295A. J. Diale

THE ROLE AND IMPORTANCE OF WHISTLE-BLOWING IN BUILDING

ORGANISATIONAL INTEGRITY IN THE PUBLIC SECTOR:

A THEORETICAL EXPOSITION1

A. J. DialeDepartment of Public ManagementTshwane University of Technology

ABSTRACT

Constant media exposure of organisational wrong-doing; unethical dealings and illegal practices have come to dominate the discussions on corporate governance. Such exposures are normally brought about

by, among others, stake-holder activism and organisational employees. Usually, in such cases, employees have had prior knowledge about the organisational misdeeds, but chose not to, or were afraid to speak out. If they did speak out, then organisational retaliation would befall the individual whistleblower without any attention to the issues raised; which tends to bring the organisational integrity into question. Numerous case studies and research initiatives have demonstrated that whistle-blowing can and does play a positive role in strengthening accountability mechanisms in organisations, and, by extension, helps build organisational integrity (Jos, 1991:105-118; Johnson & Kraft, 1990:849-874).

The aim of this article is to explore theoretically the nature of whistle-blowing as it transcends across legal, ethical/moral and social fields. This will be demonstrated using documented South African cases of organisational misfortunes. This exploration will be used to highlight aspects to be considered for a framework in building whistleblower infrastructure as an integral component of the organisational integrity, both in public and private organisations.

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behaviour compliant with moral values, standards, norms and rules, accepted by the organisation’s members and stakeholders (Kolthoff: 2007:42).

In this era of modern technological revolution and the expanding global village, organisations and their leaders have come under increasing pressure to demonstrate their moral and ethical pedigree. KLM Inc (2007) rightly observed that, until recently, few organisations seriously considered ethics to be a legitimate topic for enterprise planning and strategic thinking. Organisational top management prioritised and placed emphasis on organisational and functional strategies. Ethics and regulatory compliance were left to human resources departments, finance departments and legal counsel to deal with. This was not considered an integral part of the planning and implementation process. Another observation is made by Navran (2003) referring to organisational collapses and misfortunes, like the fate suffered by United Way, WorldCom, Tyco, Enron, namely; that organisational misconduct, whether by an individual CEO or the organisation itself, attacks and undermines the fundamental agreement between the organisation and society; it violates trust.

South African organisations and institutions have not escaped scandalous publicity either. The Travel-gate, Oil-gate and the Fidentia scandals are some of the cases to hit the headlines in recent times (from early 2002 to date). The respective cases are briefly outlined below:

Case # 1 – The Travel-Gate – SA Parliament’s unfortunate episode

This is one of the most unpleasant organisational misfortunes to ever hit South Africa in the post-apartheid era. The situation involves Members of Parliament (MPs) who defrauded their parliamentary travel benefits by fraudulently claiming for expenses other than travelling. During that period, they were working in cahoots with some travel agents, hence the name Travel-Gate. The amount estimated is around R20 million and 20 MPs have so far admitted guilt in the scandal – and some of them continued to serve in Parliament until the end of the term in 2009.

As is usually done in most damning public disclosure cases, you shoot the messenger and hope that the problem will fade. The whistle-blower in this case, was a Parliamentary Chief Financial Officer, who, after he blew the whistle, was shown the door on trumped-up charges of financial mismanagement. Interestingly; when the whistle-blower approached the Labour Court in terms of the provisions of the Protected Disclosure Act, 2000 to seek protection, the same Parliament opposed the action, not on the substance of the case but on a technicality. The technicality in this case was that MPs were neither employees nor employers and, therefore, the complainant could not claim protection under the PDA. The court subsequently ruled in favour of the whistle-blower with the presiding judge proclaiming “… it would be a national embarrassment if an official could not be protected for blowing the whistle on crooked MPs”. (Business Day, June 15 2007).

