Topic

10

Loyalty

to a Company

LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. 2. 3. 4. Define loyalty to a company; Explain internal and external whistle-blowing; Explain circumstances under which internal and external whistle-blowing is morally permissible, if not obligatory; and Discuss the impact of improper loyalty on a company's day to day operations.

INTRODUCTION

What do you see in Figure 10.1 below? Obviously, it is a scene from a wedding ceremony; the bridegroom and the bride running away to celebrate this wonderful occasion. During the ceremony, the bridegroom and the bride will have to make marriage vows which among others include the question of whether they will be loyal to each other. Hence, loyalty is vital for a happy marriage.

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Figure 10.1: Wedding ceremony Source: http://www.nomoho.org/wp-content/uploads/2010/05/marriage5.jpg

Do you think loyalty is important in the workplace? In business too, employers value and expect loyalty from their employees. Loyalty here designates the moral obligation of employees to discharge their duties competently, to obey the legitimate orders of their superiors, to keep proprietary information and trade secrets confidential, and to avoid any conduct that is in conflict with the companys rightful interests. In this topic, we will look into these aspects that are related to the concept of loyalty: (a) (b) (c) (d) Loyalty to employer Whistle-blowing The morality of terminating whistle-blowers Improper loyalty

10.1 WHAT LOYALTY MEANS

As mentioned earlier, loyalty is something that is required from an employee by the employer. However, what does loyalty to employer mean? Let us look at what it means.

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Loyalty indicates the moral obligation of employees to do the following: Discharge their duties competently Obey the legitimate orders of their superiors Keep company information and trade secrets confidential Avoid any conduct that is in conflict with the companys rightful interests

Do you know that loyalty is a prized virtue, at least as far as employers are concerned? Once a person accepts a job with a company, he is considered to owe his loyalty to the company, both while employed and under certain conditions, even after leaving the company. Is loyalty to ones employer a moral obligation? The answer depends on how you define loyalty. If it means that people are expected to do their jobs at some acceptable level of competence or to do what their supervisors tell them to do, whether in terms of their job descriptions or day-to-day directives, then loyalty is a matter of moral obligation because these expectations are the very essence of the employment contract. Furthermore, doing ones job includes understanding that the employee will keep the trade secrets, marketing plans, strategic decisions and personnel information confidential. It also means that the employee will not share the confidential information with outsiders, whether friends, family members or the media. Any manager who violates these terms of the employment contract is subject to disciplinary action by the company up to and including dismissal, as official company documents frequently caution. A manager who discloses company information to outsiders may even face a lawsuit by the company for damages. Clearly, loyalty in this sense involves a moral obligation. Managers may not carry on activities that conflict with their companies interests, unless directly permitted by the companies for good reasons. Furthermore, managers should not provide off-hours consulting services to competitors, nor attempt to patent inventions or sell technical processes they may have developed largely from information derived directly from their employment or by using company materials and facilities.

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Future managers may ask the following questions in order to shed light on matters related to loyalty: (a) (b) Are these restrictions limited? Can companies compel managers to sign agreements that appear to be all-inclusive in restricting outside activities?

It is doubtful that companies have the right to insist on such sweeping limitations. It seems perfectly acceptable for an accountant, management specialist, engineer or personnel specialist to offer his professional expertise to people or organisations who are not competitors or potential clients of his company.

ACTIVITY 10.1
1. In your opinion, what is the most effective way for a company to ensure its employee remain loyal to the company? Visit the website below for more information on the Loyalty Contract: Employee Commitment and Competitive Advantage: http://www.ups.com/europe/ch/news/speech/gerloyalty.html Analyse how workplace loyalty can translate into better overall company performance.

2.

SELF-CHECK 10.1
What does loyalty to employer mean? Explain briefly.

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10.2 WHISTLE-BLOWING
Who is whistle-blower? Read the explanation below in order to learn more about whistle-blower. A whistle-blower, in the business world, is one who reports on fellow employees, supervisors or company officers illegal or immoral actions.

Figure 10.2 shows how a whistle-blower can have a very significant position in an organisation.

