June 29, 2015, BY Christina Masciere Wallace

Professor Cynthia Guthrie, management

Professor Cynthia Guthrie, management, recently co-authored a study on whistleblowing with Professor Eileen Taylor, a colleague at North Carolina State University. They wanted to learn what motivates employees to report wrongdoing so that companies can better understand the conditions that encourage ethical behavior in the workplace.

Guthrie, who teaches accounting and auditing, examines this question in an accounting context, but her conclusions can be applied to many other situations.  

Q: How do you define whistleblowing?  

A: Whistleblowing is essentially reporting a wrongdoing to someone with the power or intention to correct it. The motivation for most whistleblowers is to have the wrongdoing and harm to others stopped.  

In an accounting context, we look at two basic types of fraud that would affect a company's financial well-being: manipulating financial statements to make the corporation look better, often for personal gain; and stealing, or embezzlement.  

Q: How does an employee decide whether or not to report?  

A: The primary reason for not reporting is fear of retaliation. Studies have shown that retaliation has actually increased, so it is a real problem. Retaliation can take many forms, including getting fired, losing a promotion, being transferred or being excluded from important work activities. Depending on what you're reporting, your coworkers may think you're a tattler and not treat you the same way afterward.  

Q: What inspired you to research this issue?  

A: The Securities & Exchange Commission has given several well-publicized monetary awards to people who reported fraud at publicly traded companies. A lot of companies are now asking whether they need to pay employees to encourage them to report internally so that problems can be addressed within the organization. We wanted to find out if money is a motivator for whistleblowers in more of an everyday workplace scenario. An ethical company would much prefer to have wrongdoing reported internally so that it can correct the problem and prevent it from happening in the future.

We know that whistleblowing is a "good citizen" behavior based on intrinsic motivation to stop wrongdoing. Money is an external motivator, which can crowd out or deflate intrinsic motivation. An example might be if you paid your child for every little chore you expect her to do, which may create a situation where the child refuses to do any chore unless she gets paid to do it.  

Q: How did you structure the study?  

A: We wanted to find out if corporations should spend more effort to protect people from retaliation, or pay them for whistleblowing, or both. Then, inside of the money incentive, we wanted to see if there would be a different reaction if we called it "compensation" vs. "reward."  

The subjects read a short vignette from the perspective of an employee. One group also received language of a company anti-retaliation policy and recollection that they'd seen it enforced, which provided a reason to trust management to carry out the policy. That was the protected group. The nonprotected group did not get protection language, and they did have a recollection of retaliation.  

Within those groups, we created three types of monetary relationships. One group received no mention of money, one was promised "compensation" for reporting, and one was promised a "reward" for reporting, both in the same amount.  

The results showed that people in the protected scenario were significantly more likely to report. They trusted that the policy and the company would protect them, and trust had a very important influence. The money did not motivate them, neither as compensation nor as reward.  

Q: What happened in the unprotected group?  

A: We observed an interesting interaction effect with the type of money offered. Those in the unprotected group were more likely to report if they received compensation or no money — but they were significantly less likely to report if the money was framed as a reward rather than compensation. Our conjecture is that the promise of a reward amplifies the fear of retaliation — such that a potential whistleblower feels he will be branded as a traitor for taking money to report.  

In the next stage, we offered all three groups a larger sum of money, even those not originally offered money. The only significant increase in reporting likelihood was for people who were originally offered money but not protected. We think this is evidence of a priming effect that makes people think they're not doing this out of felt obligation, like the child with the chores. It is the reason to say that extrinsic motivation dampens intrinsic motivation, which is not good. They're doing it for money, and therefore they need more money.  

Q: So rewards may not a good incentive for reporting.  

A: Our suggestion is that companies should think very carefully before they start offering monetary rewards. Real protection from retaliation is definitely the more important thing companies should focus on.  

Q: How effective are retaliation policies?  

A: They are becoming more prevalent, but it all comes down to whether employees trust management. If you see people behaving ethically, you're going to believe in the code of ethics. If you see those words on a piece of paper and yet everybody around you, especially those higher up, is getting away with being unethical, then you may ignore it.  

Q: How do you incorporate your research into your teaching?  

A: We published a pedagogical case about a whistleblower that I often share with my auditing class. Students do role-playing from different viewpoints, which helps them realize it's not all black and white. Almost every case we work on involves some sort of failed professional or moral judgment. There's a great deal of psychology involved with auditing. Students will see these situations in their careers, either within their own firm or with their clients, and they will have to decide whether they have the moral courage to report wrongdoing.