The following are some of the observations made from this case:

Parliament in a constitutional democracy like South Africa, is a legislation-making body and an embodiment of public trust. It has financial and compliance policies and codes of

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conduct that guide the conduct of public representatives and the safeguarding of public resources. The irony or reality thereof is that, parliament in itself could not escape the scandalous ethical embarrassment of this nature and it is proven that it is not immune from ethical meltdown. Instead of saving face, the inevitable happened. This involved shooting the messenger on trumped-up charges and challenging the very legislation (PDA) that it promulgated to protect those who expose unethical and illegal activities. It had to take a court judge to enforce the provisions of the legislation and, by extension, to restore the public trust. Lastly, the shortcomings of the legislative approach in building organisational integrity is the tendency to divert the attention of aspects of whistle-blowing from real issues to the personal attributes of an individual whistle-blower.

CASE #2 – The Oil-Gate Affair – How political patronage dictated against good and ethical governance

The Oil-Gate saga revolves around a black economic empowerment company that goes by the name Imvume that was set up to trade in hydrocarbons. This company was given a contract to procure gas condensate for a subsidiary of a state energy company, PetroSA, funded from the public purse and controlled by the National Department of Minerals and Energy Affairs whose Minister then (in 2003) later as appointed the Deputy President of the Republic (2005-2008), and the chairperson of the board happened to be a senior party official from the ruling African National Congress (ANC) and the former Premier of North West province. The saga unfolded when Imvume asked for an advance of R15 million (which was later declared irregular) to pay for shipment, to which PetroSA agreed. Of the R15 million, in 2003, R11 million was passed on to the ANC coffers as donation for the 2004 national elections campaigns (the funds were reportedly paid back, according to the outgoing Treasurer of the ANC during the 2007 National Conference). PetroSA had to pay for the same shipment twice. When the heat was turned on, Imvume used what has become a worrying trend in South Africa’s transparency efforts, that of using the country’s high courts to gag the media and anybody else in exposing questionable business dealings. The subsequent inquiry by the country’s Public Protector (Ombudsman) saw nothing amiss about the deal and concluded that the deal did not constitute any illegality. However; the subsequent legal battles between PetroSA and Imvume indicated a different picture altogether. In this legal battle, PetroSA sought recourse on the costs it incurred and has subsequently attached the assets of Imvume. (Business Day, August 3, 2005).

Observations from the case can be summarised as follows:

Private companies that do business with government are required by law to observe and adhere to the principles and practices of Corporate Governance as recommended by the King Commission’s Reports 1 and 2, regardless of their political or any other affiliation. Corporate greed and political patronage undermine the principles of corporate governance and ethical business practices at the expense of taxpayers and the broader stakeholder community. What should be borne in mind is that, Imvume is a beneficiary in terms of the Black Economic Empowerment (BEE) initiative aimed at economically advancing the

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previously disadvantaged individuals and groupings. Lastly, the relations between private companies and the dominant political establishment provide a fertile ground to put to test whistle-blowing initiatives and the political leadership support for them to flourish. The central contention in this case is whether or not political affiliation and patronage exempt organisations from ethical business practices.

Case #3 – The Fidentia Fiasco – How public trust was taken to the cleaners

This is one case that may be referred to as South Africa’s version of Enron. It makes one wonder whether indeed any idea of corporate governance exists in the minds of some company officials and board members. It involves one Fidentia Holdings (a little-known and unlisted entity), with its two subsidiaries; Fidentia Asset Management and Bramber. The episode goes like this: The Financial Services Board (FSB), an independent institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest, mandated a team to probe the affairs of this company as per its mandate. Fidentia, by then, was looking after R1,6 billion of other people’s money. Among its investors were the Living Hands Umbrella Trust (R1,47 billion), which pays out money invested with it by the Mineworkers’ Provident Fund to orphans and widows of people killed in mining accidents, and the Transport Training and Education Authority (Teta) (R245 million). What the investigation team discovered includes what is referred to as misrepresentation to clients, misappropriation of client funds, misrepresenting investments, inadequate corporate governance and material conflicts of interests (Business Day, February 2, 2007). In addition, about R406 million of “clients’ funds unaccounted for”.

