Source of the following article Persuasive Litigator.

By Dr. Ken Broda-Bahm: 

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From the frame of mind of the company attorney, a whistle-blower can signal the risk of litigation, high verdicts, or costly fines. From the frame of mind of the executives and CEOs, the whistle-blower can signal disloyalty, a person who is out, not for justice, but for some kind of revenge. To maintain the company’s legitimacy, it is the whistle-blower who must be delegitimized. After all, if a person is pointing out a flaw in the system, how much easier is it to believe that the flaw lies not with the system, but with the person? Those defensive reactions from the company, however, can be a form of self-sabotage. As many well-known corporations have learned, trying to avoid or to play down a minor scandal now helps to pave the way for a major scandal later. 

A better perspective is that, rather than necessarily harming the company or its culture, whistle-blowers help. A new study of 317 large publicly-traded firms (Wilde, 2017), for example, shows that whistle-blowing actually improves company behavior. Looking at retaliation claims made, the study found that firms that experienced a whistle-blower incident were more careful and engaged in less aggressive practices for at least two years following the incident. “A complaint puts management on notice that a whistle-blower has come forward, so they know it’s possible they’re going to be looked at more closely by the SEC or other federal regulatory agencies,” lead author, Jaron Wilde says. “In theory, they react by engaging in less aggressive practices, and the evidence seems to validate that theory.” When whistle-blowers are listened to, that can increase company performance and bolster investor confidence. So a defensive crouch that reads, “I sure hope no one blows the whistle,” will always be inferior to a proactive stance that reads, “This company welcomes and encourages whistle-blowing.” So how does a company promote that culture? I’ve written previously about understanding the whistle-blower, and in this post, I will give some more detailed questions to ask about the ways a company can avoid litigation before it starts by encouraging a culture of criticism that leads to loyalty.  

Review Your Policies

Strong policies should spell out that illegal, unsafe, or harassing conduct will not be tolerated, and neither will retaliation. That protection has to be explicit and strong, and understood to be real and not just symbolic. One study (Guthrie & Zalkin, 2015) even found that strong protections worked better than monetary incentives in encouraging employees to step forward to report wrongdoing. However, careful attention has to be paid to the specific language of the policy. Anonymity, for example, is often an important consideration, as long as there are ways to ensure fairness. One study (Wainberg & Perreault, 2016found that an anti-retaliation policy that included vivid descriptions of the types of retaliation an individual might face (e.g., harassment, threats or intimidation, loss of job, etc.) actually had the rebound effect of encouraging less reporting, because it raised the salience and the perceived likelihood of those outcomes. 

Ultimately, strong protections are not enough. Without a company culture that builds loyalty while also encouraging criticism, the policy is not credible. 

But Especially, Check Your Culture

Here are a few questions for companies to ask themselves in deciding whether they’re doing enough to encourage a culture of criticism that encourages constructive whistle-blowing while reducing the risks of costly litigation. 

Are We Clear and Honest About What We Want? 

Be explicit about what you expect when it comes to the use of any whistle-blowing system. If you create a reporting process with the attitude of, “Gee, I hope no one ever has occasion to use this,” there is the risk that this bias will find its way into the policy or the messaging surrounding the policy. The better attitude is to create a reporting system with an eye toward making it normal, productive, and expected. 

Are We Encouraging Dissensus? 

Teams are all about consensus, and in the end, that is where you want to be. But along the way, it helps to welcome a little disagreement. Shared assumptions lead to shared mistakes, and periods of constructive disagreement can lead to better decisions. Some previous analyses have shown that whistle-blowers can be among the most loyal and the most attuned to the company’s expressed values. So those values have to admit at least some degree of disunity. 

Is Whistle-blowing Normalized? 

I’ve written previously that a company culture ought to make whistle-blowing, “less noble, and more normal.” It shouldn’t just be desperate, reactive, and used only in times of crisis. Instead, it should be proactive, aimed at problems large and small, and designed to prevent issues from festering over time. Whistle-blowing should be an encouraged process, not a regrettable necessity. 

 Are We Aiming to Keep It Nonpersonal?

Sure, sometimes other people in the organization are the problem that prompts the whistle-blowing, but not always. Often the problems relate to a process or a practice that transcends individuals. So the question for your culture and reporting process is, “Can one criticize a process without criticizing a person, or are the processes so bound up with roles that criticizing one becomes a criticism of the other?” There ought to be ways to call out problems without making it seem like an attack on any individual. 

Are We Consistent?

For the policy and the practice of whistle-blowing to be credible, it needs to be consistently applied. Follow the same steps no matter who is reporting or what is being reported. Routinizing the practice and consistently applying it makes it part of the culture and not just a policy on paper. 

Are We Looking at Both the Carrots and the Sticks? 

Compliance is often based on penalties, but knowing human nature, it is as important to reward virtue as it is to punish vice. But broadly look at the incentives as well, and avoid any incentives that can discourage honest reporting. As a few large companies have recently discovered, having monetary incentives in place that reward performance without ensuring that performance is honestly gained, can lead to big trouble down the road. 

Ultimately, what the research suggests is that companies ought to be looking at the big picture when it comes to whistle-blowing. It is not about avoiding temporary embarrassment or even temporary liability. It is about creating a structure and a context where the big embarrassments and liabilities can be detected and resolved as early as possible.  

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Other Posts on Company Culture: 

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Guthrie, C. P., & Taylor, E. Z. (2015). Protect or Pay? Promoting Internal Whistleblowing. SSRN. URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2555712

Wainberg, J., & Perreault, S. (2015). Whistleblowing in Audit Firms: Do Explicit Protections from Retaliation Activate Implicit Threats of Reprisal?. Behavioral Research in Accounting, 28(1), 83-93.

Wilde, J. (2017). The Deterrent Effect of Employee Whistleblowing on Firms’ Financial Misreporting and Tax AggressivenessAccounting Review, In Press (submitted December 2016). 

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