Understanding whistle-blowers

From Watergate and "deep throat" to Sherron Watkins and Enron the idea of the whistle-blower taking his or her story to the media has been a seductive one.

Whistle-blowers, the stereotype goes, are driven by a desire to cause maximum damage through negative headlines, perhaps fuelled by their own grievances or ego, and have little interest in going through "the usual channels".

But in reality, according to new research, it is almost always the opposite that is true, meaning that managers may often have a chance to prevent whistle-blowing becoming damagingly public, yet often fluff the opportunity because of poor processes or procedures.

Research by academics at Indiana University's Kelley School of Business and Georgetown University has argued that many organisations simply fail to put in place the right policies to encourage whistle-blowers to report wrongdoing internally, and therefore suffer the consequences.

"Most of the people who blow the whistle do so internally first. They go to the hierarchy and try to tell people that something's wrong . . . 80 per cent of them stop at that point," pointed out Janet Near, chair of Kelley School's department of management and entrepreneurship, who carried out the research along with Kelley professor emeritus of business law Terry Morehead Dworkin and Marcia Miceli, a professor in Georgetown's McDonough School of Business.

"The stereotype is that whistle-blowers always start out going to the media and try to go for the maximum publicity. They don't. If I'm a manager, and I find out that whistle-blowers typically don't do that, then it behoves me to set up procedures so they can blow the whistle internally and minimise the damage to the organisation externally," she added.

The research chimes with a study from back in July 2007 by Chicago Graduate School of Business and the universities of Toronto and Michigan that suggested it is employees who are most likely to blow the whistle on corporate wrongdoing rather than external watchdogs.

This is despite the fact they are more likely to risk ostracism, job loss and even physical harassment as a result, it found.

Some firms have appeared to grasp this, such as consultancy KPMG, which in December 2006 unveiled a special 24-hour whistle-blowing "ethics line" for its UK forensic's operation that allowed employees to raise concerns about possible fraudulent or improper conduct in confidence.

Yet many more organisations, while they may in principle recognise that it makes more sense to deal with "dirty laundry" inside their organisation than externally through the media, nevertheless struggle to encourage or create a whistle-blowing-friendly climate.

"An organisation's reputation is one of the most important assets that it has – and once it loses that, then we can see how quickly it falls apart. It was just a matter of months until Enron was gone," said Near, whose study has been published in the Journal of Business Ethics.

"Managers don't want to be part of the next Enron. I think they need to think about these things proactively," she added.

"The old line management philosophies from the 1950s were 'the manager is king' and employees should not question (them) . . . That 'ostrich in the sand' mentality is not a good way to manage in the 21st century," she continued.

The study has looked back over the past 30 years at who becomes a whistle-blower and why, what happens to them (and their organisation) after they blow the whistle and what kind of cases have most effectively inspired change.

"In the old days, when a corporation engaged in wrongdoing, it was usually journalists who noticed," pointed out Near.

"These days, I think that modern organisations have become so complex, it's very difficult for outsiders to notice and to see what they're doing.

"If we look back at the huge wrongdoing cases of the past decade… usually the public has found out about them from whistle-blowers. It takes someone who is internal to see what's happening," she added.

But the good news is that there were steps managers and organisations could take to create the right climate.

First, they should create and communicate codes of ethics and anti-retaliation policies, with perhaps managers being required to sign up to it annually so it does not become just another piece of paper that is filed away. "Clear procedures, actively and effectively maintained, reduce not only harassment and reliability liability but also the likelihood of punitive damages," said Near.

They should also conduct serious training for managers and employees alike in how to handle concerns without retaliation in the workplace. This is something the U.S federal government has begun to require, which "mirrors what many states have done in the area of sexual harassment", said Near. "Employees watch what top management is doing. If top management is engaging in ethical behavior and is concerned about wrongdoing, then employees are more likely to avoid engaging in it and to report it if they see it," she added.

Support these efforts with channels for reporting wrongdoing, whether hotlines or simply in creating a culture where dialogue and feedback are welcomed at every level. "Such a culture can build the foundation of an open problem-solving environment, demonstrate to employees that it is safe to raise concerns and exhibit that the organization takes retaliation seriously," said Near.

Finally, Organisations ought to offer whistle-blowers financial incentives. "Observers of wrongdoing consider the costs and benefits of acting, along with other factors," said Near. "The simplest interpretation of motivation theory would suggest that providing valued employer rewards for internal whistle-blowing would increase its frequency."

One practical way forward could be for managers to look at the feasibility of implementing performance review mechanisms that specifically assess employee reporting of questionable activity through appropriate channels, and any rewards or incentives for doing this.

Adding a financial reward had the potential of allowing management to show appreciation, similar in a way to that sometimes given to those who come up with a cost-saving idea, and simply went a long way to creating the right sort of culture for this openness to flourish.

"We haven't seen any firms doing this," conceded Near, highlighting just hard it is for managers to deal with whistle-blowers at a day-to-day level.

"But looking at the context of what the changes in law have done so that people are reporting the federal fraud issues, we've seen a real change in whistle-blower behaviour. We assume that this kind of reward would also work inside an organisation."