Subject:  The slings and arrows aimed at whistleblowers.
Date:  Fri, 25 Apr 2003 12:52:02 -0700
From:  Doug Schafer <schafer@pobox.com>
To:  "Olian, Judy (Dean, PennStSmealCollBus)" <jolian@psu.edu>
CC:  "Hosmer, Prof. LaRue" <lhosmer@cba.ua.edu>,"Shell, Prof. Richard (Wharton)" <shellric@wharton.upenn.edu>,"Koniak, Prof. Susan P. (Boston U. Law)" <spkoniak@bu.edu>

re:   http://www.abqtrib.com/shns/story.cfm?pk=OLIAN-04-25-03&cat=FF   [pasted below]

Dear Dean Judy Olian:

Your Scripps Howard News Service story about whistleblowers generally, and about me (Doug Schafer) particularly, appears based upon the New York Times story about me published last Sunday, April 20.  Sadly, the NY Times piece falsely denigrated me with concocted facts to support an accusation of "evil" motive -- behind my exposing a corrupt judge.  Please read my web-posted responses to the NY Times hit piece, and read about my 7-year whistleblowing saga, and about my efforts to prod the American Bar Association and the SEC to restore some public-interest exceptions to lawyer "ethics" confidentiality rules.  See: http://www.DougSchafer.com and http://www.EvergreenEthics.com/SEC/

I strongly suspect that a motive underlying the NY Times smearing of me by its in-house lawyers (who wrote the hit piece) was those lawyers' strong disagreement with positions that I have lobbied to the SEC and to others.  (I recruited AFL-CIO and Public Citizen to submit comments supporting the SEC's proposed lawyer whistleblowing rule.)  NY Times General Counsel Solomon Watson IV is a director of the American Corporate Counsel Association, and staff trial lawyer-writer Adam Liptak is aligned with trial lawyer groups, both of which strongly oppose the proposed SEC rule.  In addition, Mr. Watson is on the ABA Presidential Task Force on Corporate Responsibility (likely as a dissenter), which body's preliminary report last July was a "beacon" that guided the SEC's drafters of the proposed Sarbanes-Oxley lawyer ethics rules.

I am cc-ing two business ethics professors who, I hope, will share with you their own views about lawyer whistleblowing and lawyer ethics.  Prof. Hosmer has been following my saga for some time.

Please phone me this weekend, so I may share with you more information.  My cell number is 253-376-4124

Thanks.

Doug Schafer, idealistic suspended lawyer in Tacoma, Washington.


360 degree burns from whistleblowing

By JUDY OLIAN
Scripps Howard News Service
April 25, 2003

--Douglas Schafer, a Washington state lawyer, was suspended from practice for six months by the state Supreme Court. Why? In a 6-3 decision, the Court ruled that his whistleblowing was based on privileged information obtained from a client, threatening the essential purpose of lawyer-client privilege. 

Schafer had reported on a corrupt judge who was profiting inappropriately as a trustee of a deceased person's estate. Schafer learned of the judge's actions in conversation with a client, and reported the judge's violation to the authorities. The judge was removed from the bench and later convicted. 

Is Schafer a case of hero getting blamed? More on that particular incident later.

However, Schafer is an example of the many whistleblowers whose actions come back to burn them. Even Hollywood is fascinated with the tragic stories of whistleblowers. Take Jeffrey Wigand, the tobacco executive at Brown & Williamson showcased in "The Insider," who committed professional and personal hara kiri after reporting on fraud and misrepresentation at the tobacco company. Or the protagonists of "Silkwood" and "China Syndrome" who warned of potential environmental disasters, and paid with their lives. 

One study reported on the dire personal consequences to whistleblowers when they raise a red flag. Many suffered retaliatory behavior from their employers. They lost their jobs or were forced to retire (69 percent of study respondents), received negative job performance evaluations (64 percent), were monitored more closely by their supervisors (68 percent), criticized or avoided by co-workers (69 percent) or black listed from getting another job in their field (64 percent). These retaliatory consequences were more severe if the whistleblower reported company violations to an external rather than internal authority.

The new Sarbanes-Oxley Corporate Reform Law includes significant requirements for publicly traded corporations to protect whistleblowers. It's illegal to "discharge, demote, suspend, threaten, harass or in any way discriminate against" the whistleblower. If executives retaliate against whistleblowers, they can be levied up to $500,000 in fines or jailed for up to 10 years. Board audit committees must publicize direct and insulated communication channels for use by whistleblowers. The Department of Labor can order companies to rehire a whistleblower, bypassing the courts, and whistleblowers can request immediate jury trials to accelerate resolution of their cases.

Sarbanes-Oxley won't protect whistleblowers in private corporations, and it won't provide adequate compensation for the years of emotional turmoil, job harassment and social isolation that many experience. The National Whistleblowers Center in Washington asserts that about 50 percent of whistleblowers are fired after making allegations against their company. 

And yet, employees have come forward at huge personal costs in companies from Rite Aid to Enron, WorldCom to Morton Thiokol. They've been willing to risk their careers, financial stability and family well-being to report on fraud, financial misconduct or environmental infractions committed by the organization that funds their paycheck. Sarbanes-Oxley will now provide a degree of cover and encouragement to some employees observing corporate misconduct and by example will likely embolden others not covered by the act to do the same. 

Company executives obsess over the motives of whistleblowers. Are they do-gooders driven by strong personal or religious beliefs? Are they "green" environmentalists or community activists? Are they disgruntled or bitter employees for whom whistleblowing is a convenient platform for complaint and revenge? Even if the whistleblower has questionable motivation, these motives are irrelevant if the case has substance. Corporate efforts to discredit or harass the whistleblower will become costly delay tactics and diversion from necessary attention to, and correction of, the essential problem.

Of course, the best antidote to whistleblower is a corporate culture that is ethical to the core. But the next best thing to ferret out ongoing and undetected corporate misdeeds is a confidential reporting channel accessible to all employees, under the auspices of an independent, internal ombudsperson who has the clout to react rapidly and unilaterally to the concerns.

The ombudsman should have direct reporting lines to independent directors on the corporate board. But if it isn't a serious reporting channel where concerns are heard with respect and investigated in earnest, and if it doesn't protect the informers, whistleblowers will dismiss the internal channel as a farce and will turn to outside authorities. That's when the fires take hold and can lurch out of control, ballooning into corruption or cover-up scandals that can topple firms. 

And what about Douglas Schafer? He became a whistleblower and informed authorities of the judge's misconduct a full three years after he learned of it from his client, only after the judge sanctioned him for filing a frivolous lawsuit. And that's the other half of the story. The lesson to whistleblowers is to make sure your own ducks are in order before you blow, otherwise the burn could come full circle.

(Judy Olian is Dean of Penn State University's Smeal College of Business and a leading expert on strategic human resources management.)
 

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