Designated whistleblowers on corporate boards

2011-12-05

in Economics, Law, Politics, Security

In my continuing campaign to come up with specific policy ideas for the ‘Occupy’ movement people, I had another idea: designated whistleblowers on corporate boards of directors.

Basically, they would be people who would need to attend all board meetings and who would have a specific obligation to immediately report any activity that is either illegal or a possible threat to the financial system as a whole.

They could be company insiders who are specifically charged with this role, with rewards for doing it well and penalties for doing it badly. Alternatively, they could be civil servants who are knowledgeable about the firm’s line of work.

Arguably, this would just lead to nefarious activities being orchestrated in venues other than board meetings. Even if some of that happens, it could still be useful. At the very least, it would obligate nefarious board members intent on breaking the law to arrange ways to trick the designated whistleblower, which would interfere with some kinds of bad behaviour. Also, having a designated whistleblower constantly present would be a reminder to others that you are allowed to point out unethical behaviour when it is being practiced by your employer.

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{ 2 comments… read them below or add one }

. December 15, 2011 at 9:16 pm

ON NOVEMBER 25th the venerable Foreign Correspondents’ Club of Japan experienced a volley of camera flashes, jostling television crews and shouts of “heads down at the front!”—the sort of attention it has rarely enjoyed since the country began its gentle slide down the world’s news agenda. The occasion was the return to Japan of Michael Woodford, the former boss of Olympus, a Tokyo-based lens-maker, who had been fired in October after he started asking awkward questions about $1.3 billion in suspicious transactions. His subject, in a nutshell, was corporate governance—not something that, in the abstract, usually sets reporters’ hearts aflutter. But as the club pointed out, not even the Dalai Lama had drawn such a crowd.

Mr Woodford, who is adroit in the spotlight, says the whole saga has been like walking into a John Grisham novel. Having been sacked by the board and stripped of his office, home and company car on October 14th, the 30-year Olympus veteran—one of just four gaijin to run a leading Japanese company—was told to catch a bus to the airport. The American Federal Bureau of Investigation, Britain’s Serious Fraud Squad and the Japanese authorities are all now on the case.

Mr Kikukawa, Mr Mori and the company’s statutory auditor have since resigned from the board of Olympus, accused of a huge cover-up of securities losses dating back to the 1990s. But other board members who supported them and who dumped Mr Woodford still have their jobs. The company insists that he was fired for failing to understand its management style, and Japanese culture, not for being an awkward whistleblower.

. October 8, 2012 at 12:55 pm

A whistleblower was given a $104m reward by America’s Internal Revenue Service. In 2007 Bradley Birkenfeld told authorities about American accounts at UBS that were being used to evade tax. The IRS said the reward would encourage other people to report corporate wrongdoing. Mr Birkenfeld was himself convicted of helping a property developer avoid taxes. See article

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