The criticism of McQueary's actions or lack thereof is absolutely fair. I am in no means excusing it. He should have immediately stopped the abuse or at the very least called the police. However, I can somewhat understand his lack of action.
We see and hear many examples of such behavior when institutions have such a vertical hierarchy. The military has had countless stories that demonstrate this problem. Abu Ghraib is a recent example that comes to mind. Was everyone who witnessed the mistreatment/torcher of prisoners and said nothing a horrible person?
My questions are, What kind of environment did decades of dictatorship create at Penn State? Was there an understanding that everything that happened was to be kept in house or that Paterno had to know about everything prior to it leaving house? Was there a strict chain of command that had to be adhered to at all times?
I remember being told in the Marines many times by a squad leader or platoon sergeant that they were to informed of any issue and at no time should they be circumvented. In fact, bypassing them would lead to punishment. This has to be the only explanation for McQueary's cowardly actions. Was he indoctrinated in the Penn State institution from the day he walked on that campus as an 18 year old student athlete?
This is why Paterno had to go.
The problem with this is that if there was a strict reporting hierarchy, then you also have to give Paterno himself a pass for the same reason. He told his superior, the University Athletic Director, which would be loyally following the chain of command.
IMO, the seriousness of the crime that was committed transcends any hierarchy or reporting chain. McQueary had a responsibility to stop what he witnessed and then follow it up by calling the police. Whatever sanctions he risked by circumventing the chain of command would have been well worth it.
It's kind of like the young Marines in "A Few Good Men". They may have been following orders, but they were still guilty because they should have known better and they should have protected those who couldn't protect themselves.
McQueary was an adult, he knew better and failed.