Does Whistleblowing Work?

A few months ago, a former employee of Deutsche Bank hit the jackpot. The U.S. Commodity Futures Trading Commission awarded this publicly unnamed whistleblower almost $200 million for supplying “specific, credible, and timely original information” that aided the agency in its investigation into the illegal rigging of inter-bank interest rates. This was the largest whistleblower payment in history.

Deutsche Bank Head Office Frankfurt

Source: FynnWu/Pixabay

The former bank employee now joins a select group of whistleblowers who not only spoke out and were heard by the authorities, but also were rewarded handsomely for their effort. The system worked this time, but far more often those who attempt to blow the whistle are ignored, silenced, and punished.

West Point graduate and Gulf War veteran John Kopchinski is also a member of this group. Although he ultimately received $51.5 million for informing authorities about illegal sales practices at Pfizer, Kopchinski’s road to fortune was anything but easy.

Working as a sales rep at the pharmaceutical behemoth, he had become increasingly uneasy about how Pfizer pushed him to get doctors to prescribe the nonsteroidal anti-inflammatory drug Bextra for unapproved uses. To gain more profit from this drug, the company allegedly also incentivized its sales team to persuade doctors to increase the dosage—up to eight times the approved standard. Kopchinski had tried to alert his superiors about these practices, but was frustrated that the “ethical line kept moving.” He even lost his $125,000-a-year job. And over the course of the six-year legal battle, he almost entirely depleted his retirement savings.

Whistleblowing is not for the faint-hearted. For every Kopchinski, there may be tens of thousands of disgruntled employees who never see justice, let alone compensation for their costs. And brave employees who do speak out can face tremendous repercussions. They risk being demoted, fired, or forced to quit under duress.

Consider, for instance, a highly trained nuclear physicist whistleblower who was moved to a broom closet and put to work in the mailroom. Whistleblowers also have a hard time finding new employment as they are blacklisted as “troublemakers.” And over the course of the complaint and legal process, they not only risk losing income, but also often face insurmountable legal fees. On top of this comes personal stress, frequently fueling divorce and substance abuse.

Facing such daunting obstacles, it is unlikely that employees become whistleblowers for personal profit. Some may do it for practical reasons, for instance in the hope that they will avoid being prosecuted themselves. Others, like Kopchinski, may simply wish to see justice and make things right. They want the company to end its illegal and damaging practices. This is also the reason our laws provide whistleblower protection. Having employees inform authorities about illicit corporate practices should help uncover major forms of abuse that remain hidden inside. In theory, blowing the whistle should help prevent further wrongdoing.

Unfortunately, there is very little evidence that whistleblowing is effective. Prior to Kopchinski, Pfizer had already faced another whistleblower complaint about illegal sales practices at one of its subsidiaries regarding another drug, Neurontin. Apparently, this earlier case did little to change the corporate strategies. As another whistleblower, who was awarded $22 million for informing on SEC violations at Monsanto, explained: “The company got fined and some money changed hands, but that’s not the answer. Management not being held accountable, that still bothers me. I went into this to get that fixed, and that didn’t get fixed.”

Studies have demonstrated an uncomfortable truth about whistleblowing: In the instances when employees do overcome all obstacles and speak out, it does not necessarily lead to real change. A study of the whistleblower provisions in the Sarbanes-Oxley Act, the 2002 law adopted to prevent corporate and accounting scandals in the wake of what happened at Enron and WorldCom, concluded that whistleblowers did not help uncover the vast corporate fraud that resulted in the 2008 financial crisis. Similarly, a study of 999 large Australian companies found that whistleblower protection policies did not enhance compliance.

Another study tried to assess what conditions must exist for whistleblowers to get their organizations to take true remedial action. Although this body of work is far from sufficiently developed, it found that whistleblowing will more likely fail when employees complain about powerful wrongdoers, whose behavior has become central to the company and has been entrenched within its culture.

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To truly fix corporate misconduct, we must look beyond the rare successes of the lucky few whistleblowers that get huge payouts. True success lies in real remediation, in real change, not just in the company the complaint addresses but also in its competitors who may engage in similar misconduct.

Employees have a crucial role to play, as they have the best view of what happens inside corporate America. But they can only do so if they are truly empowered within their organizations to call out misbehavior when they see it, even when it concerns powerful executives, key sources of income, and deviant behavior that has come to be accepted internally. This requires more than paper legal protection against retaliation, or the off chance to win a big reward.

Truly empowering employees requires deeper corporate reforms. One option would be to introduce corporate works councils, which exist by law in Germany and France. Through the councils, elected employee representatives have a direct say and approval power in key corporate decisions. Another option for worker empowerment is allowing workers to organize themselves, and halt the ongoing attacks on unionization.

Whistleblowing can help to prevent the next series of #MeToo cases. It can help protect our environment and avert the next Deepwater Horizon or Volkswagen emissions scandal. And it can safeguard our privacy and democratic institutions from major tech companies. For it to succeed, we must look beyond the multi-million-dollar payouts to the few, and ensure that all employees can come forward with valid concerns and complaints.