Whistleblowing in Organizations: Implications from Litigation

By Katz, Marsha; LaVan, Helen et al. | SAM Advanced Management Journal, Summer 2012 | Go to article overview

Whistleblowing in Organizations: Implications from Litigation


Katz, Marsha, LaVan, Helen, Lopez, Yvette P., SAM Advanced Management Journal


A growing body of law offers protections to employees who "blow the whistle" on illegal or dangerous activities in their organizations, making whistleblowing a complex area for management. Failure to act upon the information provided by the whistleblower or retaliating against him or her can result in costly litigation. An analysis of 188 cases of whistleblowing litigation selected randomly from 940 litigated between 2003 and 2010 sheds light on general characteristics of the whistleblower and employer response--typically trying to discharge the employee (75% of the litigated cases). The employers prevailed in about one-half of the cases, the employee in 20%, with the balance involving split decisions. Managers will benefit from four suggestions for navigating this fraught area.

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We often hear references to famous whistleblowers, such as those at WorldCom or Enron. We might think that these are extreme cases that could never happen in our company. However, in numerous whistleblowing cases, though not necessarily ones as well-publicized whistleblowers' actions had dire consequences for the company and its various stakeholders.

For example, consider the case of Peanut Corporation of America (PCA). Kenneth Kendrick, an assistant plant manager at PCA, repeatedly reported to the Texas Department of Health incidents of rat infestation and feces in peanut butter. In addition, he reported a roof leak that allowed rainwater contaminated with bird feces to drip onto the peanuts. The contaminated peanut butter caused the death of at least eight people and sickened 529. Kendrick blew the whistle on both PCA and the Texas Department of Health, which ignored his initial allegations. Nevertheless, further investigation by the Texas Department of Health found that 355 additional companies were manufacturing and selling food without a state license and did not have any health inspections. Subsequently, PCA went bankrupt, resulting in the loss of 300 jobs, including Kendrick's.

Another example is the case of Merck and Vioxx. David Graham was a scientist for the Food and Drug Administration (FDA), whose funding depends on the success of the products it regulates, creating a conflict of interest. The FDA tried to suppress Graham's findings that revealed a statistical relationship between heart attacks and the use of Vioxx. Graham estimated that between 30,000 and 55,000 American deaths occurred as a result of patients taking Vioxx and possibly even more deaths occurred worldwide. Merck voluntarily withdrew Vioxx, and the medication remains off the market. The cost to the company is estimated at $4.8 billion in wrongful death claims alone (Voreacos and Johnson, 2010). A pharmaceutical giant, Merck's liability of $4.8 billion over several years is relatively small compared with its 2008 revenue of $23.8 billion and profits of $7.8 billion (Merck 2008 financials). Additionally, it is unknown what proportion of this liability is covered by Merck's insurance. As part of this settlement, Merck agreed to have additional oversight for new product development that is independent of Merck research labs. Additional case examples of whistleblowing can be found on the Whistleblower.org Web site (http://www.whistleblower.org/multimedia/whistle-where-you-work/archive).

The costs of doing nothing when wrongdoings are reported can be immense. For instance, some of the social costs that are reported involve public safety, public harm, inappropriate financial reporting, inequity in employee treatments, sexual harassment, or the practice of including ghost workers on payroll. Approximately 37% of employees in the U. S. observe serious waste, fraud, or abuse in their place of work, although this number can vary greatly between occupations (Rothschild and Miethe, 1999). In the U. S. alone, financial costs of organizational wrongdoing have been estimated to include $5 billion in employee theft, $350 billion attributable to antitrust violations, $300 billion in tax fraud, and $100 billion in health care fraud (Miethe, 1999). …

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