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ABSTRACT. We conduct quantitative and qualitative analysis of 33 cases of internal and external whistleblowers wrongfully fired for reporting wrongdoing. Our results show external whistleblowers have less tenure with the organization, greater evidence of wrongdoing, and they tend to be more effective in changing organizational practices. External whistleblowers also experience more extensive retaliation than internal whistleblowers, and patterns of retaliation by management against the whistleblower vary depending on whether the whistleblower reports internally or externally. We discuss implications for organizations and whistleblowers, and we conclude that researchers need to develop different theoretical explanations of internal and external whistleblowing processes.
The CEO of a bank noticed numerous cash deposits by several members of the bank's board of directors. Each deposit was slightly less than the $10,000 reporting requirement, but banking regulations prohibit dividing a single transaction into multiple ones to avoid reporting. The CEO believed the directors were laundering Panamanian drug money, so he reported the transactions to the New Jersey Banking Commissioner.
When board members discovered he had blown the whistle on their activities, they ordered his subordinates not to talk to him, began criticizing his decisions, told major customers he was on his way out, and later fired him (Potter v. Village Bank of New Jersey).
As this example illustrates, an employee observing wrongdoing within the organization faces two ethical decisions: whether to blow the whistle, and to whom to blow the whistle. State legislators addressed the first issue by assuming most employees would choose to blow the whistle if they were protected from retaliation, and structuring all state laws to provide such protection (Dworkin, 1992). In the banking case, courts in virtually all states recognize the public policy exception to employment at will (Dworkin and Near, 1987), or the importance of protecting employees who blow the whistle on wrongdoing; thus, the president has a basis for suing his former employer for wrongful discharge.
The decision concerning to whom to report wrongdoing involves considerable ambiguity. Some states mandate external whistleblowing, or reporting to someone outside the organization, such as the relevant federal agency. Other states require reporting to some external recipient, but do not stipulate that recipient. Some states require employees to first rely on internal channels - reporting wrongdoing to someone within...