Whistleblowers: Give your name if you want to shame


Whistleblowers: Give your name if you want to shame

Ian Grant

Give your name if you want to shame - that's the advice for whistleblowers following a study of how audit committees respond to anonymous and identified reports of corporate wrongdoing.

Public corporations are required to provide anonymous whistleblowing channels to their employees. More than 80 audit committee members from publically traded US companies were asked to determine and report on the credibility of whistleblowing allegations from varied non-anonymous and anonymous sources.

The study found that directors often do not act on anonymous allegations, even when the allegation involves very serious accounting breaches. But they will act - and strongly - if an identical non-anonymous allegation surfaces.

Anonymous reporting channels are intended to protect shareholders from financial fraud by making it more likely that employees and business associates will report the fraud to directors.

The study looked at whether these channels protect whistleblowers from retaliation, how their evidence is viewed by the board, and how the board handles the allegations.

The study found that anonymous allegations are largely ignored, particularly when they threaten a senior manager's reputation.

"When an allegation poses a threat to a director's professional reputation, a form of distortion of information occurs," said co-author Jake Rose, a professor at the University of New Hampshire Whittemore School of Business and Economics.

"An audit committee has an incentive not to investigate the allegation when it creates a reputation threat, and this causes the committee member to believe the allegation is less credible. Our presumption is that most corporate managers, auditors and corporate directors are honest and ethical people. However, under certain circumstances, 'good' people can engage in 'bad' behaviour."

The study found that the current system is failing. Rose said, "An independent body outside the corporation needs to be in charge of investigating whistleblowing allegations."

The study, the first to investigate the whistleblowing issue with practising audit committee members, appeared in the Journal of Management Studies.

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