The country owes a great debt to whistle-blowers but for a company, a revelation can be a corporate earthquake writes Ita Gibney.
Psychologists have a saying that “you are only as sick as your secrets” and psychotherapy has taken off as people deal with their issues through counselling, confessional memoirs, forgiveness and going public. Even the most admired and healthy-looking individuals (Bruce Springsteen, for example) are surprising us by telling us about their vulnerabilities. But that’s therapeutic, inspiring and part of the recovery process. It usually happens when the person is able and ready to face particular issues or problems.
But consider this: if someone else – someone within the family, for example – were to ‘out’ your secret or your wrongdoing without warning, how could you then deal with it and the trauma that would inevitably arise?
The corporate analogy is whistle-blowing. In any game, it is up to the referee to blow the whistle. Can you imagine if a player on the Mayo team had one of their own team blowing the whistle when he saw a foul by his teammate? It would upend the game. In corporate entities, the act of whistle-blowing runs completely counter to how organisations work – be it a bank, church, police force, or political party. They are all systems where, when something goes wrong, the default dynamic is to close ranks and defend the side.
Whistle-blowing turns such systems on their heads. It blows the lid off the game, the organisation, its leader and its entire structure and culture.
Exposed and alone
Maybe we have reached this stage in corporate Ireland because the various referees have been seen to be silent and blind. The public attitude is therefore akin to “fair dues to the whistle-blower”, recognising the courage it takes to act outside the system but also ignoring the isolation, scapegoating, character assassination, criminal investigation and future unemployability he or she may have to endure. Even the real referee will likely not befriend the guy who blew the whistle.
Cheering on the whistle-blower is fine, and the media and politicians do so given the feast of information he or she can provide. Giving legal protection in the form of protected disclosures is progress, but being exposed and alone as the corporate ‘snitch’ when the earthquake happens can be a lonely and dangerous place to be – as history shows. Ireland is too small a country to have a witness protection programme, but maybe we could look at the citizen enforcement action provisions in the US.
Whistle-blowers risk retaliation if they challenge abuse of power or any other misconduct that betrays the public trust, and numerous studies have confirmed this. To ensure the effectiveness of a disclosure, the US False Claims Act enfranchises whistle-blowers to file suits in court against illegality exposed by their disclosures. These types of suits are known as “qui tam” actions in a reference to the Latin phrase “he who sues on behalf of himself as well as the king”. These statutes can provide both litigation costs and a portion of money recovered for the government to the citizen whistle-blower. It is the nation’s most effective whistle-blower law in history for the difference it has made, increasing civil fraud recoveries in government contracts from $27 million annually in 1985 to over $1 billion annually since 2000.
Cases in point
Aside from the WikiLeaks initiatives and alleged hacking that impacted on the most recent US election, consider the most controversial corporate whistle-blower stories. One of the most famous was the Hoffman La Roche case. The company is the world’s largest producer of bulk vitamins for the pharmaceutical, human nutrition and animal nutrition sectors. In 1973, senior executive Stanley Adams discovered documents which suggested that the company was engaging in price-fixing activities to artificially inflate the price of vitamins. He passed the documents to the competition commission of the European Economic Community (EEC) in the knowledge that Switzerland – while not part of the EEC – had a free-trade agreement with it. The EEC failed to keep his name confidential during its investigation, passing documents containing Adams’ name to Hoffman La Roche. Adams was arrested and charged with industrial espionage and theft, and his wife committed suicide when she was told that he faced a 20-year jail term. In the end, Adams served six months in a Swiss prison. Adams later attempted to recover compensation from both the Swiss government and the European Union. In 1985, the European Union agreed to pay Adams £200,000 – about 40% of his total costs.
The story of General Motors (GM) in 2003, meanwhile, has echoes of today’s Volkswagen crisis. Courtland Kelley, head of GM’s inspection and quality division, reported faults to management in the Chevrolet Cavalier and Cobalt. The cars had faulty ignition switches, which cut power in moving cars and were eventually linked to a number of fatal crashes. As his reports were ignored, Kelley brought an action against the company. US law allows a private individual or “whistle-blower” with knowledge of past or present fraud committed against the federal government to bring suit on its behalf. This suit was unsuccessful and Kelley was forced out of the company. In May 2014, the company was fined $35 million for failing to recall cars with faulty ignition switches for a decade, despite knowing there was a problem with the switches. Thirteen deaths were attributed to the faulty switches during the time the company failed to recall the cars.
A corporate earthquake
Undercover news gathering, even by one’s own customers or employees, has become easy with the rise of the smartphone. Of course, most well-run entities with strong corporate governance codes and a culture of doing things right have little to fear. They know and manage the risks to their reputations; they have crisis management plans; their ethos protects them; in their corporate DNA, people know instinctively what will pass and what will not. But if you don’t fall into this category and the whistle is blown, you face a sudden and immediate crisis. It is a corporate earthquake, a test of leadership like no other. It can start with a leak and finish in the High Court or, tragically, with loss of life.
All the experts in the world will advise that it is easier to prevent a crisis than to handle one. Do no harm and you won’t have to worry about whistle-blowing. In other words, run a good ship. The corporate governance industry has taken off with this laudable ambition and people are making a good living lecturing on corporate ethics. But as financier Paul Coulson said at a recent Institute of Directors’ event, corporate governance is also good common sense.
Whistle-blowing is not the only threat; at least those allegations have to be true. We live in an age of soundbite reporting and blogging, with unverified stories posturing as news on social media. In addition to the normal corporate vulnerabilities for which enterprises have planned responses and action plans (or should have), we now have unprecedented risks from inside information, secrets and wrongdoing – be that through whistle-blowers, data breaches, leaks, hacking or carelessness. Enterprises need to be very assured in their handling of the fallout; their mistakes, thanks to Google, will stay with them forever. In terms of crisis prevention, some wise chief executives now have corporate counsellors, a trusted senior independent person to whom they turn and who acts as their independent conscience before they make a decision to go down a particular path. Their lawyer is not always the one they ask – a decision can be legal but might not be moral or ethical or might not withstand the test of public interest or scrutiny.
The road to rehabilitation
Some people survived the recent earthquake in Italy by crawling under the bed. That is not a corporate strategic option when a crisis happens. Nor, of course, is recklessly going out in the storm to shout at the gods. Enterprises who deal well with these kinds of issues often come out stronger in the end. Corporate therapy requires honesty and communication as a prelude to full recovery; a lot of work goes into containing the damage, stabilising the situation, restoring normality (maybe even a new normality) as soon as possible and then dealing with the process of repair and rehabilitation which is so often necessary. And in the end, if the enterprise has survived, it can learn the lessons. Sometimes, tragically, the whistle-blower by that stage can often be left alone, whistling in the wind.
Ita Gibney is Executive Chairman at Gibney Communications.