Master Thesis BA O&MC

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Master Thesis BA O&MC

Winning over bystanders: exploring coworkers’ motivation to support

the whistleblower

Yifeng Gu S2647893

y.gu.6@student.rug.nl

Supervisor: dr. S. Girdhar

Co-assessor: A. Rehman Abbasi

June, 2016

MSc. Business Administration Organizational Management & Control Faculty of Economics and Business

University of Groningen

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Abstract

Occupational frauds nowadays impose tremendous cost on organizations and the society as a whole. Whistleblowing, which is known as one of the most effective way to stop or prevent wrongdoings, is getting a lot of attention in the academic field. However, understanding of this issue is still limited, thus the implementation of whistleblowing policy or mechanism is still far from perfection. The author of this paper took an unique point of penetration to strengthen our understanding of whistleblowing. The target was to grasp the elements, which might encourage or discourage co-workers to support the whistleblower. Inductive research with the notion of grounded theory was conducted. Semi-structured interviews were held with ten respondents coming from four international corporations located in the Netherlands. Nine initial elements were found in the interviews. After further classification, the research proposed that the intention of co-workers to support the whistleblower depends on their trust in management, cost-benefit analysis regarding a series of situational factors, and the organization’s institutionalizing culture against fraudulent behaviors. Except for its theoretical contribution, this research offers observers of wrongdoing insights into how to predict the support they could gain from their co-workers, and states what organizational managers and regulators could do to cope with occupational fraud more effectively.

Key Words

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Acknowledgement

This master thesis marks the end of my days as an international student at University of Groningen. Witting this thesis is a time consuming and challenging part of my study. I would not have been able to deliver this thesis without the support from various people.

Foremost, I would like to sincerely thank my thesis supervisor Dr. Sakshi Girdhar for her continuous guidance, insightful comments and encouragement in carrying out this research. Her supervision helped me a lot in all the time of research and writing of this thesis.

I would also like to acknowledge with gratitude, the unconditional support from my family, the valuable assistance from my friends, and the precious time granted by all the respondents.

The two-year period of pre-master and master study in Groningen is remarkable, in which I got the opportunity to widen my horizon and develop both social and intellectual capabilities. I look forward to apply what I have learned here in my future career.

Yifeng Gu

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Introduction

Occupational fraud, also known as fraud or embezzlement, generally reflects the intentional misuse or misapplication of organizations’ resources or assets by employees for personal enrichment (SFO; ACFE, 2012). Various reports have shown that occupational frauds impose enormous economic cost on organizations and society as a whole (ACFE 2014, PwC 2011). According to the report published by the Association of Certified Fraud Examiners (ACFE) in 2014, which is the world’s largest anti-fraud organization, typical organization lost 5% of its revenue to fraud each year.

Fraud opportunities could be eliminated to some extent by implementing formal control mechanisms, such as internal auditing, external auditing or whistle blowing policy. According to ACFE, tip from employees (whistleblowing) is the most common way at present that frauds are exposed. Whistleblowing is widely defined as: “the disclosure by organization members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to affect action.” (Near & Miceli, 1985). A robust whistleblowing system can encourage report on wrongdoing in organizations, and protect the whistleblowers to some extent. However, according to the national research project “Whistling While They Work: Enhancing the theory and practice of internal witness management in the Australian public sector”, which is among the most comprehensive and up-to-date researches regarding whistleblowing, the development of organized systems for supporting and protecting whistleblowers are still in preliminary phase. Whistleblowers are still likely to suffer reprisals, stress or fear under current circumstance (Brown, 2008; Lewis & Vandekerckhove, 2015).

