Whistle Blowing Case Analysis

Introduction

Whistleblowing is the act of an employee disclosing issues about corruption, mismanagement, illegality or any other wrong doing (Johnson, 2003). The person undertaking the disclosure is known as the whistleblower and can be an employee of a private institution or the government. According to Kohn, Kohn & Colapinto (2004), whistleblowing can be categorized into two natures: internal whistleblowing, which involves reporting the matter to an official inside the organization, and external whistleblowing that refers to reporting the issue to an outside person. He adds that the cases of whistleblowing became popular at the mid of the twentieth century after the public realized its benefits. There are many cases involving corporate and federal whistleblowing that have been recorded in the past. Whistleblowing is important as it helps the society get knowledge of the misconducts that occur in our institution. Whistleblowers are protected under the Whistleblower Protection Act 1998, which was then updated in 2012. This paper will demonstrate the importance and value of whistleblowing using the Enron’s case of misappropriation of fund. The case involves a whistle blown by Sherron Watkins, who was the vice president of Enron, to the board of managers of the company concerning the improper accounting practices (Niskanen, 2007). The paper also aims at analyzing the whistleblowing act that was done by the vice president of Enron Company.

Thesis Statement: The whistleblowing at Enron was ethical and could have prevented the company from collapsing if it was handled with the right response.

Analysis of the Mismanagement and Whistleblowing at Enron

During its final days, Enron was surrounded by a massive financial crisis that had been as a result of misappropriation of funds. The auditing company that had been employed by Enron to scrutinize the financial records over the years had been collaborating with some officials in the company to provide false documentation of the company’s financial records. According to Arthur Anderson, an official in charge of auditing Enron’s financial records, his partner, David B. Duncan was responsible for destroying thousands of documents and emails after he realized that the security and exchange commission had begun investigations on Enron’s case (Kohn, Kohn & Colapinto, 2004). Johnson (2003) claims that the misappropriation of funds at Enron was as a result of malpractices of the accounting department and the Auditing firm identified as Anderson.

However, before the occurrence of the fraud at Enron, a whistleblowing incident had taken place. Sherron Watkins, the vice president of corporate development at Enron, had written a seven-page anonymous letter to the board of management expressing her concerns regarding the misappropriation of funds in the company. Despite the letter having had an anonymous sender, Ms. Watkins mentioned virtually all the events that led to the collapse of the enterprise. First, Ms. Watkins raised expressed the concern of some officials in the company raising the stock price which was later identified as being a move to conceal the accounting hoax that was taking place in the company. Secondly, Ms. Watkins was also concerned with the assurances of Anderson auditing company that the financial records of Enron were in order. Additionally, Ms. Watkins urged the company management not to trust Vinson & Elkins law firm in investigating the allegations since it had a conflict of interest and was largely involved in some of the company’s deals. The letter as well mentioned the concerns of Clifford Baxter, a former vice chairperson at Enron who was concerned that there were malpractices in the company (Niskanen, 2007).

After through investigations were conducted, it was found that Arthur Anderson auditing firm, Vinson & Elkins and some officials in the company had played a huge role in doing the misappropriation of funds that led to the collapse of Enron energy company.

Some ethical issues surrounding Enron’s case emerged after the embezzlement scandal. The Arthur Anderson auditing firm that was responsible for handling Enron’s financial records showed unethical traits when they got involved in the scandal. The same applies to Vinson & Elkins law firm for allowing such an imprudent activity to take place. As a trusted law firm, the company should have been strict on the malpractices that were ongoing by whistleblowing and taking legal action. Instead, it chose to remain blind to malpractices that were taking place at Enron. A question can emerge as to whether it was ethical for Ms. Watkins to disclose the suspicious activities that were undertaken by the officials. As an official at Enron Company, one of her primary obligations was to oversee that fraudulent activities did not take place (Johnson, 2003). Moreover, she had a legal right as a whistleblower to report the suspicious activities to the board of managers.

