Blowing the Whistle -- What Influences Employees to Report Unethical or Illegal Behavior?

“It’s Time to Cap Whistleblower Payments, Former Prosecutor Says”

The Wall Street Journal: February 3, 2011

By: Katherine Hobson

Blowing the whistle on drug-company shenanigans has never been more lucrative.

Just ask the former GlaxoSmithKline employee who in October was awarded a record $96 million for her role in exposing manufacturing problems at the pharma company. Other whistleblowers have collected tens of millions of dollars, and there have even been “serial” whistleblowers who have collected awards for blowing the whistle on more than one former employer. The Los Angeles Times recently reported on a small pharmacy that has made a specialty out of filing suit against drug companies that overcharge Medicare and Medicaid and collecting whistleblower payouts.

Michael Loucks, a former big-time health-care fraud prosecutor with the Massachusetts U.S. Attorney’s Office and now a partner at Skadden, Arps, Slate, Meagher & Flom, says it’s time to think about capping those awards.

When the False Claims Act was bolstered in 1986 to give whistleblowers up to a quarter of any monetary recoveries, “no one anticipated there would be recoveries in the hundreds of millions of dollars,” he tells the Health Blog. In a paper recently published in Health Care Fraud Report, Loucks calculates that from 14 settlements in two years, whistleblowers have taken home $650 million. (Before paying their attorneys, that is.)

In his article Loucks suggests a cap of $2 million, saying that an analysis of the data shows that “the potential for earning as ‘little’ as $400,000 has encouraged blowing the whistle.” (Should you think he changed his views when he switched to the defense side, he says he gave a speech advocating caps when he was still with the U.S. Attorney’s Office and has supported the change since about 2003.)

“The goal is not to create a payment so that no one ever has to work again, and it’s not to create a pool of money to pay for lawyers, it’s to encourage [people] to blow the whistle,” Loucks says. The money instead should go back to Medicare and Medicaid. He also says that to be eligible for a payout, whistleblowers should be required to have first gone through their employer’s corporate compliance program.

A special report by the New England Journal of Medicine last year would seem to shore up Loucks’s contention that folks would still blow the whistle even without the prospect of a big payout. The NEJM interviewed 26 pharma-company whistleblowers and none of them said that the possibility of financial reward was the motivating factor. They said instead they were driven by integrity, altruism or public safety concerns, a sense of justice and self-preservation. And despite walking away with between $100,000 and $42 million, “the prevailing sentiment was that the payoff had not been worth the personal cost,” the report found.

Opinion by Jon Worthey:

Whistle blowing has become a mainstay in the ongoing battle against unethical and illegal business practice. The adoption of whistle blower protection laws has given the SEC, BBB, and government another means of uprooting, controlling, and reducing the amount of insider trading incidents, false reporting accounting scandals, and investment banking frauds, to name a few.

However, businesses are often critical of these provisions because they believe such laws undermine the policies and procedures set forth by the companies to control this type of unethical and illegal behavior. Furthermore, employees who blow the whistle on similar behaviors within the company are being granted tremendous sums of reward money for their actions. While the stimulus behind whistle blowing is sometimes questionable, recent articles from the Wall Street Journal present ideas that the enormous sums of money rewarded to whistle blowers is excessive.

As stated above by former healthcare fraud prosecutor Michael Loucks, “the goal is not to create a payment so that no one ever has to work again, and it’s not to create a pool of money to pay for lawyers, it’s to encourage [people] to blow the whistle” (Hobson, WSJ, 2011). These assertions present the point, what exactly influences employees to blow the whistle? To what extent do the employees’ personality, values, and work attitude play in the decision to report their company’s unethical or illegal business practice?

Employees with a proactive personality who are faced with an unethical or illegal business practice are more likely to report their findings because they realize the complexity and importance of being ethical in decision making.

Values play an even greater role in whistle blowers; the possibility of reporting unethical or illegal behavior depends on the level of ethical belief the employee generally displays. If an employee is raised with the belief to choose right over wrong, he or she will act ethically to bring unfair business practices to justice.

Work attitude can also have a stake in whether an employee blows the whistle. The more negatively opposed an employee is to their organization, the greater chance the employee will be subjected to report their company to the SEC. Likewise, positively attuned employees may be reluctant to blow the whistle because of their disposition towards the company. These employees may find difficulty in reporting unethical or illegal behavior due to their relationship with the company or disbelief that their company could be involved in such conduct.

While whistle blowing has an essential role in disrupting illegal business practice, there are certainly concerns regarding the large monetary rewards behind such activity. Workers’ personality and overall disposition toward the company relates to the motive behind blowing the whistle – which is questionable at time. By lowering the amount of reward money granted to whistle blowers, governing agencies will guarantee the reasons being whistle blowing.

- Jon Worthey