Figure 10.2: A illustration on whistle-blower Source: http://www.cartoonstock.com/directory/w/whistle_blowers.asp

Whistle-blowing can be divided into two category: (a) Internal Whistle-blowing The first category occurs when the accusation is made through the lines of supervision or other designated channels within the company. External Whistle-blowing Meanwhile, this second category occurs when the accusation is reported to people or agencies outside the company, like government authorities or the media.

(b)

The most likely justification for blowing the whistle is in situations where somebody in a company is engaging in or tolerating an activity that will harm employees, stockholders or the public. The only way to stop the activity is to inform the appropriate supervisors in the company or, if that channel is blocked,

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one can go to the authorities or the media. So you need to answer these two questions. (a) (b) When is whistle-blowing morally justified? Is it morally obligatory?

Since the answers to these questions vary depending on whether the whistleblowing is internal or external, each variety will be treated separately in the following sections.

10.2.1 Internal Whistle-blowing

Imagine yourself as an executive in a big company. Supposedly, you have good reasons to suspect that the manager at your firm is doing any one of the following offences: Falsifying expense accounts, or Taking bribes from the suppliers, or Using companys resources or equipment for personal use, or Stealing supplies and materials from the company, or Working for a competitor

You may consider it as a mark of loyalty to your company to blow the whistle on your manager who is obviously doing an illegal action. However, is it permissible for you to blow the whistle on this person; who is a manager of the firm where you are working at? The answer is certainly Yes, provided he observe caution, as outlined in Table 10.1.
Table 10.1: Criteria of Justification for Internal Whistle-blowing Criteria of Justification Significant harm Accurate facts Explanation It should be evident that the harm to the company is significant. The whistle-blower has to be sure of his facts. Wrongful accusation may seriously damage the reputation of the accused, even if it is proved later that the allegation is false.

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Already known by the management Reasonable expectation

The whistle-blower should try to find out whether the suspects activity is already known by the higher management, perhaps as a result of audits or discrete investigations carried out by the company security. There should be some reasonable expectations that blowing the whistle will be effective; that the suspects supervisor will put a stop to what is going on because he believes that the offence is as serious as the whistle-blower thinks it is. The whistle-blower has to consider the possible damage to his own reputation and prospects in the business. Will the action be seen as a mark of loyalty, or trivial talk, or an act of spite, or simply, a chance to smear a rival for promotion? Will the whistle-blower be labelled as a troublemaker, however good his intentions may be? Finally, the whistle-blower might discover that, in some instances such as using company equipment for personal use, simply confronting the guilty employee with his wrongdoing might be enough to stop it. Is it morally obligatory to blow the whistle on a manager? The answer to this question begins with establishing who has the primary obligation to watch out for and investigate any questionable action by any employee. Let us say that if a manager signs an agreement with the company acknowledging a responsibility to report, through the proper lines of supervision, all instances of possible wrongdoing he or she might encounter. Then, there would be a moral obligation to blow the whistle whenever the need arises. However, such explicit formal agreements are rare.

Impact on oneself

Moral obligation

ACTIVITY 10.2
What actions would you take if you suspect disloyalty of a manager in your company?

10.2.2 External Whistle-blowing

A manager who reports company wrongdoing to government authorities or the media is engaging in external whistle-blowing. when do you think the external whistle-blowing is permissible? Is it ever obligatory?

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In addition to the criteria of justifications listed earlier for the internal whistleblower, several others are required before external whistle-blowing is justified as shown in Table 10.2.
Table 10.2: Criteria of Justification for External Whistle-blowing Criteria of Justification Internal report of wrongful conduct External agencies Significant case of harm Degree of harm Explanation It must be ensured that effort has to be made to report wrongful conduct internally, through proper lines of organisation. The company concerned should have a chance to clean up its act before the whistle-blower goes public. It must be evident that external agencies like the auditors or the public regulatory bodies are unable or unwilling to report what is going on. A significant case of harm to stockholders, employees or the public has to be at issue, such as fraud, embezzlement, unsafe working conditions or illegal dumping of hazardous materials. The degree of harm that the company will suffer as a result of the whistle-blowing should be proportionate to the harm its wrongdoing is causing. Only when these conditions are satisfied, would external whistle-blowing be justified.

