Bill Black: Why Whistleblowers’ Disclosures Need Protection Under the Law

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

James Stewart has written a column about Roger Ailes’ alleged sexual predation on female Fox News personnel over the course of many years.  He entitled it “Secrecy of Settlements at Fox News Hid Bad Behavior.”  Ailes was the CEO of Fox News.  I write to show how two concepts Stewart did not employ would aid the analysis and to suggest a fundamental change in the law that would make the world a far better place.

The two concepts I add to Stewart’s analysis are “control fraud” and whistleblowing.  Stewart’s column applies as its sole lens sexual harassment.  That is the obvious lens to employ and it is helpful.  By supplementing this lens, however, we can provide additional useful insights and frame generalized policies of broader applicability.

The concepts of “control fraud” and whistleblowing are related and also have obvious application to the Ailes case if you are familiar with the concepts.  The many women who risked their careers to blow the whistle on Ailes were classic whistleblowers.  Stewart, sensibly, quotes the University of Michigan Law School professor who was instrumental in creating a civil remedy for sexual harassment.

Victims of sexual harassment can see what happens to other victims who came forward. “It’s career suicide to come forward,” said Professor MacKinnon. “You’re roadkill. Women know this, yet some come forward. That’s what courage looks like.”

The people, overwhelmingly women, who bring complaints of sexual harassment in the workplace are whistleblowers.  As a co-founder of Bank Whistleblowers United (BWU) I can vouch professionally and personally that it takes “courage” to blow the whistle.  The sexual harassment context can call for the particularly great courage among whistleblowers because blowing the whistle will provide highly personal information about the victim and inevitably leads to “slut shaming” abuse and trolls.

MacKinnon also rightly emphasizes the inherent role of the harasser’s power over the harassed.

“A lot of men have gotten away with sexual harassment with absolutely no consequences,” said Catharine A. MacKinnon, a professor of law at the University of Michigan and Harvard Law School who pioneered sexual harassment lawsuits. No matter what companies say, she added, “the real rule is that the more powerful a man is, the more he gets away with.”

But what explains the extent of the power differential in employment?  The article quotes a different professor who offers an explanation that isn’t wrong, but ignores what should be obvious, particularly because the setting is the Ailes case.

Jon Bauer, a professor of law at the University of Connecticut who has written extensively about workplace discrimination, also says the issue goes well beyond Fox News. “Employees are rewarded for shielding powerful people in the organization,” he said. “That’s the culture in many workplace settings.”

“Control fraud” is a term and a theory that explains why the consequences of fraud are vastly more severe when the person who controls a seemingly legitimate entity uses it as a “weapon” to defraud.  Sexual harassment is a fraud+ crime.  The fraud is the deceitful statements by your boss that you were hired for your skills and would be advanced in the organization on the basis of the quality of your work.  But sexual harassment is a broader crime that includes extortion.  Like fraud, sexual harassment is an intentional wrong.  For the sake of brevity, I will discuss for-profit firms, but the same logic applies to non-profits and government entities.

Control fraud theory explains why the combination of the seeming legitimacy of the firm and the unique power of the persons controlling the entity (I’ll use the term “CEO” for brevity) combine to create an environment in which the CEO can cause enormous harm.  Bauer begins to get at that in his use of these key words: “rewarded,” “shielding,” “powerful,” and “culture.”  What Bauer is describing are all important elements of how a CEO creates a criminogenic environment to optimize the use of the firm as a weapon.  Ailes is alleged to have shaped such a criminogenic environment through the power to hire, fire, promote, compensate, and give or deny prominent air time.  The goal according to public reports was not simply to reward other bosses for “shielding” Ailes, but to coerce younger women to have sex with Ailes, and not to go public with their complaints even if he was unable to successfully coerce them to have sex or he lost interest in them.

CEOs are the dominant creators of a firm’s “culture.”  If, like me, you have had the misfortune of being forced to attend firm ethics presentations, you will have heard the same useless speechifying by business ethics “experts.”  The expert will pronounce that the “tone at the top” of the firm is absolutely critical.  The CEO will tell everyone how much he wants a world-class culture of ethics.