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area: under what conditions whistle blowing is more likely to be effective (Miceli & Near, 2002). While the process of whistle blowing is presumably costly, or even risky, observer of wrongdoing may need to know their chances of success in initiating effective organizational changes (Miceli & Near, 2002). Organizational activists need to understand themselves to make their moves effective. More specifically, they need to be well aware of their goals, capacities, strengths, as well as vulnerabilities. A good self-understanding not only includes knowing one’s own skills and capabilities, but also knowing clearly what others might think and how they would react (Martin, 2014). In the case of whistleblowing, co-workers of the whistleblower could play large role. However, there is little research by far, which could guide whistleblowers figuring out their co-workers’ perception and possible reaction to their reporting.

Based on the literatures mentioned above, the researcher argues that it is important to study the psychology of coworkers upon whistleblowers, which is especially beneficial for whistleblowers. With the understanding of co-workers, who usually act as bystanders in the complaining process, whistleblowers could evaluate more preciously how powerful they could be in the complaining process, as well as their capability to bring about organizational change. Moreover, such research also has the potential to suggest ways to improve internal process in organizations (Miceli, Near, & Dworkin, 2008).

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With all these insights in mind, the researcher would like to conduct a qualitative research based on interviews to explore the research question: What element might encourage /

discourage the co-workers to support the whistleblower?

From a theoretical perspective, the goal of this study is to expand research in the area of fraud prevention, particularly the understanding of whistleblowing. From a practical perspective, the main beneficiary of this study is whistleblower. This research could help whistleblowers get a better self-understanding by offering them insights about how their coworkers could affect the outcome of whistleblowing, with which they could set more accessible goals and conduct more effective whistleblowing. Besides, the findings of this research could also give some enlightenment to the organizational managers and regulators regarding how to improve the whistleblowing policies or systems to protect employees, either the whistleblower or the bystander, and to enhance the actual effectiveness of whistleblowing.

The remainder of this paper is organized as follows. In the next session, the researcher will discuss relevant literatures and explain the area of interest. A section follows this clarifies the research methodology. After that is a presentation of empirical results, followed by the discussion and conclusion part. At last, limitations will be described and possibilities for future research will be proposed.

Literature Review

Occupational fraud and its cost

The independent government department serious fraud office (SFO) from UK defines fraud as “abuse of position, or false representation, or prejudicing someone's rights for personal gain”. More straightforward, fraud is an act of deception intended for personal gain or to cause a loss to another party (SFO). ACFE further defines occupational fraud as “the use of one’s

occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (ACFE, 2012). Occupational fraud is therefore

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organizational level. It could be categorized into three main types (Kummer, Singh & Best, 2015):

• Asset misappropriation: misuse of organization’s resources

• Corruption: gain benefit for oneself using his/her influence in business transactions

• Fraudulent financial statements: misrepresentation of financial information that is

communicated to the public and investors

It is hard to calculate precisely the cost of occupational fraud, mostly due to the fact that many fraud cases will never be detected because of the nature of fraud (ACFE, 2014). Besides that, most frauds may carry substantial indirect cost, bringing huge amount of harm we cannot see， for instance, loss on productivity, loss on business opportunities, or reputational cost. Thus, the losses caused by occupational fraud could only be quantified by estimation. In 2014, ACFE published its 2014 Report to the Nations on Occupational Fraud

and Abuse, which was based on analysis of 1483 surveys in more than 100 countries. The

most significant finding in the report was that typical organization lost 5% of its revenue to fraud each year, results in a projected potential global fraud loss of nearly $3.7 trillion. Among all the data collected, asset misappropriation was the most common type of occupational fraud, occurring in more than 85% cases analyzed. Financial statement fraud, which happened in 9% of the cases, caused the greatest financial impact. It is worth mentioned that the cost of fraud is equivalent to a financial iceberg. The visible direct cost is only a small part of the iceberg on the surface. The total impact brought by fraud could be much larger (ACFE, 2014).

