Studies consistently show that whistleblowers are motivated by moral reasons. The primacy of moral concerns makes sense, considering how frequently whistleblowers face exclusion and retaliation rather than personal gain.
In May 2015, the Securities and Exchange Commission (SEC) punished Deutsche Bank with a $55 million fine. Deutsche’s crime was inflating the value of its portfolio of complex derivatives by $1.5 billion during the financial crisis. The SEC promised former Deutsche Bank risk analyst, Eric Ben-Artzi, $8.25 million for his role in exposing this overvaluation by providing documents to regulators. This payout results from the whistleblower program introduced under the 2010 Dodd-Frank law, which rewards eligible individuals who voluntarily provide information leading to successful sanctioning of over $1 million. Depending on the case, whistleblowers can receive 10 to 30 percent of the sanctions collected.
The rationale behind this program is that it will motivate people to come forward to expose corporate wrongdoing. Indeed, Ben-Artzi noted when he first began helping the SEC investigation that the prospect of financial reward was a “powerful incentive.” Except, stunningly, now that it is time to collect, Ben-Artzi has refused to accept his payout. As he explained in an op-ed in the Financial Times last week, he is foregoing his multimillion dollar reward because the top executives responsible for Deutsche’s crime went completely unpunished and instead retired with multimillion dollar bonuses. What is more, as Ben-Artzi states, he believes that the SEC did not punish Deutsche’s executives because, “Deutsche’s top lawyers ‘revolved’ in and out of the SEC before, during, and after the illegal activity at the bank.” Ben-Artzi’s case illustrates that the motivations of whistleblowers extend far beyond practical concerns and financial gains, and also sheds light on the limited functionality of the current U.S. whistleblower program.
Existing research on this topic consistently shows that whistleblowers are motivated by moral reasons above monetary ones. In a New England Journal of Medicine study of whistleblowers who initiated fraud cases against pharmaceutical companies, the authors report, “Every relator [whistleblower] we interviewed stated that the financial bounty offered under the federal statute had not motivated their participation in the qui tam lawsuit. Reported motivations coalesced around… integrity, altruism or public safety, justice, and self-preservation.” My own research with James Dungan and Liane Young of Boston College corroborates this point by showing that fairness and justice are the primary motivators of decisions to blow the whistle. In ongoing work examining a survey of approximately 42,000 federal employees, we have also found that moral concerns about fairness outweigh pragmatic concerns (e.g., personal benefits) in guiding decisions to report wrongdoing.
The primacy of moral concerns makes sense considering how frequently whistleblowers face exclusion and retaliation rather than personal gain. Given how poorly whistleblowers fare—an analysis by Dyck, Morse, and Zingales showed that 82 percent of named corporate whistleblowers were fired, quit under duress, or had their responsibilities significantly altered—some higher principle must guide the decision to report wrongdoing. Under the Dodd-Frank whistleblowing program, vindication is rare as well. As of last year, the SEC had awarded only 22 whistleblowers despite receiving 14,116 tips since the whistleblower program’s inception. Indeed, the United Kingdom’s Financial Conduct Authority (FCA), in considering whether to implement its own whistleblower reward program, studied the U.S. program and concluded the paucity of awards granted made the program ineffective. The FCA report also suggests that offering financial rewards can introduce perverse incentives such as encouraging malicious reporting, encouraging entrapment to profit from others’ misdeeds, and preventing organizations from establishing effective internal reporting mechanisms. My personal concern is that the mere mention of a whistleblower receiving money alters public perceptions of them from heroes to gold-diggers.
How might a whistleblower program function more effectively in light of these issues? It must not abolish monetary rewards, which certainly enable whistleblowers and their lawyers to take on big corporations. Rather, it must address whistleblowers’ primary motivations to seek and obtain justice. For Eric Ben-Artzi, justice would involve punishing Deutsche’s executives rather than its shareholders, but also more simply ensuring that the SEC’s lawyers were not former Deutsche employees (and vice versa). For others, justice might involve levying more meaningful fines against offenders—a $55 million fine is peanuts to a bank with $1.63 trillion in total assets. Most important, however, if the goal of a whistleblower program is to diminish corporate wrongdoing, it must change social norms. People behave ethically or unethically primarily because of what they perceive others to be doing, and, currently, whistleblowing seems far more counter-normative than ignoring corruption or engaging in it. A more effective whistleblower program would ease eligibility requirements to award more whistleblowers and publicize their efforts to make this brave act seem more common. An even more ambitious program would incentivize organizations to create cultures friendly to whistleblowers.
The current program both prioritizes a relatively weak incentive—money—and rarely pays out. A more effective system would recognize the drive for justice motivating so many whistleblowing decisions and work harder to convey just how common and universal this drive is.
(Note: Adam Waytz is a psychologist and an associate professor of management and organizations in the Kellogg School of Management at Northwestern University. He uses methods from social psychology and cognitive neuroscience to study the causes and consequences of perceiving mental states in other entities and to investigate processes related to social influence, social connection, meaning-making, and ethics.)
Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.