The Public Face of the Wrongdoer
When companies violate laws, they seldom admit their guilt. Board members and senior managers are seldom
held responsible. They plausibly deny
they ever intended to do wrong. Maybe most had no such intentions.
Timothy
Ross was hired as CFO of Nutmeg State Financial Credit Union (Connecticut) (NSFCU)
in July 2015. Pretty soon, he noticed
business and reporting practices that seemed improper. CEO John Holt’s pay appeared excessive. Holt controlled loan loss reserves which were
too low, Ross thought. The low reserves
increased earnings and senior managers’ retirement accounts. Holt told him to hold off correcting them. Ross said two investments were valued too
high, and Holt told him his input was not necessary.
Ross had hired Shannon Hall to be VP of Lending. During an annual State examination Hall brought
up Holt’s rich retirement plan. Without
telling Ross, Holt fired him for not being a team player. Later that morning, Holt told Ross to do Hall’s
job plus his own. Ross said he didn’t
think he could do that because Holt had fired Hall illegally. After the meeting, Ross emailed Beth Bunko,
Chair of the Supervisory Committee. He
told her about his communications with Holt and the credit union’s possible
violation of state and federal laws.
Later that day, Holt asked Ross if he could put Hall’s firing
Hall behind him. Ross pushed back
again. So Holt fired him, too, on
January 6, 2016.
There’s no sign any other Board members heard about possible
wrongdoings. NSFCU’s auditors saw no
real accounting problems. Holt remains CEO,
and Bunko still chairs the Supervisory Committee. Ross is now a commercial lender at a
different bank, and his lawsuit may have settled[1]. As often happens, the world moved on, barely
noticing the whistleblower.
On occasion, though, the public learns about directors and
top managers retaliating against the whistleblower. Take, for example, Sanford
Wadler and Bio-Rad Laboratories.
Wadler had been Bio-Rad’s general counsel for 20 years when
the company disclosed
in 2010 it had violated the Foreign Corrupt Practices Act (FCPA) in Vietnam,
Thailand, and Russia. A year later Wadler
started suspecting similar violations in China.
He could find little documentation supporting hundreds of millions of dollars
of company sales in China. Management obstructed
his research, he believed. After a year
of investigation, he finally discovered clear evidence of potential bribery in
China.
The law firm Steptoe and Johnson was hired to investigate
Wadler’s suspicions. They had
investigated the company’s operations after the first batch of FCPA violations
but had found nothing wrong in China. In
a March 2013 meeting, Steptoe and Johnson again reported no problem in
China. Wadler objected. So the board decided to fire him. The CEO took care of that on June 7, 2013. On August 8, 2013, the company admitted
having control problems in China.
It’s been four years since Wadler was fired. Bio-Rad’s business
has rolled along. Its stock price
has more than doubled. The CEO and all but one director remain in
place. While Wadler’s effect on Bio-Rad
was as limited as Ross’ on NSFCU, he did far better financially. He was awarded $5.8 million
in back pay (doubled), $5 million in punitive damages, $3.5
million for expenses, plus interest[2]. He did a lot better than most whistleblowers.
Wadler’s case differs from Ross’ in several respects. Although they were both senior managers,
Wadler had been one for 25 years when he was fired. Ross had been CFO for less than a year. Bio-Rad’s violations were more financially
significant than NSFCU’s and involved major federal regulations[3]. Bio-Rad publicly admitted its weak controls while NSFCU successfully denied any violations.
Ross gave NSFCU a good reason to fire him by refusing Holt’s direction
to assume Hall’s responsibilities. The
more experienced Wadler was not so sloppy in his dealings with Bio-Rad.
Finally, Wadler could document involvement by his board in
the company’s retaliation against him. That
enabled him to include individual directors in his lawsuit even if they
eventually escaped personal liability.
Ross’ evidence suggested only that Holt fired him on his own. Holt surely consulted the board before hiring
Ross and may well have discussed his firing with them. But Ross had no proof.
Bio-Rad publicly brags about its
code of ethics, as Enron,
Wells
Fargo, and many other companies routinely do despite their misbehavior. HomeFirst also touted its ethics
and whistleblower policy. Treasurer
Gary Campanella assured me they valued compliance. But that was three weeks after the board
members agreed to retaliate against me and CEO Niklaus
and he began looking for my replacement.
These policies mean little in reality.
Some of my allegations[4]
were confirmed, as Wadler’s was. But accommodations
by authorities and loose rules about nonprofit fundraising allowed HomeFirst to
avoid public disclosures of its misdeeds.
With my access to HomeFirst emails, I could document
participation by board members in my retaliation. But I was still unable to make that evidence
publicly available. I couldn’t leverage
the information for any real advantage over HomeFirst.
Whistleblowers have two important tasks in our battles
against wrongdoers. First, we must
document evidence of the wrongdoing and, particularly, their intent to commit the
wrong. Second, we need to publish our evidence
in a way that attracts attention.
Getting public notice is especially difficult for us small-time
whistleblowers. Big-time players, like
Ellsberg, Manning, and Snowden have been spectacularly successful in getting
their material into public hands. They offer
models – as well as warnings – for the rest of us.
[4]
For example, the County
overbilling, the licensing
violation, and the food
handler card violation.
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