Sunday, April 23, 2006
As America watched Enron Corp. collapse under a tide of scandal more than four years ago, one employee -- accountant Sherron Watkins -- won household recognition for having alerted Chairman Kenneth L. Lay to the company's shenanigans.
Watkins, whom Time magazine named one of its people of the year in 2002, caught the eye of Congress, too, where lawmakers were keen to restore trust in U.S. markets after shareholders suffered multibillion-dollar losses in Enron, WorldCom Inc. and other scandal-ridden firms.
So when Congress passed the 2002 Sarbanes-Oxley Act with the goal of protecting investors, it included sweeping provisions to encourage employees to blow the whistle on corporate wrongdoing by shielding them from retaliation.
Now those provisions are being tested, with attempts underway to narrow the scope of the act. This is troubling to the bill's supporters, who view whistle-blowers as a first line of defense for investors, fellow employees, retirees and ultimately the public at large, who could all benefit if a problem is uncovered before it causes major damage or ruin. Folks who trudge to the office each day without thought of becoming a gadfly may one day land in a situation in which their consciences require they act. A federal law backing such efforts will encourage more people to come forward, supporters argue.
The law shields from retaliation any employee who tells superiors or federal officials of problems, about accounting or otherwise, that he or she thinks could hurt the company's investors -- even if the claims turn out to be untrue. The law applies to all publicly traded companies and carries both civil and criminal remedies against companies and individuals, making it tougher than other federal whistle-blower protection statutes.
Since President Bush signed the Sarbanes-Oxley legislation into law July 30, 2002, about 750 people have filed complaints with the Department of Labor, saying they were retaliated against for bringing to light problems in their company, whether to a superior in the firm or outside. The Labor Department oversees such cases in a three-step process that an employee must exhaust before going to federal court. The number of cases has risen, with about 150 in the law's first year and nearly twice that in its third.
The vast majority of these cases have been thrown out. Fewer than 100 have been settled. And only five whistle-blowers have won, though that number dwindled to four last summer, when the agency's administrative review board overturned a case on appeal. Companies have appealed three of the remaining four to the board, whose handful of judges so far have not decided an appeal in favor of a whistle-blower.
"I find those odds unbelievable," said D. Bruce Shine, attorney for David Welch, a former chief financial officer who was fired after raising questions about the bookkeeping practices of Bank of Floyd in southwest Virginia. "Either American business is a hell of a lot cleaner than we ever dreamed, or these complaints are not really being listened to by the Department of Labor."
In 2004, Welch became the first whistle-blower to win his case, but his is among the three winning cases that corporations are appealing.
"Corporations are taking this law seriously, at least for appearances," says Tom Devine, legal director for the Government Accountability Project, a nonprofit group that works to promote whistle-blower rights. "There's a burgeoning industry of hotlines in corporations, and their lawyers are actively participating in training conferences both to learn the law but also to perfect their attacks on these reforms. The jury is out whether the breakthrough in whistle-blower rights on paper will take root in our corporate culture."
According to Devine and others, corporations are fighting the whistle-blower protections on several fronts. The fight is part of the business community's broader assault on the Sarbanes-Oxley legislation, which includes provisions that give the auditing industry more oversight, require companies to disclose more to investors and hold top company officials more accountable for their actions.
One way companies are trying defend themselves against charges of illegal retaliation against whistle-blowers is by trying to narrow the definition of the kinds of complaints Sarbanes-Oxley will protect.