Application of Research to Analyze the Case

According to Miceli, Near & Dworkin (2013), whistleblowing is protected by the Constitution and every citizen has the right to claim a wrongdoing based on facts and sufficient evidence. In fact, the federal False Claim Act encourages whistleblowing as it rewards any citizens who whistle blows any wrongdoing by an organization to the government. Moreover, whistleblowing statutes protect individuals from being mistreated by their employers after they have alarmed any wrongdoing by the employer. Furthermore, the federal civil services prohibit the government from threatening and individual after he/she has blown a whistle concerning any suspicious activities that are being carried out by the government. All these statutes and institutions encourage whistleblowing to eliminate the lack of transparency in institutions. If the same is applied to Enron’s case, we see that the law following the whistleblowing protected Ms. Watkins. The fact that some official inflated the stock price was sufficient evidence that something was not right. She ought to have come boldly and confidently out to blow the whistle over the suspicious activities that were being carried out in the company. Clifford Baxter would have backed up her allegations thus creating a substantial amount of evidence.

Nonetheless, the whistleblowing activity at Enron did not necessarily rely on Ms. Watkins. Other workers as well had the obligation of whistleblowing the malpractices that led to the collapse of the firm. Niskanen (2007) asserts that worker for the accounting and finance department at Enron had the obligations of resisting the collaboration and involvement in the scandal. It was unethical and illegal for some of the junior workers to possess information concerning the wrongdoing and still keep quiet about it. Their actions not only costed the company tremendous losses but also led to its dissolution.

Personal Opinion

In my perspective, I cordially support whistleblowing activities. They are not only ethical but help prevent much damage that is observed in our societies. With elevated levels of whistleblowing, institutions will be afraid of conducting any malpractices such as bribe and misappropriation of funds. Whistleblowing can be a resolution for many illnesses that are facing our societies today. For instance, a well-articulated whistle blow Enron could have been rescued from the malpractices that led to its closure. Vandekerckhove (2012) argues that whistleblowing is meant to cure the evils in institutions and government and ensuring that the never reoccur. Such a cure was highly needed at Enron before it collapsed. If Ms. Watkins or any other employee were bold enough to raise the concerns of misappropriation of funds in the company, then thorough investigations would have commenced earlier that would have prevented the collapse of the company.

Conclusion

Whistleblowing activities are important in the society. They help focus the attention of the public to the evil that is ongoing in public. The constitution and other organizations protect whistleblowers and ensure that they are not threatened or mistreated by the government or any supreme institution. This shows that whistleblowing is morally correct and should, therefore, be encouraged in the society. The collapse of Enron was as a result of the lack of proper whistle blowing by the vice president when she discovered that there were ongoing malicious ongoing activities in the company. Her lack of boldness led to her writing an anonymous letter to the board of management citing her concerns on suspicious activities by some officials in the company. If Ms. Watkins were bold enough to confront the suspicious activities in a bold manner, then the board of management would have dealt with the issues severely. The fact that she mentioned her concerns to the board of the Directorate proves that she possesses ethical attributes. It can also be concluded that whistleblowing is a social responsibility for corporates and individuals in the twenty-first century.

 

References

Johnson, R. A. (2003). Whistleblowing: When it works and why. Boulder [u.a.: Rienner.

Kohn, S. M., Kohn, M. D., & Colapinto, D. K. (2004). Whistleblower law: A guide to legal protections for corporate employees. Westport (Conn.: Praeger.

Miceli, P., Near, J. & Dworkin. (2013). Whistle-Blowing ion Orginzations. Psychology Press.

Niskanen, W. A. (2007). After Enron: Lessons for public policy. Lanham, Md. : Rowman & Littlefield Publishers.

Vandekerckhove, W. (2012). Whistle-Blowing and Orgnizational Social Responsibility: A Global Assessment. Gower Publishing, Ltd.

 

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