---

News Release

Last modified: Monday, June 15, 2009

New article co-authored by IU professors examines benefits of internal whistle-blowing

FOR IMMEDIATE RELEASE
June 15, 2009

Editors: For an electronic copy of the paper, contact George Vlahakis at gvlahaki@indiana.edu.

BLOOMINGTON, Ind. -- It seems logical that a good manager would want to deal with any "dirty laundry" inside the organization before any negative headlines and even a tragedy.

According to a new article based on research by two professors at Indiana University's Kelley School of Business and a colleague at Georgetown University, though, many organizations fail to implement evidence-based policies that encourage whistle-blowers to report wrongdoing internally -- and suffer the consequences.

The article, which appears in the current issue of the Journal of Business Ethics, is written by research colleagues Janet Near, chair of the Department of Management and Entrepreneurship and the Coleman Chair of Management at IU's Kelley School; Terry Morehead Dworkin, a Kelley professor emeritus of business law who is now an adjunct professor of law at Seattle University; and Marcia Miceli, a professor in Georgetown's McDonough School of Business.

"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 percent of them stop at that point," said Near. "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 behooves me to set up procedures so they can blow the whistle internally and minimize the damage to the organization externally."

In the article, the authors offer suggestions to managers and suggest that policymakers also can have a positive influence.

"An organization'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," Near said. "Managers don't want to be part of the next Enron. I think they need to think about these things proactively.

"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 said.

The three scholars also were authors of the book, Whistle-blowing in Organizations (Routledge, 2008). Near and Miceli, who earned bachelor's, master's and doctoral degrees from IU, collaborated on another book, Blowing the Whistle (Lexington Books, 1992).

Over the past 30 years, Near and her colleagues have looked at who becomes a whistle-blower and why, what happens to them (and their organization) 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," she said. "These days, I think that modern organizations 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."

In the paper, Near and her colleagues offer several suggestions on how organizations can support policies and take actions that go beyond lip service:

• Create and communicate codes of ethics and anti-retaliation policies. The paper cited an example of a company that requires its middle and upper managers to sign its policy annually. "Clear procedures, actively and effectively maintained, reduce not only harassment and reliability liability but also the likelihood of punitive damages," they wrote.
• Conduct serious training for managers and employees alike in how to handle concerns without retaliation in the workplace. The federal government has begun to require such training, 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."
• Support these efforts with channels for reporting wrongdoing. Some corporations have created hotlines. The scholars suggest organizations establish 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," the authors wrote.
• Provide employer financial incentives for whistle-blowers.

"As results from previous research indicate, observers of wrongdoing consider the costs and benefits of acting, along with other factors," they wrote. "The simplest interpretation of motivation theory would suggest that providing valued employer rewards for internal whistle-blowing would increase its frequency.

"We recommend that managers consider implementing performance review systems that specifically assess employee reporting of questionable activity through appropriate channels and reward systems that provide incentives for valid whistle-blowing."

Adding a financial reward would allow management to show appreciation, similar to that sometimes given to those who come up with a cost-saving idea.

"We haven't seen any firms doing this," Near said, "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 behavior. We assume that this kind of reward would also work inside an organization."

---

---