December 27, 2021
Three Harvard Business School professors recently published a detailed study of whistleblower programs. Specifically, the professors studied 5,000 False Claims Act (FCA) suits filed by whistleblowers. Their conclusion: whistleblower reward programs work.
Aiyesha Day, Jonas Heese, and Gerardo Pérez-Cavzos authored the study. Driven by a desire to understand how financial incentives affect whistleblowers’ decisions, the three examined 5,000 FCA suits spanning 18 years (1994 to 2012). Their study produced several significant conclusions. You can read the detailed study here, but we summarize the key points below.
First, the study makes clear that critics of these programs are wrong. The researchers “found no support” for the notion that whistleblower rewards increase meritless lawsuits.
Likewise, there was no evidence that whistleblower rewards led people to go to authorities before reporting the program internally. Rather, the research confirmed prior studies which found that nearly all whistleblowers tried to report the problem to company insiders first. Only after the company failed to address the issue, did the whistleblower file a lawsuit.
As Professor Heese explained:
In our research, the reason that someone went to the regulator was not a financial motive. It was because their allegation was ignored. In almost two-thirds of the cases, the company just ignored the complaint. In another 10 percent of cases, the company is actually engaging in a cover-up. And then on top of that, some companies retaliate against the whistleblower, with firing being the most severe form of retaliation.
Second, the study steadfastly confirms that whistleblower reward programs like the FCA “help expose corporate misconduct.” In fact, the study concluded that “stronger financial incentives” result in more successful settlements returning funds to the government. A good whistleblower reward program reaps better tips that lead to longer investigations and an increase in settlements.
In short, whistleblower rewards are good public policy.
Third, the research confirms that retaliation is a reality for many whistleblowers. It also confirms that many whistleblowers suffer both financial and non-financial consequences. Professor Dey notes, “There are social and emotional consequences, and there are also career consequences. A lot of whistleblowers are fired. Some may need to move to another state or another industry to find a job, and they may not find a job at the same level.”
Yet the study shows that the presence of a whistleblower incentive program makes a real difference. Over time, so-called whistleblower rewards can, in fact, compensate whistleblowers for the financial harms they suffer.
As Professor Heese explained, the notion of the reward can “come[] across as if someone is making a lot of money without any costs.” But, he notes,
It’s more like an insurance payment. Whistleblowers incur a lot of costs and get some money as compensation.
The researchers note that the FCA is the first whistleblower reward program in the world, dating back to the Civil War. And that it is the model for a host of other modern whistleblowing programs. These include the Securities and Exchange Commission Whistleblower Program, the National Highway Traffic Safety Administration (NHTSA) Whistleblower Program, and many others. As more programs are proposed, or reforms to existing programs enacted, this research demonstrates that whistleblower rewards must be front and center.