You pride yourself on running an ethical organisation, you know that unethical conduct in your ranks is inevitable at some stage, and you would rather hear about it via your hotline than a hashtag. Regulators around the world are offering eye-watering financial incentives to insiders who lift the corporate veil on your inner dealings. Business reputations are being ruined in minutes on social media.
Perhaps it’s not surprising that reputation is a top source of risk keeping executives and board members awake at night. Responsible leaders everywhere are more concerned than ever before with the baffling problem of why even loyal and trusted employees with knowledge of workplace ethical misconduct don’t simply speak up.
It’s tempting to look for a silver bullet – perhaps a bag of silver or even a silver medal as a solution, but the evidence suggests that neither are guaranteed to work. In fact, your incentive plans may deter rather than encourage whistleblowing – the very opposite of your intention.
Peril in the promise of financial reward by employers to employees
Far from encouraging employee reporting, financial incentives offered by employers can deter and delay whistleblowing.
This is the clear conclusion from an important study published in Auditing: A Journal of Practice & Theory (August 2017). Hijacking the Moral Imperative: How Financial Incentives Can Discourage Whistleblower Reporting (paywall) by researchers Berger, Perrault and Wainberg is recommended reading, not least of all for its useful review of previous work in the field.
Here are some of the key observations and findings that you need to know about from the full journal publication:
- Financial incentives (or penalties) are sources of extrinsic or external motivation and this type of motivation contrasts with intrinsic motivation – internal factors to do with the individual themselves.
- Decisions that are usually influenced by ethical, intrinsic concerns (such as deciding to report wrongdoing) tend to be ‘reframed’ by employees as economic transactions when financial incentives are introduced. As the researchers write, ‘whistleblower programs that offer financial incentives can transform the motivational properties of the reporting decision’.
- The result is an unintentional hijacking of a person’s moral, or intrinsic, motivation to do the right thing.
- It is even possible that introducing financial incentives will reduce reporting to levels below that which exist when no incentives are offered at all.
- Not only can reporting be deterred altogether, but it can be deliberately delayed by those attracted to the incentive and who wish to maximise the potential reward.
Why would someone attracted by a financial incentive delay reporting? As any employer who has gone down this road will attest, having decided to pay for information you inevitably find yourself developing a ‘payment policy’ – not all information is of equal value. This typically involves setting a minimum threshold for loss above which reporters become eligible for reward, and the introduction of a ‘reward formula’ which increases the amount of award as the extent of loss detected via a report increases.
But what about ad-hoc, post-fact rewards, which were not part of this study?
They can bring their own problems reports one employer, who in retrospect could laugh at the unintended consequence of his actions. Against the advice of his human resources department, he gave a delivery driver a grocery voucher as a reward for vigilance after he spotted his recently-hijacked company vehicle and advised the police of its location. A month later, the driver had his assigned vehicle stolen again. This time, it was his wife who coincidently spotted the allegedly stolen vehicle in an obscure location. The employee was most disappointed when a similar reward was not forthcoming. Talk about hijacking the moral imperative!
Anecdotes of employees setting up schemes in order to claim rewards aside, the findings presented in, Hijacking the Moral Imperative: How Financial Incentives Can Discourage Whistleblower Reporting, cast strong doubt on the advisability of material incentives.
This may leave you feeling shorter on answers than ever before, but the key is unlikely to lie in understanding employees who are attracted by extrinsic incentives to do good. In fact, if you must make special payments to get employees to fulfil their obligation to act in their employer’s best interests, you probably have bigger problems than figuring out how to promote whistleblowing.
Instead, let’s learn from the employees who are deterred from whistleblowing if it means associating themselves with a payment for information scheme. Many people, who might otherwise speak up, find the idea of seeking financial reward to do the right thing to be repugnant. They do not want to be cast in the role of a paid ‘informant’. Assuming, as we hope, that most of your employees fall into this category, what then are the circumstances that would encourage them to report wrongdoing at work?
Promise in the promotion of ‘social courage’
It’s an age-old lesson. If you want to solve a problem, make sure you are asking the right question in the first place. What today’s behavioural scientists are saying is that we must define our question like this: How do we promote social courage in the workplace?
In search of answers to this question, let’s turn to recently-reported, credible studies by Matt C Howard and Joshua E Cogswell of the Mitchell College of Business at the University of South Alabama. You can find their report, The Left Side of Courage: Three exploratory studies on the antecedents of social courage’ (January 2018) in the Journal of Positive Psychology (paywall) or link to Dr Melanie Greenberg’s easy-to-read summary in Psychology Today entitled New Research Shows How to Facilitate Social Courage. What makes us willing to speak up and take a stand?.
Howard and Cogswell found that employee personality and age, factors beyond the immediate influence of the employer, play the most significant role in an employee’s likelihood to display social courage at work. Specifically, employees most likely to speak up are those who demonstrate grit and have proactive personalities. As Greenberg summarises, ‘Gritty people are determined, passionate about their goals and willing to persevere. Proactive people take action to address and fix problems, rather than avoiding’. Another strong influence was found to be employee age: older employees are much more likely to speak up, regardless of their length of service with their current employer.
So apart from ensuring that grit and proactivity are personality characteristics that you select for when recruiting, what can employers do to promote the likelihood that people will speak up when needed? There were circumstances that Howard and Cogswell found to have a positive, if lesser, impact on the likelihood of whistleblowing, and which you can control. We present these in the form of recommendations here:
- Practice ‘empowering leadership’, which the researchers describe as an approach to leadership characterised by guidance rather than direction, in which there is a culture of collaborative decision-making and in which employees experience sufficient autonomy. This makes good sense, as without autonomy, employees do not feel personal responsibility for the results of their work or the success of their employer.
