Dana Gold, Barbara Redman, and Michael Flaherman - How Regulatory Systems Can Hinder or Harness the Power of Whistleblowers to Address Institutional Corruption

The October 21st, 2014, Lab seminar featured three Edmond J. Safra Network Fellows whose work has bridged academic thought with professional practice. The first presenter, Dana Gold, is a Senior Fellow at the Government Accountability Project, the oldest whistleblower advocacy group in the United States. During her fellowship Gold intends to study how the systematic response of institutions to vilify, rather than support whistleblowers, is itself a form of corruption. Presenting second was Barbara Redman, an internationally respected researcher, teacher, and administrator in the field of Bioethics. And closing the seminar was Michael Flaherman, who served as Chairman of CalPERS, led a distinguished career in private equity, and now specializes in areas of whistleblower law and the SEC IRS tax code. Together, these three presenters struck on a common theme: the significance of whistleblowers to mitigating corruption.

Dana Gold opened her portion of the Lab seminar by giving a brief overview of the regulatory landscape of whistleblower laws in the United States. She explained that because there is no single federal whistleblower law in the U.S. offering protection from retaliation to all employees for making significant disclosures, workers must often navigate a complex patchwork of employee protection provisions found within federal statutes, or turn to general, state, and local laws. What’s more, protection is typically dependent on what the whistle is being blown on, and what type of reprisal was suffered; even then potential whistleblowers must also take into consideration statutes of limitations. The unfortunate effect of this tortuous regulatory landscape is that often whistleblowers do not know that when they speak up, instead of being commended, or at least protected, it’s more likely that they will be met with some form of reprisal. In light of this, employees usually remain silent because of the underlying fear reprisal, or because they believe that speaking out simply won’t make a difference.

Moving on, Gold touched on internal and external motivations for disclosure, and cited a study confirming her belief that money for disclosures can erode or undermine intrinsic motives for disclosure. Specifically, whistleblowers usually disclose out of a sense of professional ethics, or a duty; a belief that they can make a difference. Gold contended that this is why the majority of whistleblowers first report internally, despite the common stereotype that whistleblowers are narcissists, or motivated by money. At this point in the presentation, Gold argued that in order to reframe the negative perceptions of whistleblowing, institutions must normalize disclosure as if it were a regular duty. In closing, she advocated for a duty mandate to be applied at the management level, rather than the individual employee level. She reasoned that shifting the burden of disclosure to the management level would help create work places that are more effective and safe for raising concerns. In this type of model, employers could, for example, measure performance and compensation by the number of disclosures, rather than the number of unreported incidents.

Barbara Redman began her presentation by outlining several pernicious types of corruption in the field of biomedical research: high levels of bias, non-reproducibility, and an overall failure of regulatory oversight for research practices. The high levels of bias Redman referred to stem from a troubling trend in biomedical research to publish only studies that report positive findings. She explained that both industry-funded researchers and academics do this systematically because of the overwhelming incentives to not publish studies with negative results. Redman’s second concern in biomedical research concerned non-reproducibility in scientific studies. Citing a recent study that found the rate of reproducibility as low as 14%, Redman argued that there should be baseline regulatory standard for reproducibility in scientific studies. Moving on, Redman addressed the underlining incentives that are responsible for these problems. She explained that a growing number of international post-doctoral researchers researching in the U.S. would like to remain in the U.S. and thus feel pressure to focus on reporting positive results. Further, with a decline in NIH funding, the pressure to publish positive results in order to secure more funding in the form of grants is more competitive than ever. Still, Redman also argued that part of the problem is also ideological; that in the research community exists a type of scientific exceptionalism that assumes all scientists are moral, and unmoved by incentives. This is a dangerous assumption, Redman argued, explaining that science is not a profession and it has weak institutions in terms of self-regulation.

At this point in the presentation, Redman gave a brief overview of the regulatory landscape in biomedical research. Under the Public Health System, there are three central mechanisms of federal regulatory oversight: the Office of Human Research Protections (OHRP), the Office of Research Integrity (ORI), and individual and institutional reporting of COIs required through the NIH. Interestingly, Redman explained that there is little to no research proving the efficacy of these federal mechanisms, or their ability to report research misconduct. In addition, there is no requirement for universities to certify that federally funded research is free of fabrication or falsification; there is only financial auditing of NIH grant money. And it is for these reasons; particularly the lack of research compliance, that Redman is interested in the role whistleblowers can play in reporting research misconduct. In conclusion, Redman spoke briefly about a Pilot study she will soon be undertaking for her Network Fellowship, in which a random sample of 25 institutions out of the top 200 NIH funded institutions will be chosen to anonymously distribute questionnaires to employee whistleblowers who have brought claims in the past 3 years that have been resolved. Though Redman is still formulating the questionnaires, it’s her hope that the Pilot study might inform whistleblowing practices.

Closing the Lab seminar was Michael Flaherman, a Network Fellow and fraud investigator, who discussed whistleblower provisions of tax law and security laws. Flaherman began his portion of the presentation by discussing the IRS and SEC/CFTC whistleblower programs, which as he explained, represent a sea-change in tax and securities law enforcement in favor of the government and public interest. He argued that the programs are likely to succeed despite some administrative challenges and due process issues for defendants, which he claimed are vastly overstated by business interests. The reason that these programs are likely to succeed is primarily because they provide massive incentives to whistleblowers that never existed before, that of which have already begun to have a positive effect. Moving on, Flaherman covered various aspects of the Federal False Claims Act, specifically the qui tam provision that allows for people who are not affiliated with the government to file actions on behalf of the government. He then spoke briefly about the whistleblower provision in the Dodd Frank Act (Section 922). This provision he explained, is almost entirely a reaction to the Madoff fraud as an idea to empower people to figure out where the frauds are. He continued by showing a slide to the Lab participants that broke down IRS and SEC/CFTC reward program features in greater detail, such as award averages, claim submissions processes, sources of award funds, disbursement details. In closing, Flaherman presented a case study about a tax practice of the private equity industry that is of questionable legality. Specifically, private equity firms charge so-called monitoring fees to manage companies that they bought, and despite only holding onto these companies for an average of 3-5 years, monitoring fees typically extend for 10-12 years and thus have the potential for abuse, such as being disguised as dividends. Though the case didn’t stem from an internal whistleblower, it revealed how as a result of Dodd-Frank, regulators have found serious problems in practice and disclosure at large private equity firms. 

- Summary composed by Joseph Hollow