The Whistleblower’s Dilemma: Do the Risks Outweigh the Benefits?

whistleblowers in business

The whistleblower is back. Instances of insiders calling out corruption, lawbreaking and unethical behavior are happening all the time. But not since the Enron and WorldCom scandals has the role of the whistleblower stepped out of the shadows as it has now.

Less clear is whether whistleblowing as a tool will emerge bruised or burnished in the wake of recent whistleblower allegations that President Trump held back foreign aid to the Ukraine in exchange for potentially damaging information on potential 2020 election rival Joe Biden. The administration has worked hard in recent weeks to stigmatize the image of the whistleblower as an archetype, portraying him or her as an agent of treachery rather than as a servant to the common good and the rule of law itself.

But even before this particular turn of events, the decision to act on conscience in response to wrongdoing was considered “a very risky proposition for an employee who would like to stay working at the company,” says Janice Bellace, Wharton professor emeritus of legal studies and business ethics. That’s because for all of the prominence of whistleblowing in the past decade or so, there is still often no safe roadmap for a worker who has seen something to say something.

“Most people who perceive that there is some wrongdoing often do not know the specific law that would apply,” says Bellace. “As a result, they don’t actually have a good grasp of whether unlawful wrongdoing or probable wrongdoing has occurred. Moreover, and this has happened in some cases, they begin to access material that they might not have the right to access. So, I find these three points problematic from an employee’s vantage point. And even if you do know the law and do have proof, there will be a considerable period of time before you can have your position validated, and you may be without your job during that period of time. That’s a difficult proposition.”

“It’s a really hard issue,” says University of Pennsylvania professor of corporate law David Skeel. “You want everybody to behave ethically and you want to create an environment where people feel comfortable reporting this behavior. But the reality of human interaction is that we often suspect that when we report, we’ll be punished. It starts at the playground when you are a kid and it doesn’t go away.”

Many assume that the various systems of rewards and protections that are in place meant to encourage whistleblowing would make it easier for people to come forward. And often they do. “But none of those things makes the issue go away,” says Skeel. Deciding whether to blow the whistle is still a tricky matter. “When you add in the fact that traditionally a whistleblower has lots of relationships within the firm that could be jeopardized, it’s tough to stand up and do the right thing. It’s just one of those dilemmas.”

Why Do It?

How does a worker know what warrants a whistleblower response? Anyone facing the question knows that he or she risks being portrayed as an alarmist or disloyal on the one hand, or tacitly approving of illegal or unethical activity on the other.

“Most people who perceive that there is some wrongdoing often do not know the specific law that would apply.” –Janice Bellace

“People are more likely to blow the whistle when they can see how the organization or an external actor might do something about it,” says Julian Jonker, Wharton professor of legal studies and business ethics. “There might be ramifications for employees doing the reporting, and if there is nothing good to come from this, they will ask themselves, ‘why do it?’ One change could be to make it so that not only will there be protections for whistleblowers, but we also make explicit the way in which complaints will find a response. Setting aside the perceived usefulness of reporting, an employee is also faced with an ethical question about whether he or she should blow the whistle. The employee must make the ethical decision of whether there is in fact wrongdoing, and whether the wrongdoing is so bad that it outweighs any duties of loyalty they have to the organization on the ethical scale.”

When the wrongdoing is really severe, “it can be thought of as a way of saving the organization,” says Jonker.

But the price in many organizations for whistleblowing can be high, ranging from being socially ostracized to being fired in retaliation. Making an accusation can indeed transform workplace relationships, but the exact way in which relationships are changed depends on a variety of factors, according to findings by Maurice Schweitzer, Wharton professor of operations, information and decisions, and Jessica A. Kennedy of Vanderbilt University in a study published in Organizational Behavior and Human Decision Processes in 2018.

Accusations, especially those regarding ethical violations, are prevalent in organizations, and an accusation influences perceptions of both the accuser and accused, they report in “Building Trust by Tearing Others Down: When Accusing Others of Unethical Behavior Engenders Trust.” In five experiments, Kennedy and Schweitzer determine that accusations harm trust in the accused, harm group functioning, and boost trust in the accuser. People are perceived to be more trustworthy and to have greater integrity when they make accusations than when they do not, the study reports — “as long as the accusation appears to be motivated by a desire to defend moral norms; in this case, making an accusation increases cognitive trust by projecting integrity and high ethical standards.”

In other words, the accuser’s motive must be seen as pure.

In addition, when organizational members make accusations, the benefits may ripple out to the entire organization by “enforcing norms and promoting ethical behavior,” according to the authors. Ethical conduct stems from the organization setting an ethical tone, “and a culture that tolerates or promotes accusations may guide employees to recognize the high costs of engaging in unethical behavior.”

Still, whistleblowers are routinely perceived as disloyal to the organization, “so what’s playing out in the federal government is disappointing … but it’s not unusual by any means,” says Schweitzer. “Moral courage is hard, and in the moment it is far easier to be complicit. This is related to a psychological construct termed pluralistic ignorance. Imagine being in a class and the professor isn’t making any sense to you. You are not sure what to do. You look around and nobody is asking questions. At the same time, everyone else is looking around to see the same thing — nobody asking any questions. So, when we are uncertain about what to do, we look to others for guidance. In this setting, everyone is looking around … and not asking questions. The same thing happens when it comes to observing unethical behavior.”

The first thing that needs to happen in an organization interested in promoting an ethical culture is for the leaders to lead by example, says Schweitzer. “Their commitment to ethics really drives what subordinates are likely to do,” he says.

The second thing is to promote the idea that while organizations care about favorable outcomes, the process is even more important. The recent Wells Fargo scandal is a case in point. Employees were getting the clear message that the company didn’t care that its sales goals were unreasonable. Goals were to be met even if it meant signing up customers to new accounts without their consent or knowledge.

