A new study finds that whistleblowers ultimately help increase profit of their companies. Corporate scandals are considered to cost high amount to the investors in the immediate term. However, companies that provide channels for employees to disclose any unethical activity within the organizations are likely to earn more return of assets as compared to firms with underdeveloped whistleblowing platforms, CNBC reported.
Analysts evaluated over 10 years’ worth of whistleblowing records from NAVEX Global, covering a wide range of categories such as workplace safety, sexual harassment, financial reporting, and others. As reported in CNBC news, the whistleblowers play a crucial role in cleaning up a firm’s corporate as well as financial culture and also help the companies achieve lucrative goals. The study discovered that companies operating more internal hotline systems for compliance tend to earn higher return on assets.
Authors of the new study report, Kyle Welch and Stephen Stubben from George Washington University and University of Utah respectively, did not disclose any names of the companies, in an effort to preserve their confidentiality.
Whistleblowers and Whistleblowing has been an important part of cultural change and exposing corruption. Recently, whistleblowing at largest technologies companies such as Google, Uber, and Tesla have uncovered cultural and management issues, forcing them to address the issues publicly, according to CNBC news.
Whistleblowing study has found that most companies either ignore or mismanage internal compliance complaints, and are often clueless about what should be done with the critical information that came into light. However, in the new study, the researchers found that when more employees open up about unethical corporate behavior, the companies are less likely to face any legal actions, resulting into high payouts of settlements and various legal fees.
The authors reported that internal whistleblowing decreased the pending lawsuits against companies by 6.9%, while firms that actively encouraged disclosure of issues saw nearly 20.4% decrease in costs of settlement. More the whistleblowing reports, more accurate the company is on monitoring them, and leading to lesser material lawsuits in the future, CNBC reported, citing Welch in a recent interview.
The authors have identified firms lacking a whistleblowing culture as a ‘cockroach situation’ in which serious issues accumulate without being addressed. When such issues come into light, they become more detrimental, and often ignite a backlash against the management.