- Look for ways to increase the level of social support for speaking up that people experience in their day-to-day work. Ideally you want the employee work experience to embolden them rather than cower them.
- Keep your structures as flat as possible and where many hierarchical levels are unavoidable, reduce the perceived ‘distance from power’ of those at the lower rungs. Where employees see rank and position as conveying special privileges, and top decision-makers as less accessible, they are less likely to demonstrate social courage.
The study clearly showed that employees were more likely to be influenced by internal (intrinsic) factors than by their perceptions of the benefits or risks speaking up – findings that echo those reported in the previous study on the impact of financial incentives.
Accepting that this key characteristic is not fully under the influence of the employer, future research will focus on identifying the kind of actions that deter and promote social courage. In the meantime, we turn to recent surveys from the ethics, compliance and anti-corruption fields for practical insights.
Countering employee beliefs that deter reporting
What do employees themselves have to say about why they choose not to report ethical misconduct?
Any survey you read will confirm the overriding impact on employees of the fear of retaliation, with negative consequences for their employment status, on the likelihood of reporting to an internal or outsourced hotline.
In their Speak Up Report 2017, Transparency International Ireland surveyed employee beliefs most likely to deter reporting, and the top four of these in descending order were found to be the beliefs that a) reports will not be confidential (this increases both retaliation and social rejection risk), b) corrective action will not be taken, c) anonymity of reporting will not be maintained and d) they will be labelled a snitch.
This is helpful data, as if employers simply turn each of these beliefs into a question, preceded by ‘What can we do to counter the belief that…’, they would have a useful action-planning framework that can be developed through a suitably participative process.
As you do so you will come to the quick conclusion that even non-financial rewards that involve public recognition and exposure will have a strong deterring effect on the likelihood of reporting. If you are thinking of handing out medals, consider how this will inadvertently fuel at least three of the four strongest employee beliefs that you want to counteract.
Increasing employee use of your reporting channels
Don’t feel despondent – there is a lot that you can do as a leader to encourage the reporting of ethical misconduct. In fact, good news comes from the Ethics & Compliance Initiative, a best practice community of organisations committed to creating high quality ethics and compliance programs. Their 2018 Global Benchmark on Workplace Ethics found that reports of misconduct by employees rise 94% when leaders verbally promote workplace integrity.
For a practical source of suggested actions to promote reporting, we turn to the excellent resource Encouraging the Reporting of Misconduct – A Round Table Summary published by the Anti-Fraud Collaboration (November 2017). The AFC is a grouping of professional bodies committed to the deterrence and detection of fraudulent financial reporting. Their recommendations?
- Visibly denounce misconduct and support reporting of suspected misconduct
- Promote a strong ethical culture
- Communicate that reporting suspected misconduct is expected and required
- Develop, implement, and promote a strong anti-retaliation policy
- Ensure the independence of those responsible for both whistleblowing systems and anti-retaliation programmes
- Provide on-going training to employees regarding the handling of suspected misconduct.
Recommendations for the effective achievement of these important outcomes are in turn the subject of many other studies and will be the focus of future articles.
Not only is the strengthening of people’s intrinsic or internal motivation the best way to promote whistleblowing, but the use of extrinsic measures such as financial rewards can deter people from speaking up.
There is no silver bullet solution to the creation of a speak up culture, and it certainly doesn’t lie in a bag of silver or a silver medal. Instead, let’s focus on avoiding actions that dampen or distort the desire to do what is right and on promoting a workplace culture that is more likely to strengthen the social courage of our employees.
Written for Whistle Blowers Pty Ltd, by workplace ethics specialist Penny Milner-Smyth
About Whistle Blowers
Whistle Blowers is an independent ethics hotline service provider to employers operating in over 40 countries across six continents from its base in South Africa. Operating a 24-hour service in 16 languages, their insights from over 22 years of serving a range of sectors are consistent with the key learning points in this article. Find out more about Whistle Blowers here and contact Dale Horne firstname.lastname@example.org for more information. Alternatively send us an enquiry and we will get back to you.
This article is written for employers wanting to promote reporting by their employees through internal channels or via a dedicated independent hotline service. These are employers who are committed to ethical and legal business practice.
Financial incentives for whistleblowers, where offered by regulatory bodies to people who report illegal activities by their employer, can be in the public interest and can compensate for loss of earnings arising from the whistleblower’s inability to continue in an employment relationship with the company in which illegal activity is taking place, together with any legal expenses they may incur.
- Anti-Fraud Collaboration, Encouraging the Reporting of Misconduct, November 2017
- Berger, L, Perrault, S, Wainberg, J, August 2017, ‘Hijacking the Moral Imperative: How Financial Incentives Can Discourage Whistleblower Reporting’ in Auditing: A Journal of Practice & Theory, American Accounting Association Vol. 36, No. 3 (pp. 1–14)
- Ethics Compliance Initiative, 2018 Global Benchmark on Workplace Ethics , March 2018
- Greenberg, Melanie, Psychology Today, ‘New Research Shows How to Facilitate Social Courage. What makes us willing to speak up and take a stand?’, 30 January 2018
- Howard, Matt C and Cogswell, Joshua E, Journal of Positive Psychology, The Left Side of Courage: Three exploratory studies on the antecedents of social courage, 17 January 2018.
- Transparency International Ireland, Speak Up Report 2017, December 2017