A recent Law & Social Inquiry article quells a myth commonly used to criticize whistleblower reward programs—that reward laws discourage reporting through corporate compliance structures. Written by Masaki Iwasaki, an associate professor at Seoul National University School of Law, “Environmental Governance and Whistleblower Rewards: Balancing Prosocial Motivations with Monetary Incentives” statistically disproves this misbelief and advises policymakers on effective strategies for legal frameworks.
When asked for comment, Professor Iwasaki revealed what led him to this field of study: “The main motivation was to challenge a long-standing misconception in policy circles that financial rewards for external reporting to authorities inevitably weaken internal control systems within companies. This claimed trade-off has exerted considerable influence despite lacking empirical support.”
Throughout the article, Iwasaki refers to this perceived trade-off as the “discouragement effect.”
Even before presenting statistical evidence that awards do not impact the behavior of potential whistleblowers, Iwasaki argues that the discussion about the “discouragement effect” is “superficial.” Although corporate executives use the excuse that award laws would undermine internal governance, this critique “overlooks the legal practices concerning whistleblowing and the decades of research in psychology and behavioral economics on social preferences that has been done.”
Whistleblowers tend to be prosocial people, the study finds, and thus are inclined to report violations internally, even at the risk of retaliation.
Iwasaki’s conclusion is also supported by a study conducted by the National Whistleblower Center, which proved that 92% of all retaliation cases arise from internal reports.
Given the increased harm to society inherent to waiting to report corruption externally—in contrast to the decreased costs of immediately reporting internally—Iwasaki posits that, “Prosocial individuals should be inclined to report internally immediately, even at the risk of forfeiting a potential reward, to prevent further harm.”
When asked how best to reform international whistleblower governance, the professor responded: “Whistleblowers frequently face severe retaliation and personal hardship that can derail their careers, such as being dismissed or informally blacklisted within their industry. Because legal prohibitions on retaliation do not fully prevent these harms in practice, authorities should complement those protections with adequate financial rewards that reflect the risks whistleblowers take.”
The study concludes by offering policymakers strategic and legal advice on designing potent and comprehensive reward programs for environmental whistleblowers. The combination of state and private efforts is most effective. The government must establish a program that offers awards to whistleblowers, impose sanctions on individuals and companies that retaliate, and shift the burden of proof for retaliation from whistleblowers to their employers.
Simultaneously, companies must make internal compliance systems a truly safe method of reporting corruption. As it stands, over 90% of whistleblowers who face retaliation report internally, while only 5% of retaliation cases result from external reporting.
If companies hope to encourage the use of internal compliance structures, those structures must ensure reporters can remain anonymous and safe from retaliation. Iwasaki suggests that companies instate trustworthy investigation systems, enforce anti-retaliation policies, and allow employees to report without disclosing their identities.
“My hope,” he said, “is that the international community will move beyond unfounded arguments about financial rewards and adopt a more evidence-informed approach to whistleblowing policy.”