By Dr. Ken Broda-Bahm:
From the frame of mind of the company attorney, a whistle-blower can signal the risk of litigation, high verdicts, or costly fines. From the frame of mind of the executives and CEOs, the whistle-blower can signal disloyalty, a person who is out, not for justice, but for some kind of revenge. To maintain the company's legitimacy, it is the whistle-blower who must be delegitimized. After all, if a person is pointing out a flaw in the system, how much easier is it to believe that the flaw lies not with the system, but with the person? Those defensive reactions from the company, however, can be a form of self-sabotage. As many well-known corporations have learned, trying to avoid or to play down a minor scandal now helps to pave the way for a major scandal later.
A better perspective is that, rather than necessarily harming the company or its culture, whistle-blowers help. A new study of 317 large publicly-traded firms (Wilde, 2017), for example, shows that whistle-blowing actually improves company behavior. Looking at retaliation claims made, the study found that firms that experienced a whistle-blower incident were more careful and engaged in less aggressive practices for at least two years following the incident. "A complaint puts management on notice that a whistle-blower has come forward, so they know it's possible they're going to be looked at more closely by the SEC or other federal regulatory agencies," lead author, Jaron Wilde says. "In theory, they react by engaging in less aggressive practices, and the evidence seems to validate that theory." When whistle-blowers are listened to, that can increase company performance and bolster investor confidence. So a defensive crouch that reads, "I sure hope no one blows the whistle," will always be inferior to a proactive stance that reads, "This company welcomes and encourages whistle-blowing." So how does a company promote that culture? I've written previously about understanding the whistle-blower, and in this post, I will give some more detailed questions to ask about the ways a company can avoid litigation before it starts by encouraging a culture of criticism that leads to loyalty.