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Emphasizing protections against retaliation inhibits whistleblowing, new research suggests

The SEC paid a record $37 million to whistleblowers last year, the latest manifestation of what one former agency official called "the age of the whistleblower," a trend driven in large part by Congress' enactment of Sarbanes-Oxley in 2002 and Dodd-Frank in 2010. 

Yet, research has found that as many as half the employees who witness misconduct choose not to disclose it. To encourage more disclosure, the Association of Certified Fraud Examiners has recommended that companies specifically emphasize anti-retaliation protections in their communication with workers, and the great majority of Fortune-500 firms now do so. Yet, sensible and responsible though such measures would seem, some new research suggests they are counterproductive.

An experiment reported in the current issue of the American Accounting Association journal Behavioral Research in Accounting suggests that explicit assurances that whistleblowing will not lead to retaliation have an effect opposite the intended one. Although the experiment deals with a hypothetical auditing firm, it clearly has implications for many kinds of organizations.

In the words of the study, by James Wainberg of Florida Atlantic University and Stephen Perreault of Providence College, "the inclusion of explicit protections from specific forms of retaliation can lead to an increase in the salience of such threats, thereby significantly lowering the likelihood that the misconduct will be reported through whistleblower hotlines. Indeed, rather than diminishing the fear of retaliation... perceptions of reporting risk [are] intensified."

As the professors explain, "It is common knowledge that whistleblowers are often harmed, rather than protected, as a result of reporting unethical behavior. Therefore, vivid language that points a reader's attention to explicit instances of retaliation is likely to evoke fearful mental imagery, even if the intent of the vivid language is to engender a feeling of protection."

Indeed, the experiment's results suggest that explicitly raising the specter of retaliation, even to convey assurance it will not happen, increases perceptions of risk on average by about 25% over what it would be otherwise.

Participants in the experiment were 68 students enrolled in a university graduate auditing course who averaged about one year's experience as auditors, an amount that would qualify them as staff-level auditors in accounting firms. The subjects read a vignette explaining that during the course of performing audit test work, an accountant had uncovered evidence that the engagement partner supervising the project had acted in ways that constituted a clear violation of professional independence and conduct requirements. How likely was it, participants were asked – ranging from 1 (extremely unlikely) to 9 (extremely likely) – that the auditor would report the misconduct through the whistleblower hotline established by the accounting firm, and did they agree – on a scale of 1 (strongly disagree) to 9 (strongly agree) – that doing so would harm the staff auditor's chances of being promoted.

In half the cases, it was simply indicated that the hotline was "a method for reporting conduct that may be unethical. illegal, or improper. All responses are kept anonymous."

In the remaining cases, this identical statement was supplemented by the following text likely to resemble what would be encountered in corporate settings: "Individuals who make such a report shall not be subject to intimidation or retaliation. This includes threatening behavior, harassment, loss of job or promotion, or any other professional, personal, or financial form of retaliation both now and in the future. If you believe that you are being retaliated against, you should report such conduct immediately to your direct supervisor or to the Human Resources Department."

Among the group that was assured retaliation would not happen the mean estimate of reporting likelihood was 5.09 on a scale of 1 (extremely unlikely) to 9 (extremely likely), while among the group for which retaliation was unmentioned it was 5.97, or about 17% more. Among the first group the mean estimate of job risk was 4.97, while among the second it was 6.18, or almost 25% more.

The professors also probed whether extent of job security influenced the likelihood of reporting and the perceived risk of doing so and found no statistically significant effects, although they concede that "as relatively new auditors our participants may have had difficulty relating to the job security construct."

What about the fact that anonymity was guaranteed to the entire sample; wouldn't this diminish participants' need for anti-retaliatory guarantees? Earlier research on the importance of anonymity guarantees has been mixed, the authors note. "While our study does not specifically investigate anonymous versus non-anonymous reporting," they write, "we posit that explicit protections in whistleblower hotline policies may actually make the dangers of whistleblowing more salient, thereby intensifying rather than diminishing the fear of retaliation."

How, then, to minimize the salience of retaliation risk? In conclusion, the authors write: "Rather than describing explicit protections offered from retaliation, organizations could instead more explicitly describe the organization’s commitment to good corporate governance and ethical behavior. Furthermore, organizations may wish to publicize successful instances of employee whistleblowing as a means of increasing the availability of instances in which whistleblower retaliation did not occur. Note that we are not suggesting that whistleblower hotline policies should omit a statement indicating that retaliation is forbidden, rather our results indicate that explicitly and vividly describing the types of retaliation that are prohibited (as is increasingly being done in hotline policy descriptions) may have unintended consequences."

The new study, entitled “Whistleblowing in Audit Firms: Do Explicit Protections from Retaliation Activate Implicit Threats of Reprisal?" is in the spring issue of Behavioral Research in Accounting, published twice-yearly by the American Accounting Association, a worldwide organization devoted to excellence in accounting education, research, and practice. Other journals published by the AAA and its specialty sections include The Accounting Review, Auditing: A Journal of Practice and Theory, Accounting Horizons, Issues in Accounting Education, Journal of Management Accounting Research, Journal of Information Systems, and The Journal of the American Taxation Association.