We have looked at the required criteria of justification for external whistleblowing. However, when would it be morally obligatory? The primary obligation for preventing and stopping wrongdoing lies with the degree of supervision. The more responsibilities a manager has for company operations, the stronger that obligation is. A manager would be obliged to report wrongdoing to outsiders only if serious harm is at issue and if it is evident that appropriate levels of supervision are unable to stop it. In the United States, government employees who blow the whistle are protected by law against retaliation. The government appears to think that whistle-blowers are demonstrating a high degree of loyalty when they report wrongdoing. In the private sector, however, whistle-blowers seem to be regarded as a little better than informers.

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SELF-CHECK 10.2 Explain briefly on the two types of whistle-blowing.

Enhance your understanding by attempting the exercise below.

EXERCISE 10.1
Differentiate between internal and external whistle-blowing. What would be the causes for their necessity?

10.3 THE MORALITY OF TERMINATING WHISTLE-BLOWERS

Do you think that companies are justified in firing, demoting or cutting short the careers of whistle-blowers? The answer is No. As long as the whistle-blowers have reported a genuine case of misconduct through appropriate channels, or have gone outside the company (as a last resort), there are no legitimate grounds whatsoever to discipline them. However, a company would be justified in taking action against an employee (the whistle-blower) for the following reasons: (a) (b) (c) (d) Lied about a case, knowingly misrepresented it so that it looked more serious than it really was, As an act of revenge on a fellow employee or supervisor As a protest over an unfavourable company policy To discredit a rival for the purpose of promotion

A whistle-blower, whether internal or external, performs a morally praiseworthy act if he steps in to prevent serious harm to the people or the environment, a harm that could not be justified by company officials. Therefore, it would be a clear case of injustice or immoral act, to punish that person for doing what is morally right, just to get revenge on him or to please higher levels of management who might dislike the truth from being exposed.

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10.4 IMPROPER LOYALTY

Sometimes managers believe that loyalty to the boss means covering up for his serious mistakes or even wrongdoing. That belief is simply false. A manager has a fiduciary duty to the owners of the business. Thus, it would be a violation of that duty to cover up actions by a supervisor who is harming the owners interests in any serious way. A subordinate has to carry out the legitimate orders of his supervisor and keep him informed about the progress of his work or task . The subordinate may even be obliged to tell the supervisor about actions of other persons or groups that may adversely affect boss's operations. However, wrongdoing by his boss should not be ignored. Let us now see how much you have understood from your reading by attempting the following exercise.

EXERCISE 10.2
1. 2. 3. Define the term loyalty to a company. What does loyalty not entail? Under what circumstances, would internal whistle-blowing be morally justified? It is a false belief that loyalty is taken to mean covering up for errors or wrongdoing committed by our superior. Do you agree with the statement? Discuss.

Employers value and expect loyalty from their employees. Employees have a moral obligation to be loyal to their employers by doing their job competently, obeying the legitimate orders of supervisors, keeping company information and trade secrets confidential, and avoiding acts that conflicts with a companys rightful interests. Employers should not ask managers to show their loyalty by committing illegal or immoral actions, engaging in deceitful advertising, or harassing, demoting, or even firing employees for non-job-related reasons.

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The obligation to blow the whistle internally depends on who has primary responsibility for discovering and investigating an employees questionable actions. An employees immediate supervisor has to be alert to any seriously questionable actions a subordinate might perform. A companys security organisation, if it has one, is responsible for helping to protect the companys assets. A decision to blow the whistle externally, to some outside party, is justifiable when all the conditions for internal whistle-blowing have been satisfied, and if the company supervision knows about but refuses to take action to remedy the harm posed to the interests of the shareholders, employees or the public. There is no moral justification for firing whistle-blowers who uncover cases of wrongdoing that involve serious harm to people or the environment that could not have been prevented through the usual company channels. To do so would be to unjustly punish someone for doing what is morally right. Loyalty is sometimes mistakenly taken to mean covering up for a supervisors errors or wrongdoing.

Loyalty Whistle-blower

Whistle-blowing