Whistleblower Reward Programs Work, Harvard Business School Study Says
A team of researchers from Harvard Business School published study results showing whistleblower incentive programs work to expose corporate misconduct. Financial rewards also help to compensate whistleblowers for costs flowing from their decision to come forward, the paper said.
The study contradicts various claims by critics of programs that offer cash incentives for blowing the whistle, according to its authors. Namely, the study’s results were inconsistent with the argument that financial incentives for whistleblowers principally spur meritless reports, finding the exact opposite. Additionally, researchers rejected critics’ contention that increased financial incentives tend to decrease the rate of internal reporting before going to authorities.
In an academic paper dated April 30, 2021, the Harvard team presented findings from data compiled from public court dockets, a professional networking site, and background checks. The data set included approximately 1,600 employee whistleblowers who initiated False Claims Act lawsuits between 1994 and 2012. Researchers compared case outcomes between cases filed in judicial districts that treat whistleblowers more favorably with those that are less friendly to whistleblowers. Courts were considered more likely to financially motivate whistleblowers if they increased whistleblowers’ power to negotiate settlements, eligible damage awards, or eligible penalties. Researchers also investigated the consequences of whistleblowing.
Key Takeaway: Whistleblower Reward Programs Increase Corporate Accountability
Researchers made several important findings demonstrating that cash rewards for reporting help combat corporate fraud, promote corporate accountability, and return taxpayer dollars:
- First, the study determined that whistleblowers respond to financial incentives by filing more lawsuits. Financial incentives did not, as critics claim, make whistleblowers less likely to first report internally.
- Second, researchers said better financial incentives yield suits that the Department of Justice investigates for a longer period, suggesting motivated whistleblowers’ allegations tend to be more serious and credible. Motivated whistleblowers bring suits with more merit, not less, debunking another common critique.
- Third, and, perhaps most crucially, more monetary incentives for whistleblowers improve the ultimate outcome of suits, including increasing the proportion of DOJ-intervened lawsuits and the percentage of settled lawsuits. Financially motivating whistleblowers returns more taxpayer dollars.
Key Takeaway: Financial Rewards Help to Offset the Costs of Blowing the Whistle
Researchers also said financial rewards help to offset the costs of coming forward. Most of the whistleblowers studied faced some form of retaliation but then went on to find better or equivalent jobs. The results suggest that whistleblowers may face slightly lower incomes in the years after filing suit, but researchers said the expected reward from a False Claims Act recovery seemed to balance the financial harm, making cash rewards crucial to whistleblower regimes.
The study carefully noted that it did not purport to offer a full cost-benefit analysis of the impact of whistleblower reward programs. Additionally, its findings were limited to the impact of incentives and costs associated with filing a False Claims Act complaint reporting fraud to federal authorities, as opposed to an internal corporate whistleblower claim or a claim under an agency program like the SEC’s whistleblower reward program.
What Can We Learn from these Results?
The study’s authors offered three main insights for policymakers, firms, and potential whistleblowers:
- First, regulators can use the results to design more effective whistleblower reporting regimes. Evidence that financial incentives motivate whistleblowers to expose fraudulent activities and help compensate whistleblowers for their income loss can and should inform policy debates around whether to reward whistleblowers with cash.
- Second, organizations can rest assured that the research does not support concerns that cash-for-information programs cause employees to bypass internal reporting channels and go straight to regulators, or to lodge baseless claims with regulators.
- Finally, whistleblowers can use the findings on whistleblowers’ career, financial, and social outcomes when wrestling with the decision to come forward as a whistleblower.
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