Whistleblowing is not necessarily a bad thing for an ethical company. When things go wrong, blowing the whistle can help as a corrective action.
Whether executives like it or not, whistleblowing has become so prevalent in the enterprise world that it can almost be described as a business process.
A quick scan of news headlines is all it takes to determine just how busy whistleblowers are these days.
In August 2019, for example, shares of General Electric tumbled after the company was accused by Harry Markopolos, the same individual who exposed the Bernie Madoff investment scandal of 2008, of hiding major losses.
In Alabama, an orthopedic practice agreed to a court settlement in excess of a million dollars after a former employee blew the whistle on a fraudulent insurance billing scheme.
At the United States Veterans Administration, an employee working at the agency’s very own whistleblowing protection department ironically asked the Trump administration for protection after learning that he was purposely excluded from meetings and workgroups for fear that he may blow the whistle on certain anomalies.
Whistleblowing: Good or Bad?
Whistleblowing is typically associated with danger and scandal, thus making it tricky for business owners, executives, and senior managers to digest.
Perhaps human nature causes us to remember the fall of Lehman Brothers, the ignominy of Enron, the infamy of WorldCom, and the unforgettable saga of Bernie Madoff.
Granted, the pure malfeasance and graft of these cases is hard to ignore, but we tend to overlook certain aspects of whistleblowing that have been proven to be positive.
Before we look at how whistleblowing can be beneficial to business, let’s take a look at one specific case that can frame our discussion.
Hewlett-Packard and the $55 Million GSA Payout
In a case dating back to 2002, technology giant Hewlett-Packard and more than a dozen other companies were involved in a major lawsuit accusing them of engaging in a complex kickback scheme to gain government contracts from the General Service Administration.
HP and many other firms paid out millions of dollars to settle the claims, which originated from the work of a whistleblower who partnered with a fraud investigator.
While the $55 million paid out by HP was not something that hurt the company’s bottom line too deeply, the reputational blow was significant; after all, HP does more business as a consumer brand than as a government contractor.
HP still draws substantial revenue from government contracts, but the lawsuit slowed the company down for a few years.
Whistleblowing as a Cleansing Process
In late 2018, the Harvard Business Review published the results of a NAVEX Global research study on incidents handled through internal whistleblowing hotlines.
On the surface, the study, which was conducted by researchers from the University of Utah and George Washington University, did not look very positive because it shone an unflattering light on how many managers handled internal reports.
However, a more detailed investigation revealed that even this less-than-ideal handling resulted in fewer lawsuits filed.
Another positive aspect was related to the amounts of settlements paid and fines imposed, which were lower in companies that manage internal reporting systems.
Whistleblowing Opens Corporate Lines of Communication
Getting back to the aforementioned news coverage, and once we start reading the stories beyond the headlines, it becomes easy to tell when companies are eschewing internal reports.
Whenever the whistleblowers are described as troubled, disgruntled, unstable, and even disheveled individuals, we can almost bet that aggressive law firms have been retained by desperate companies that did not want to communicate with whistleblowers in the first place.
For the most part, research shows that whistleblowers do not wish to go public; in many cases, incidents happened because of a lack of communications.
Nonchalant supervisors and clueless managers often exacerbate the problem, and situations are exacerbated when whistleblowers feel that they do not have a safe place to speak out.
Shine a Light on Problems and Resolve Them
Unless a company deliberately chooses to operate in an unethical fashion, whistleblowing can actually shine a light on certain issues that merit attention.
An internal reporting system does not have to be sophisticated; some Fortune 500 companies use a “red envelope” method whereby messages are funneled directly to executives.
If anything, a whistleblowing system is a sign of smart leadership because it boils down to the basics: you do not have to implement an open door or glass door strategy, all you need is to be willing to listen when the whistle blows.