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Whistleblowers: Incentives, Disincentives, and Protection Strategies by Frederick D. Lipman

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Chapter Six

Why Should Organizations Adopt a Robust Whistleblower System?

THE FIVE PRIMARY REASONS that organizations should adopt a robust whistleblower system are:

1. To protect the organization from criminal indictment, conviction, and fines and from related civil liability

2. To protect the shareholders or other equity holders of the organization from loss of value of their equity interests

3. To protect the board of directors and officers from civil liability

4. To protect the chief executive officer (CEO) from both criminal and civil liability

5. To protect the business reputation of both the directors and the CEO

The purpose of a robust whistleblower system is to induce employees to use the internal compliance system to report illegal activity rather than report such activity externally to receive statutory rewards. Internal reporting permits the organization to prevent and correct the illegal behavior, thereby helping to safeguard the organization and its directors, officers, and equity holders from the consequences of such illegal behavior.

As discussed in this chapter, if a scandal occurs during the watch of a director or CEO, his or her business reputation will suffer, and it will be difficult to seek other comparable positions. This chapter also discusses the potential civil and criminal liability of both the organization and its directors and the CEO.

Many directors and CEOs believe that they and their organizations are protected by creating and disseminating a ...

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