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New Study Reports That Whistleblowers’ Activity Can Make a Difference

I often represent whistleblowers – employees in either the private or public sector who become aware of wrongdoing by their employers and come forward to report the wrongdoing in the interest of pressing for change and reform.

Over the years, we have won hundreds of millions of dollars in cases that were originally spurred by whistleblowers’ activities, and we have achieved courtroom victories for whistleblowers who suffered illegal retaliation precisely because they chose to blow the whistle on improper corporate actions.

But does whistleblowing have a positive long-term effect on corporations? Does it make them more ethical, years after the whistleblower’s activity is completed? No one really knows the answer, but a recent study from the University of Iowa’s Tippie College of Business indicates that the answer is yes.

In a recent article in The New York Times,  reporter Gretchen Morgenson late last year discussed the findings of a study by Jaron H. Wilde, an assistant professor of accounting at that school. Wilde set out to ask the question about whether financial shenanigans at companies in the United States tend to decrease in the years after whistleblowers come forward to tell the truth. He sought to obtain evidence that would suggest an answer.

So in conducting the study, Wilde chose a group of companies that, in the period from 2003 to 2010, were involved in “employee retaliation” cases that were adjudicated before the U.S. Department of Labor. These are cases in which an employee stepped forward as a whistleblower and claimed that he or she was retaliated against by his or her employer. They served as a database of whistleblower cases.

Wilde’s sample included a total of 317 companies, and he compared what went on at those companies afterwards with what happened at “control” companies that did not have whistleblower activity during the time in question.

Wilde found that there were significant differences between the companies that had had whistleblower activity and those that did not.

“Following the allegations,” the study concluded, “whistle-blower firms are significantly more likely to experience a decrease in the incidence of accounting irregularities and a decrease in tax aggressiveness, compared with control firms.”

And Wilde found that the decrease in accounting and tax shenanigans lasted for at least two years. He concluded from his findings that whistleblowers do indeed have significant and lasting effects on their companies.

For those of us who represent whistleblowers on a regular basis, this is a heartening result. It tells us that most whistleblowers are people who take risks in telling the truth in order to right wrongs and bring about fairness and justice.

Wilde’s full study was published in The Accounting Review on January 6, 2017.

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