Whistleblowing Research Paper Example | Topics and Well Written Essays - 1250 words

Whistleblowing - Research Paper Example nzi scheme in 2009 – discuss their causes, analyze the importance of whistleblowing and find out the implications that this practice has had on corporate governance globally. At the end of 2001, Enron’s filing for bankruptcy made it the largest corporate bankruptcy in the history of the United States. This fall from being the most innovative company as per Fortunes Most Admired Companies survey was catastrophic. Enron’s misconduct were brought to the fore by Sherron Watkins, a former vice president who had previously warned Enron’s chairman that its current aggressive accounting tactics were nontransparent and would come back and haunt the organization. From her investigations Watkins became increasingly alarmed as it became apparent that Enron was using accounting loopholes, special purpose entities, and poor financial reporting to misrepresent earnings by hiding billions in debt from projects. Enron was a classic case of audit failure which forced the US government to come up with legislation to prevent such scandals from future occurrence. In 2002, WorldCom overtook Enron as the largest corporate bankruptcy in US history – a record that has since been broken by Lehman Brothers in 2008. WorldCom, like Enron, was also involved in use of fraudulent accounting techniques that classified operating costs as capital expenditures and inflated revenues through phony accounting entries to create a facade of financial growth and profitability. Even though the WorldCom board reacted swifter than Enron in dealing with the masterminds of this fraud, it still took the courage of Cynthia Cooper to blow the whistle on WorldCom's unscrupulous financial practices. In reaction to these scandals, the US government enacted the Sarbanes-Oxley Act of 2002 together with several amendments to the U.S. stock exchanges’ regulations. The new rules included different provisions whose purpose was to ensure alignment of incentives of corporate insi ders with those of investors, and to reduce the likelihood of corporate misconduct and fraud. For example, the new rules mandated exchange regulations to require a majority of independent directors on corporate boards and independence of the board committees that choose new directors and compensate managers (Chhaochharia & Grinstein, 2007). This act also included provisions that protect whistleblowers by forcing companies to create dedicated mechanisms to record and track information provided by employees both anonymously and confidentially (Eaton & Akers, 2007). The third whistleblower case is somewhat different from the Enron and WorldCom cases with the whistleblower being an individual not operating within the company that committed the fraud. In this instance, Harry Markopolos took it upon himself to conduct an independent financial fraud investigation for close to a decade to uncover evidence that Bernie Madoff's wealth management business was nothing but a grand Ponzi sche me. Markopolos probed Madoff’s operation and kept filing formal complaints at the US Securities & Exchange Commission (SEC) to have Madoff’s hedge fund investigated. The SEC never acted on Markopolos’ tips until 2008. Bernard Madoff Securities firm pitched investors a strategy he called ‘split strike conversion’