A Better Way To Handle Whistle Blowers: Let Them Speak

It's becoming a staple on the front pages. An employee--or, more often, a former employee--of a big corporation goes public with charges that the company has been playing dirty. Next step: a lawsuit that sets out the details of the misconduct and charges that the whistle-blower was at best ignored and at worst harassed, demoted, or fired.

In the latest such story, General Electric Co. on July 22 is expected to plead guilty and agree to pay a $70 million fine to resolve a Justice Dept. action first brought by whistle-blower Chester L. Walsh. The feds allege that GE diverted some $40 million in U.S. military aid to an Israeli general who bought aircraft engines.

That's just one case. In April, the Justice Dept. joined in an action against Teledyne Inc., originally brought by two whistle-blowers. They charged that Teledyne falsified tests on relay components used in spacecraft and weapons. Teledyne won't comment. Then there's GE's other big headache. Former GE executive Edward J. Russell alleges that GE tried to fix prices for industrial diamonds. Russell claims he lost his job because he aired the charges to his boss, a senior vice-president. Russell's wrongful discharge suit led to a federal grand jury investigation. GE disputes Russell's charges and says he was fired for poor performance.

NO CONFIDENCE. Doubtless, some whistle-blower suits are brought by employees with an ax to grind. Others may be in search of a big payoff: Under the False Claims Act, whistle-blowers can receive up to 25% of any money recovered by the government. Christopher M. Urda, for instance, was awarded $7.5 million on July 14 for providing evidence that his employer, then a unit of Singer Corp., bilked the Pentagon of $77 million in the 1980s.

But the number of such suits suggests that something is wrong with Corporate America's internal ethics system. Simply put, what looks good on paper doesn't always work. Says Ronald E. Berenbeim, a researcher at the Conference Board: "Internal procedures don't seem to generate enough confidence." He's right: Despite in-house systems, employees often aren't sure where to turn and fear that word of their charges will leak out.

Take the case of Walsh. He sued GE in November, 1990, charging that the diversion of money to the Israeli general took place while Walsh was general manager of GE's aircraft-engine group in Israel. Later, the Justice Dept. joined the suit. Why didn't Walsh go to GE brass? "He figured if he put his charges in writing and filed them with GE, he'd have absolutely no protection," says James B. Helmer Jr., Walsh's attorney.

It's by no means certain that Walsh's worst fears would have come true. He still works for GE, which has fired or disciplined executives purportedly involved in the scheme. But Thomas F. Dooley's story is far from encouraging. Last October, Dooley, a former salesman for the Sikorsky Aircraft Div. of United Technologies Corp., filed a civil racketeering suit alleging that in 1987, in an attempt to land a $130 million helicopter sale, Sikorsky officials bribed two Saudi Arabian princes.

HORROR STORIES. Dooley claims he was demoted for reporting the bribes to Sikorsky, and that company officials moved into his home in Saudi Arabia, opened his mail, and misused his personal bank account. UTC hired an outside law firm to investigate the charges, concluded that they were groundless, and passed the findings on to the Justice Dept. On June 17, a federal judge disagreed, ruling that lawyers could proceed with 10 of Dooley's 14 charges.

Such horror stories discourage employees from airing accusations in-house. "Whistle-blowers are often blackballed for not being team players," says Patricia H. Werhane, ethics professor at Loyola University and editor of Business Ethics Quarterly. "Companies should be proactive and portray these people as heroes."

Hard to argue with. And it can work in the real world if chief executives emphasize that ethics are more than a fancy policy. They should ask workers whether they have confidence in the company's ethics system and make them believe that exposing internal wrongs is part of their job. Whistle-blowers who raise real issues should be rewarded. And companies need to come clean if they find wrongdoing.

It's painful to expose improprieties, especially at top levels. But better to feel pain at the office than to face scandal in court.

by Lisa Driscoll

      SHOUT IT FROM THE ROOFTOPS Aggressively publicize a reporting policy that 
      encourages employees to bring forward valid complaints of wrongdoing
      FACE THE FEAR FACTOR Defuse fear by directing complaints to someone outside the 
      whistle-blower's chain of command
      GET RIGHT ON IT An independent group, either in or out of the company, should 
      investigate the complaint immediately
      GO PUBLIC Show employees that complaints are taken seriously by publicizing the 
      outcome of investigations whenever possible
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