The FSB further applied to the Cape High Court for Fidentia Holdings and its subsidiaries to be placed under curatorship. This was partially granted and the final curatorship was granted on March 27, 2007. This fiasco claimed the directorships (held in other prominent companies) of one black prominent businesswoman in South Africa, when it emerged that a loan was advanced to her from the coffers of the company she had fiduciary responsibilities at, and the criminal charges brought against the two Fidentia executives. It would be highly improbable for one to suggest that the board members of this company had no clue of what was happening.

In the cases cited, organisational members were aware of the some of the dealings but apparently chose the ostrich approach. One can only imagine the effect that these scandals had on both the public and investor confidence and trust.

In response to the ethical challenges that befell them, organisations in turn spent resources on drawing up ethical codes; the end-product being compliance-based ethical regimes, aimed at preventing, detecting and punishing legal violations. Organisations embraced punitive legal compliances (Nadler, 2007; Paine, 1994; Busakwe, 2006). They became overzealous in advocating an approach that prioritised the threat of detection and punishment in order to channel in a lawful and acceptable behaviour. As expressed by (Nadler, 2007; Andrews, 1989; Navran, 2003), ethical codes do not stand alone and they should not serve as a flu-shot to prevent a problem nor should be used as an antibiotic to

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The point of departure in efforts to making whistle-blowing part of the ethical fibre is to advocate for a different and positive interpretation of what whistle-blowing is about, what it should be, and what its place within the organisational value system is. Since the topic is whistle-blowing and its importance in building organisational integrity, a complete approach to the notion of whistle-blowing needs to be embraced. Some suggestions on building the proposed framework revolves around the following aspects:

Making integrity a governing ethic• : As Busakwe (2006:18) and Paine (1994:111) highlight, organisational integrity is based on the concept of self-governance in accordance with a set of guiding principles. The role of managing ethics, in this instance, will be to give life to organisational guiding values, make them the life-blood of the organisation, and make them a driving force to foster continuity and conformity. Let this aspect be what defines the organisation, what it stands for and what it wants to achieve. All these aspects should be contained in the mission statement, vision and values.Identifying and communicating the value of whistle-blowing• within the framework of organisational values. This aspect is related to the interpretation of the notion of whistle-blowing; its new and positive image that should be advocated. This should help to foster responsible conduct among organisational members. This is important to counter the accusations that are normally levelled against whistle-blowers and the negative reaction to whistle-blowing activity. This should provide guidance when faced with ethical uncertainty and dilemmas.Leadership:• This aspect should recognize and encourage whistle-blower leadership at all levels and in all divisions of the organisation. It refers to giving space and recognition to developing whistle-blowing champions. In most instances, top management of the organisation is expected to play the leading role on ethical issues, to lead by example and to portray observable behavioural actions. This view is an addition to such proclamations. Therefore, top officials will have to demonstrate that whistle-blowing is in the interest of all and for the good of all. Systems, processes and policies:• Theses aspects relate to creating and sustaining the ethical (whistle-blowing) organisational climate and culture. In the cases cited and others that have been widely publicised, the most damning acts of whistle-blowing were done externally. These scenarios painted either of the two aspects; the lack of internal mechanisms supporting whistle-blowing or the deliberate acts of disregarding whistle-blowing and the information provided, with the ultimate aim of silencing those who speak out. The prevalence and maintenance of these whistle-blower systems, processes and policies will be an easier task to embark on because the culture and climate will have been cultivated.Continuous monitoring, appraisal, review and training: • These measures are suggested in recognition of the fact that, to have a sustainable whistle-blowing system, efforts have to be made to monitor its success or failure, its strengths and weaknesses and; what members need to know about how their whistle-blowing actions have enabled the system to achieve its objectives. Training opportunities in whistle-blowing and related aspects would enable organisational members to gauge their actions and contributions

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