Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Whistleblowers in major US corporate organizations

This is the third of a three-part series profiling whistleblowers in different industries. The first of these posts was on October 24 and focused on the financial services industry, including Julius Baer and PricewaterhouseCoopers. Last Tuesday’s post covered whistleblowers in the pharmaceutical industry, with stories of exposing corporate fraud in the manufacturing and marketing processes at companies like Eli Lilly and GlaxoSmithKline.

Today’s post, the final in this set, will look at whistleblowers from prominent historic cases of business fraud or miconduct in major US corporate organizations. The actions of these individuals in speaking up to expose unethical or illegal business practices led to major media attention, legislative and regulatory scrutiny, legal actions, and deep review of corporate cultures of the organizations. In some of these cases, deep societal debate about or change of previously accepted practices and standards was kicked off by the information exposed by whistleblowers.

  • Sherron Watkins, Enron Corporation: One of the most famous whistleblowers in modern business history, Sherron Watkins was Vice President of Corporate Development at Enron Corporation, the disgraced energy company which is often referred to as one of the biggest corporate scandals in modern history. In August 2001, Watkins reported suspicious accounting practices she observed in the company’s financial statements to Enron’s CEO, Kenneth Lay, who famously did not take action on the memo Watkins wrote on the issue. Enron, of course, filed for bankruptcy in December 2001, after the public disclosure of the fraudulent accounting practices that led to gross overstatement of the company’s financial condition. Watkins has spent the years since the Enron scandal writing and speaking about the problems within the corporate culture of the organization that allowed the fraud to occur and continue. For information on how Watkins sees her role in the Enron scandal more than fifteen years on, check out this Texas Monthly article from 2016.
  • Cynthia Cooper, WorldCom: Cynthia Cooper was the Vice President of Internal Audit at WorldCom, which at one time was one of the largest telecommunications companies in the US. Amid declining profits in the telecommunications industry and a thwarted merger with Sprint, starting in 2000 the company used fraudulent accounting practices to maintain the price of WorldCom stock in a decreasing market. In 2002, Cooper led a team of internal auditors which investigated and exposed this $3.8 billion accounting fraud. Cooper never intended for her internal audit memo to be publicized, and did not want public attention from it, as her feelings about exposing this fraud at a company where she had loved working were complicated. However, investigations by the Department of Justice and the Securities and Exchange Commission followed, which by the end of 2003 determined that the company’s assets had been inflated by an estimated $11 billion due to the fraudulent accounting. Have a look at this Q&A with Cooper from 2008.
  • Courtland Kelley, General Motors: For 30 years, Courtland Kelley worked at General Motors, ultimately as the national head of GM’s vehicle inspection program. For years, Kelley warned GM about design flaws in its cars and trucks that had gone unaddressed. To Kelley, the company seemed more interested in avoiding costly recalls and saving face in public than in making a relatively simple safety fix to the ignition switch system. In 2003, he sued GM under Michigan state whistleblower laws, hoping to expose this company inaction that led to manufacturing unsafe vehicles that were involved in crashes, some resulting in deaths. Kelley’s case was dismissed on procedural grounds, and in the aftermath, Kelley found that he was silenced and marginalized by GM in retaliation for speaking up. The company waited almost ten years before issuing a recall in February 2014. For an in-depth look at what happened at General Motors and to Kelley after he blew the whistle, read this Bloomberg Businessweek piece.
  • Mark Whitacre, Archer Daniels Midland: Mark Whitacre was president of the Bioproducts division at Archer Daniels Midland, a food and commodities trading corporation specializing in processing of grain and oilseed crops. For three years from 1992-1995, Whitacre was an FBI informant aiding in the agency’s investigation of ADM for price fixing (conspiracy arrangement between buyers or sellers to buy or sell a product at a fixed price only, irrespective of market conditions). The price fixing at ADM involved lysine, a chemical additive to animal feed. ADM was part of a cartel with four other companies that inflated prices on lysine because of their concerted market manipulation. Due to Whitacre’s initial reporting and subsequent acting as an undercover informant, the FBI collected a tremendous trove of information about the cartel’s activities and ultimately fined ADM $100 million, with many more hundreds of millions of dollars going from ADM to harmed plaintiffs and customers. Price fixing, once an overlooked practice in the industry which controlled prices without recourse, became a global investigation and enforcement priority. Whitacre himself was a complicated figure, as it turns out he was exposing one fraud while participating in others. In the course of the investigation, he confessed that he had been involved with arranging corporate kickbacks and money laundering schemes, and later pled guilty to tax evasion and fraud in connection with the embezzlement of $9 million, serving 8.5 years of a 10.5 year sentence. Whitacre’s story was dramatized in the movie The Informant!, which starred Matt Damon. For a profile on Whitacre from the time the movie was released in 2009, check out this CNN story.
  • Gregory Minor, Richard Hubbard, and Dale Bridenbaugh, General Electric:   Gregory Minor, Richard Hubbard, and Dale Bridenbaugh are known as the “GE Three.” They were a group of nuclear engineers at General Electric who turned whistleblowers in 1976 to alert the public of ongoing safety issues at US nuclear power plants. Their disclosures about the dangers of nuclear power received significant media coverage and Congressional attention. Minor, Hubbard, and Bridenbaugh timed their disclosures with resigning in protest from their positions in the GE nuclear reactor division. Nuclear power was at that time in wide use in the US; the GE Three raised huge concerns about insufficient controls within the industry due to vulnerabilities from human error and an engineering process that isolated individuals from the overall decision-making process. Their protest resignations and subsequent testimonies had a huge impact on society’s view of the safety of nuclear power and inspired activist campaigns against nuclear power and in favour of environmental safety and protection. Check out this 1976 report from the New York Times archive for the contemporary reaction to the GE Three.

Whistleblowers have been the impetus behind some of the most explosive and powerful disclosures of corporate fraud and malfeasance in recent history. Companies once admired and viewed as financial stalwarts have been shown to have deeply unethical business practices and a concerning lack of organizational and employee integrity below the surface. In an economy and culture which is increasingly dominated by large corporate interests, trust in and credibility of these major institutions is critical for the public. When this is violated by inaccurate disclosures, dishonest accounting practices, or fraudulent business arrangements, consumer and markets confidence is greatly impaired. Whistleblowers therefore perform an invaluable function in making the often personally difficult and professionally costly decision to stand up for the protection of these values when observing misconduct from within their organizations.