the reasoning goes—if an advertising company is overcharging its clients—whistle-blowing may be justified, but not required. All that’s at stake is money. On the other hand, if a nuclear power plant is being constructed near a residential area and you learn the contracting company you work for is using cheap cement to boost the profit margin, it seems as though you have little choice—the weight of elementary personal integrity in the face of potentially lethal wrongdoing probably requires personal sacrifice.

What about the hypothetical Chris Foreman situation? You’re working with him and have acquired sufficient evidence to know that he’s selling out his client by sending their ad dollars to Forbes magazine in exchange for Highlander nights. You’ve reported the matter internally and received no response. Do you go public? You’d certainly be justified in taking the story to Ad Age magazine. Just running down the list of conditions justifying whistle-blowing, they all get checked:

  1. There’s clear evidence of continuing wrongdoing by the organization.
  2. The wrongdoing is serious (at least in the world of advertising).
  3. The organization’s established, internal channels for reporting and correcting problems have been exhausted.
  4. There’s unmistakable and convincing evidence of misconduct.
  5. There’s reason to believe that whistle-blowing will resolve the problem.

The question remains, however, whether the issue affects life beyond business and the bottom line. It doesn’t appear to. At bottom, this is the case of a client—AT&T mobile phone services—getting poor service from an Omnicom company. That should be corrected, and presumably market forces will correct it sooner or later, but whether they do or don’t, there’s no requirement here to seriously jeopardize your own financial, professional, and emotional welfare.

What about the case of Leo Burnett? Again here a client is getting a raw deal, but there’s an important difference: this is the army, not a telephone company. If it’s true that the recruiting budget is being seriously hindered, the situation may be crossing the line from justified whistle-blowing to justified and required. If it does cross that line, the reason will be that protecting your own financial and emotional welfare is trumped by the responsibility to help soldiers in war resist mortal danger as totally as possible. The fact that the army isn’t getting the best recruits possible doesn’t just affect people in the pocketbook, it threatens those on a live battlefield. Faced with that reality, it will be hard for individuals including Burnett employees Hamilton and Casey to keep quiet just because they don’t want to lose their jobs.

Key Takeaways

  • Third-party obligations arise when you know of wrongdoing by an organization or by individuals within it, and though you aren’t directly at fault, you’re in a position to correct the problem.
  • In some cases, third-party obligations can be opportunities to sabotage a fellow worker for personal gain.
  • Responses to third-party obligations include reporting the problem inside the organization for correction and publicizing the problem, also known as whistle-blowing.
  • Because whistle-blowing harms the organization, employees must take into account their responsibility to defend the organization’s interests before publicly decrying the wrongdoing.
  • In some cases whistle-blowing is not justified, in some it is, and in some extreme cases, whistle-blowing may be ethically required.
  • In practical terms, whistle-blowing can be devastating for the employee.

Review Questions

  1. Create a hypothetical third-party obligation involving an employee of a major company.
  2. What does it mean to deploy weaponized ethics?
  3. What questions can be asked to help determine whether whistle-blowing is justified?
  4. What questions can be asked to help determine whether whistle-blowing is ethically required?
  5. Why might an employee hesitate before whistle-blowing?
  6. The Sarbanes-Oxley Act tries to protect whistle-blowers. Why is it not very effective?