Talk by CEOs is cheap.  CEOs establish the real tone at the top through their financial incentive systems and who they promote and make wealthy.  If the CEO is honest, the incentive system and the personnel decisions will show that the most ethical, competent people are rewarded.  If the opposite is true, then all the speeches by the CEO and the corporate “ethics statements” are simply part of crafting the criminogenic environment.  The lawyers will help the CEO send out a barrage of self-serving praise for ethics in order to make it appear that the corrupt officers that the CEO has hired and promoted and incentivized to cheat were “rogues” acting in violation of the CEO’s orders.  This is a subtler form of “shielding” the CEO from accountability.

Even when the victim, knowing it would destroy her career, persisted in bringing complaints for sexual harassment against Ailes, he shaped an environment at Fox News that was so criminogenic that it prevented the complaints from becoming public for over a decade.  Like Soviet military doctrine, the CEO’s lawyers build “defense in depth” to protect the CEO from any personal accountability for sexual harassment.  The goal is to make any victim of sexual harassment face the equivalent of attacking Kursk.  The lines of defense Ailes used include:

• Requiring the employee to sign a confidentiality agreement
• Requiring the employee to sign an agreement waiving any right to sue, limiting any claim to arbitration, and making that arbitration secret (arbiters are also typically more hostile to claimants than are courts)
• Requiring the employee not to disparage the firm and its officers and employees
• Using the resources of Fox News to investigate and intimidate victims and reporters who might make their story public
• Smearing the victim through Fox News’ PR and legal staffs
• Allowing Ailes, secretly, to use millions of dollars in funds from Fox News to settle complaints of sexual harassment brought by the most committed victims – in return for non-disclosure agreements that would hide the “pattern and practice” of sexual harassment by Ailes
• Creating situations in which victims still with Fox News either had to praise Ailes to on-air reporters and interviewers or, effectively, destroy their careers. Those statements by the victims could then be used to portray the victims as liars if they later made public Ailes’ sexual harassment
• Ailes creation of a culture at Fox News of fear and enrichment that meant that most colleagues were hostile to the victims and would provide support for Ailes and attacks on victims
• The payment of enormous sums from the firm to Ailes when, after an extensive pattern of sexual harassment, he eventually left. A firm is supposed to “claw back” past compensation from its CEO in such circumstances, not give him a $40 million reward.

I will conclude the discussion of Ailes with an important warning.  Ailes is only out of power because the Murdochs are dominant owners and, reportedly, Rupert Murdoch’s sons were fed up with Ailes and hired a law firm to find the pattern and practice of Ailes’ sexual harassment.  In a typical large corporation with no real control block, Ailes would still be in power.  Rupert was reported as still valuing Ailes.  Rupert placed two of Ailes’ top cronies in charge of Fox News.  At best, these two cronies were stonily indifferent to Ailes’ pattern of sexual harassment.

As with financial whistleblowers, the employees who blow the whistle on sexual harassment are the firm’s best employees.  They have proven their courage in the hottest of crucibles.  If the Murdochs had actually wanted to change the criminogenic environment that Ailes crafted in order to create the pervasively corrupt culture at Fox News they would have taken one or more of Ailes’ victims and promoted them to senior leadership positions at the firm.  That would have credibly signaled the intent to end Fox News’ corrupt culture.  Instead, the Murdochs did the opposite.  Talk is cheap.  The Murdoch’s actions show that they want Fox News to remain a cultural cesspool.

Policies We Need Now to Protect Whistleblowers and the Public

The broader policies that should come out of this discussion apply to all forms of whistleblowing.  The United States should forbid and declare void as against public policy any contractual requirement by an entity:

1. That an individual be forced to give up his/her right to sue and limited to an arbiter
2. That an individual keep confidential any misconduct by the entity, its customers, or their employees and officers

It should be the policy of the United States courts to encourage and defend the disclosure of misconduct by employees and to punish criminally and through a major fine any effort by a corporation’s officers to prevent that disclosure.  This would not repeal laws against libel, slander, and perjury.  The courts should be forbidden to engage in prior restraint through issuing protective orders or injunctions preventing customers, employees, and shareholders from publicly blowing the whistle on misconduct.

Any firm that engages in retaliation against a whistleblower should be subject to criminal penalties and the removal and prohibition of its senior officers from serving as senior officers for a period of five-to-ten years depending on the culpability of the senior officers in that retaliation.