“The reality of human interaction is that we often suspect that when we report, we’ll be punished. It starts at the playground when you are a kid and it doesn’t go away.” –David Skeel

“We all care about outcomes,” says Schweitzer, “but what is important is how we get to those outcomes. And so again this means that as leaders, we need to model the behavior we expect others to follow — we penalize wrongdoing, we have a commitment to getting things right and when we fall short of goals, we learn from it. But we don’t penalize people merely because of an outcome.”

Ethical leadership is an important factor in influencing a worker’s decision on whether to report an ethical transgression, but so is behavior from another source: coworkers. Employees look for social cues on whether to blow the whistle, find the authors of “Encouraging Employees to Report Unethical Conduct Internally: It Takes a Village,” published in Organizational Behavior and Human Decision Processes in 2013. Because formal or informal sanctions can come from either supervisors or coworkers, “if employees perceive that either their supervisor or peers are less ethical, they will be less likely to report unethical conduct internally,” the study finds.

Wharton management professor Samir Nurmohamed, one of the study’s co-authors, says that social pressure to act the same way plays out in the small matters as well as the large ones, and “prior research shows that when you feel close to someone at the workplace who lies, it can impair your moral judgment.”

Another factor is that places with strong cultures tend to attract and retain workers of a similar viewpoint, sometimes creating a concentration in workers more beholden to personal loyalties than ethical considerations. “Hiring people from different backgrounds and networks ensures that people in the organization aren’t dependent on that one job or organization,” says Nurmohamed. “It also sends the message that your organization values different viewpoints, and that there is not social pressure to act the same way.”

A Maze of Laws

How does an employee who becomes aware of questionable behavior decide whether it rises to the level of whistleblowing material?

“That is a big problem, because most employees, at least at the initial stages of a whistleblower situation, get it wrong, because there are over 50 whistleblower protection laws in the private sector, and they are all different,” says Stephen M. Kohn, partner at Washington, D.C.-based Kohn, Kohn & Colapinto.

The good news is that many of these laws provide anonymity, protections from retaliation, and, in many cases, some significant carrots for the whistleblowers.

“People are more likely to blow the whistle when they can see how the organization or an external actor might do something about it.” –Julian Jonker

The whistleblower program run by the U.S. Securities and Exchange Commission, for instance, last year paid out bounties of more than $168 million to 13 individuals whose information and cooperation brought enforcement actions, the SEC reported in its 2018 accounting to Congress. “In fact, the commission awarded more dollars in FY 2018 to meritorious whistleblowers who provided new and critical information than in all prior years combined. The commission also received more whistleblower tips in FY 2018 than in any other previous year,” the report states.

More good news: various other whistleblower programs provide protections and rewards in other sectors. The False Claims Act protects and rewards whistleblowers with claims of contractors defrauding the government. The U.S. Commodity Futures Trading Commission Whistleblower Program covers crimes like securities fraud and currency rate manipulation. The IRS’s Whistleblower Informant Award aims to uncover tax fraud.

The U.S. Whistleblower Protection Act of 1989 guards government employees from retaliation when reporting a wide variety of abuses, violations of law, waste and actions posing a threat to health or safety.

But there are significant gaps in programs that reward whistleblowers, and they tend to be around certain environmental and consumer protection laws — “parts of the economy for which non-financial violations are occurring, but have equal impact on public interest,” says Kohn.

Given the maze of laws, how can the average employee know what to do?

“You must contact a knowledgeable whistleblower lawyer, period, before you to go internally, before you go to the SEC — before you tell your wife,” says Kohn. “These laws work. And they don’t have the publicity of others. They run counter to many stereotypes, that whistleblowers are being retaliated against and losing their careers. But under these laws the government has done a fantastic job at protecting identification.”

But contacting a lawyer, if the company finds out about it, is likely to be interpreted as an escalation of confrontation. In some sectors, confrontation is inevitable, since whistleblowing is mandatory — when a teacher learns of sexual misconduct in a school, for instance. Since 1978, New York City has required city workers to report instances of waste, fraud, abuse or corruption, lest they face disciplinary action.

“We all care about outcomes, but what is important is how we get to those outcomes.” –Maurice Schweitzer

Would extending mandatory reporting to more sectors ease some of the confusion facing many workers?

“It probably would make it more likely that you would report,” says Skeel, “but it also makes the situation more fraught if you are afraid of the negative consequences and are told you are breaking a rule if you don’t speak up.”

Will the current Trump-whistleblower episode change the course of future whistleblowing? Any greater meaning hinges in part on how it ends, and the story is far from over. “On the one hand, this is an example of someone who did their duty and filed a whistleblower report with very good information, and that is the good point,” says Bellace. “On the other hand, in this case, you have the president calling this person a spy, and you’re saying to yourself, ‘I think I am doing the right thing, and I am going to be attacked for it.’ I think the current whistleblower incident could cut both ways.”

Trump’s characterization of, and attacks on, the current whistleblower threaten to have a chilling effect, says Schweitzer.

“As a nation, we have worked hard to implement whistleblower protections laws, and Trump’s actions represent a serious setback to what we have accomplished,” he says. “Whistleblowers are the people on the frontlines who can protect us against fraud and corruption. The threats and attacks on the whistleblower set a dangerous precedent. Rather than protecting and admiring them, Trump has sent a warning shot to anyone thinking about reporting misdeeds.”

But there’s at least one other way of looking at it. Because of the prominence of this case, it could serve to “advertise” the value of whistleblowing like nothing else before it.

“I don’t know that it will necessarily lead to a lot of soul-searching in large institutions,” says Skeel. “But where there is a massive issue, it might make more people on the margins willing to come forward.” ​

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