An Experimental Approach for the Study of Effective Compliance and Integrity Measures Improving Whistleblowing Behaviors
Economic Policy, Applied Economics
Final Report Abstract
As response to the prevalence and continuous emergence of wrongdoing, organizations have started to develop and align whistleblowing procedures and institutions within their corporate governance systems to encourage employees to report unethical business practices. However, research into the effectiveness of such ethics programs to promote whistleblowing behavior is still in its infancy and empirical evidence is far from being conclusive. The aim of the research project was to empirically test how well these ethics programs are performing and to identify conditions where their effectiveness may be mitigated. We used the method of experimental economics for gathering our data to empirically answer our research questions. The key findings are as follows: Whistleblowing policies that signal support by the organization significantly increase whistleblowing behavior compared to the situation when the organization’s stance towards whistleblowing is only vague. However, the potential threat of being ostracized by peers almost offsets the effectiveness of these benevolent policies. One major insight is that informal factors stemming from the influence by peers play a substantial role in the employee’s perception about the appropriateness of whistleblowing on observed wrongdoing. The effectiveness of whistleblowing policies and sanction systems are advised to be analyzed in combination with peer factors in form of social norms and possible social reactions (e.g. ostracism) that are suggested to have a detrimental effect on the potential whistleblower. An employee’s moral personality is a valid predictor for whistleblowing behavior in the presence of personal costs that strongly incentivize employees to remain silent. Particularly, employees who have higher moral standards reflected in pronounced levels of moral reasoning and moral identity are more willing to blow the whistle than employees who hold lower moral standards. The results support the view that investments in ethical trainings can be justified as to help employees internalize ethical values of the organization and develop a moral personality. Another individual factor we identified that distinguishes the whistleblower from the silent observer is the degree of honesty. Employees who have preferences for honesty reflected by the personality scale of Honesty-Humility are more willing to blow the whistle compared to those who value honesty to a lesser extent, even if the organization displays low support by punishing the wrongdoer unjustly and providing only low protection against retaliation. First findings suggest that rewarding the whistleblower contingent on reporting unethical activities help to reduce wrongdoing to a larger extent than to reward an employee to stay honest in situations where wrongdoing is possible. Rewarding the employee for staying honest may even backfire as potential whistleblowers may not see their responsibility anymore to intervene if employees decide to commit wrongdoing. First findings suggest that whistleblowers encounter reduced long-term career prospects. A substantial share of future employers are less willing to hire them because the breach of loyalty towards the former employer is valued more than the whistleblower’s quality of honesty and integrity that may be beneficial to protect the organization against internal misdemeanor and fraud.
Publications
- (2020): Labor Market Chances of Whistleblowers - Potential Drivers of Discrimination. SSRN Working Paper No. 3481126
Mir Djawadi, B. and Nieken, P.
(See online at https://dx.doi.org/10.2139/ssrn.3481126)
