A study of whistleblower retaliation cases at 317 public companies in the United States out of the University of Iowa has concluded that businesses that have had a whistleblower are less likely to have accounting irregularities or tax aggressiveness.
The research done by Jarone H. Wilde, an assistant professor of accounting at Iowa, focused on the two years after a retaliation claim was filed with the Occupational Safety and Health Administration. OSHA is the regulatory body responsible for investigating claims of retaliation under the Sarbanes-Oxley Act.
Wilde told Science Daily that the research “suggests whistleblowers can provide an effective deterrent to financial misreporting by corporations.” Wilde theorized that complaints put the management on notice of a possible future government inquiry and they subsequently take fewer risks.
If this is true, the SEC whistleblower program could have a big payoff in terms of deterrence for the government and protecting investors. In large part, the Iowa study of corporate behavior took place with cases filed before the adoption of the Dodd-Frank Act. Thereafter, the Dodd-Frank Act put publicly traded companies on notice that the government was offering big monetary incentives. If businesses listened, we could see fewer acts of corporate wrongdoing even without explicit notice of a whistleblower at the company.
In some ways Wilde’s research may not extend to the deterrent effect of the whistleblower program, since the theoretical possibility of a whistleblower may not be accounted for properly at financial institutions which have not had a whistleblower in their organization before. And since some corporations have been repeat offenders under the False Claims Act, there is evidence that some businesses may simply not get it, ever.
But Wilde’s research in this area is nevertheless encouraging. We look forward to more research demonstrating the benefits of whistleblowers.