(photo credit: Courtesy)
Whistle-blowing is one of the most fascinating topics in business ethics. The
decision to “blow the whistle” on perceived misconduct involves complex
interactions of the worker’s ethical obligations to the public, to the employer
and to himself. The potential whistle-blower can be a low-level or high-level
In most cases, whistle-blowers first disclose the problem
internally and are driven to disclose to the public – news media, government
agencies and so on – when they feel that management has taken insufficient steps
to investigate or deal with the wrongdoing.
In a virtually unprecedented
scenario, the latest whistle-blower scandal at Japan’s venerable Olympus
corporation involves no less than a CEO. In October, Michael Woodford, who is
British and a long-time Olympus veteran, was named CEO of the company. He was
the first non-Japanese ever to head the nonagenarian optical company. But within
two weeks he was fired from the post.
At first, the company claimed the
discharge had been due to divergent management styles: that Woodford’s Western
management style didn’t suit the company’s Japanese heritage. (No matter that
Woodford was a familiar 30-year veteran of the company.) The company cited
various “arbitrary actions” by Woodford.
It turned out that among these
“arbitrary actions” was ordering an external audit of some shady financial
transactions at Olympus that had been raising eyebrows for decades. These
involved acquisitions with multiple question marks: outside of Olympus’s core
business; seemingly excessive amounts paid; unprecedented shares for middlemen;
and unusual payment scheme including littleknown offshore companies.
Woodford evidently verified was that these payments for “acquisitions” were in
fact being used to cover huge trading losses from the 1990s that had never been
acknowledged or properly accounted for. In a variant of a Japanese accounting
scam known as tobashi, trading losses were juggled for decades by a series of
accounting tricks until the money was found to cover the
Woodford’s action was unusual because of his high position;
Wikipedia describes him as “one of the most highly placed executives to turn
whistle-blower.” But Woodford’s actions were well-scripted according to the usual
advice given prospective whistleblowers, based on years of experience on what
kinds of disclosures are successful in improving the situation and in avoiding
First of all, through the external audit, Woodford made
sure that the allegations were substantiated. This is necessary to justify the
Secondly, he made sure the allegations were documented. This
is necessary for credibility and for protection from allegations by the company
that the disclosures are false, criminal, self-serving and so on. When he was
fired, he was able to produce the report to back his claims.
Woodford resorted first to internal whistle-blowing. He reported his findings to
the board (to whom even the CEO is accountable) rather than to the press or
regulators. Only when the board responded with denial and retribution, as so
often happens, did he turn to the press.
Woodford acted courageously but
also prudently. The disclosures brought about necessary changes at Olympus,
which is the desired benefit to the public, while Woodford is being shielded
from attacks and is even being considered as a candidate to return to help the
firm that just fired him. By following the appropriate script – verification,
documentation and exhausting internal procedures before going outside – Woodford
was able to “blow the whistle” in a way that did right by himself, his employer
and, most importantly, the public.
firstname.lastname@example.org Asher Meir is
research director at the Business Ethics Center of Jerusalem, an independent
institute in the Jerusalem College of Technology (Machon Lev).