Study: Anonymous whistle-blowers don't get serious attention, credibility

 

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Carol Forsloff - A new study has found that corporate directors don't give as much weight to anonymous whistle-blowers as they do allegations that come from people willing to take a chance and reveal themselves.

Very often, according to this latest research, even when allegations show serious behavior, corporations usually take no action.  But when a whistleblower steps forward and is identified in some way, then the corporation usually takes action as reported in what is being hailed as the first study to analyze whistle-blowing specifics in the Journal of Management Studies.

Public corporations are required to provide ways employees can report serious problems within an organization.  These channels are supposed to protect shareholders from financial fraud because it is thought people will be more likely to make a report if their identity is not revealed.

This study has determined "anonymous allegations are treated very differently from non-anonymous allegations, and anonymous allegations are largely ignored, particularly when the allegation threatens a member of leadership’s reputation."

The research assessed eight audit committee members from U.S., publicly traded companies. They were asked to determine and report on the credibility of whistle-blowing allegations from varied non-anonymous or anonymous sources. 

“We found that when an allegation poses a threat to a director’s professional reputation, a form of distortion of information occurs. An audit committee has an incentive to not investigate the allegation when it creates a reputation threat, and this causes the committee member to believe the allegation is less credible,” said Jake Rose, Ph.D., an Associate Professor at the University of New Hampshire Whittemore School of Business and Economics, and co-author of the study. “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' behavior.”

The study finds there is an essential failure of U.S. corporations’ first line of defense against financial fraud. Rose recommends that, “An independent body outside of the corporation needs to be in charge of investigating whistle-blowing allegations.” The authors also point out the potential pitfalls of allowing directors to serve on multiple corporate boards.