Whistleblowing refers to the disclosure by an individual in a government agency or private enterprise to the public or those in authority regarding mismanagement, illegality, corruption, unethical acts or any other kind of wrongdoing. Whistleblowing has gained significance in organizations currently. For instance, federal and state statutes and regulations have since been enacted to protect whistleblowers from various potential forms of retaliation. One such particular legislation is the Sarbanes Oxley Act that seeks to enforce good corporate governance and credible financial disclosure among publicly traded companies. The act details criminal and civil penalties for noncompliance, certification of internal auditing practices and increased financial disclosure. Even without federal and state statutes, numerous decisions encourage and protect whistleblowing on grounds of public policy.
Whistleblowers exhibit courageous traits which enable them to go the extra mile in ensuring that firms carry out their activities the right way. Monsanto Company came to the limelight regarding a whistleblowing by one of its employees in relation to financial fraud (Gretchen, 2016). The publicly traded company in the United States of America committed civil violations after it allegedly misstated its earnings in connection with its top selling Round Up product which is popular around the world as an effective weed killer. The vice was allegedly facilitated by the company employees including two accounting executives and one sales executive in the US company. The financial fraud revolves around a corporate rebate program that was designed to boost sales of the product after the product sales apparently decreased due to the effects of competing substitutes. There had been a rising generic competition which threatened to considerably cut into the company’s profits. The company is therefore accused of lacking sufficient accounting controls necessary to account for millions of dollars in rebates that it offered to global retailers and distributors. The company ultimately booked a considerable amount of revenue but it failed to recognize the costs of the rebate programs on its books. The fraudulent activities enabled the company to materially misstate its consolidated earnings for a three year period. Companies are required to have effective systems in place to ensure that all their transactions are recognized and prudently reported.
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There were severe consequences related to the fraud to the company as the National Securities and Exchange Commission unleashed civil penalties on the firm. The company was made to pay $80 million to settle civil accounting violation (Gretchen, 2016). The penalty was hefty and had the potential of considerably harming the financial performance of Monsanto Company. In addition, four of the company employees were charged for failing to adhere to professional ethics and best practices. All the individuals working in organizations have the primary imperative to ensure that transparency and accountability are enhanced in all the transactions of the organization. The fraud incident also painted a negative picture of the organization hence harming its brand in the global marketplace hence giving an edge to the rising generic competition. The burden of paying the hefty penalties associated with the fraud and the losses as a result of tainted company image and brand equity had deep and adverse financial impacts on the company. Moreover, the consumer trust on the quality of the products was compromised on a large scale.
On the other hand, the whistleblowers actions resulted to beneficial effects on the whistleblower himself. The whistleblower was commended by the National Securities and Exchange Commission for having gone out of his way and decided to take a proactive stance of reporting the existence of fraud in Monsanto Company. Moreover, the whistleblower was able to realize the potential that everyone has to transform the corporate governance practices in organizations through individual initiatives to report malpractices. The whistleblower was also rewarded with $22 million for whistleblowing. The award was the second largest in the US history under the five year-old program whose objective is to encourage whistleblowers to come forward and report corporate malpractices. The whistleblower’s identity was hidden by the National Securities and Exchange Commission hence securing the future of his career path. Therefore, his involvement in the case could not damage his career prospects. Many whistleblowers endure immense hardships and are often harmed in the process by being identified, driven from their jobs as well as being branded as trouble makers. Fortunately, such challenges never befell the Monsanto Whistleblower.
The whistleblower was justified in reporting the company’s actions because ensuring that the organization works according to the systems put in place by authorities is professionally, legally and ethically right. The whistleblower used much of his resources to ensure that good accounting practices were adhered to at Monsanto Company. Whistleblowing is an important element in promoting and enforcing good corporate governance practices in publicly traded companies. Moreover, whistleblowing has the potential of protecting the interests of investors trading in the securities and exchange market. Failure to raise red flags regarding existence of financial reporting malpractices may lead to sudden closure of firms which are perceived to be performing well subject to doctored accounting reports. In the event of publicly listed companies closing shop, the firms will sink along with the investors’ funds. As a result the government recognizes the need to encourage whistleblowing as a way of ensuring that firms adhere to prudential standards regarding financial reporting. The act of whistleblowing in publicly traded companies will have a ripple effect across all industries that provide auxiliary services to the particular companies like external auditors. For instance, the Monsanto whistleblowing case brought to the surface the negligence that the famous audit company, Deloitte exhibited while auditing the financial records of Monsanto.
In respect to the Sarbanes-Oxley Act, the Monsanto whistle blower was entitled to state protection regarding protecting his identity as well as protecting him from potential victimization or harm. The Sarbanes-Oxley Act protects employees of publicly traded companies along with contractors, subcontractors and agencies (Ashbaugh et al, 2009). The Act broadly defines the protected activities regarding whistleblowing such as reports made to the federal regulatory and law enforcement agencies, congress, employee’s supervisor, and internal corporate investigators. Furthermore, the law protects employees who participate or testify in Securities and Exchange Commission regulatory proceedings. The Monsanto Company employee would be protected from illegal discrimination such as adverse changes to the whistleblower’s terms and conditions of employment. The act would effectively prohibit the whistleblower’s undue discrimination from the senior management who may treat him as a troublemaker. In case of undue discrimination in the work place, the whistleblower would be entitled to reinstatement, back-pay with interest, complete make-whole compensation including restoration of seniority, refund of attorney’s fees as well as affirmative relieve which involves the whistleblower requiring a letter of apology and formal posting of the decision. The Monsanto whistleblower would be adequately protected given his sacrifice in testifying against his employer at the Securities and Exchange Commission regulatory proceedings.
In conclusion, whistleblowing is a very important initiative that can be taken by any corporate employee with an objective to ensure that the right practices are carried out regarding financial transactions and reporting. Moreover, protection of whistleblowers from potential discrimination or harm is important in encouraging whistleblowing in publicly traded companies. Therefore, legislation of the Sarbanes-Oxley Act was an important move by the government to stem financial malpractices in US publicly traded companies.
References
Gretchen, M., (2016 September 9). Monsanto Whistleblower: $22 Million Richer, but not Satisfied. The New York Times . Retrieved from http://www.nytimes/2016/09/11/business/for-monsanto-whistle-blower-a-22-million-award-that-fell-short.html
Ashbaugh, H., Collins, D., (2009). The Effects of Sarbanes-Oxley Act Internal Control Deficiencies on Firm Risk and Cost of Equity. Journal of Accounting and Economics , 74(3): 76-80.