Definition of Whistleblowing

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meantime, fraud opportunities could be eliminated to some extent by implementing formal control mechanisms, such as maintaining a good system of internal control, monitoring employees and instituting an effective whistle-blowing system, or conducting pro-active fraud auditing. (Albrecht, Kranacher & Albrecht, 2012). Whistleblowing is gaining much attention from the legal authorities in recent decades. According to the Sarbanes Oxley Act introduced in year 2002, a whistleblowing procedure became mandatory for publicly traded corporations. Such corporations must establish procedures for employees to file internal whistleblowing complaints, and procedures that could protect the whistleblowers (Dworkin, 2007).

Majority of researchers use the definition of whistleblowing developed by Near and Miceli (1985): “the disclosure by organization members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to affect action.” The purpose of whistleblowing is to stop the wrongdoing by reporting it to someone who has the power or authority to make this happen. Whistleblowing needs to be distinguished from another frequently used term “employee voice”, which occurs when employees intend to improve the process or operation of the organization by recommend changes. The essential difference is that whistleblowing must concern some wrongdoing perceived by the whistleblower (Near & Miceli, 2016).

The reason that whistleblowing works as one of the most critical tools to prosecute wrongdoers is that whistleblowers are insiders who may first discover wrongdoing, and can identify best source of information that can be used as strong evidence (Cho & Song, 2015). Process of whistleblowing could be composed of five stages: “the occurrence of the triggering event, recognition of the event and decision of actions to take, conduct of action, organizational reaction to whistle-blowing, and whistle-blower’s assessment to the organizational response.” The second stage is essential because this is the turning point that the decision of whistleblowing is being made (Henik, 2008).

Whistleblowing Research

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argued that the whistleblowing intention is affected by the cost-benefit analysis of the observer of wrongdoing. Seifert et al. (2010) adopted the theory of organizational justice and suggested that whistleblowing policies promoting organizational justice could enhance the intention of reporting wrongdoings. On the other hand, empirical researches have been conducted to discover relevant factors, which could predict whistleblowing. For example, Mesmer-Magnus and Viswesvaren (2005) classified relevant factors into three categories, which are whistleblower characteristics, contextual factors and characteristics of wrongdoing. The classification from Cassematis and Wortley (2013) is simpler, which includes personal factors and situational factors.

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Comparing to the two above-mentioned areas, there are far less researches on what might influence the effectiveness of whistleblowing. While many companies adopt whistle-blowing systems, there is a lack of clear implementation plan or guideline. However, how well the whistleblowing procedure is implemented is determinant for its success (Miceli, Near, & Dworkin, 2008). Since the whistleblowing policies and systems are still not close to perfection, organizational actors need more researches that could help them increase their understanding of whistleblowing and improve their surviving skills, which is critical for successfully bringing about organizational change (Martin, 2014). Under such circumstance, researches identifying the conditions under which whistle blowing could be more effective could be invaluable for observer of wrongdoing. While whistleblowing can be costly, those who undertake it should have some knowledge of when the outcome they seek will be forthcoming (Near & Miceli, 1995).

Methodology

Philosophy: Grounded Theory

Two main philosophical bases widely used in academic research are the positivist approach and the interpretivist approach. This research used the latter, which stresses the subjective nature of the social world through qualitative data. The reason is that this approach is appropriate for uncovering underlying motivations, values, feelings and perceptions (Burrel & Morgan, 1979). Qualitative research aims to interpret and construct meanings from phenomena, data, and especially human behavior. In accordance with the attributes of this research, a research method, which emphasize on open-mindedness and curiosity, and with a qualitative and exploratory nature is needed.

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ideal for exploring integral social relationships or the behaviors of groups when there has been little exploration of the contextual factors that affect the individuals (Crooks, 2001). Glaser suggested that professionals can help resolve the participants’ main concerns without having any conjecture and preconception and get though the underlying processes of what is going on (Glaser, 1978). Charmaz (2006) has identified a number of features that grounded theory has. Some most important features are: simultaneous collection and analysis of data; creation of analytic codes and categories developed from data instead of from pre-existing concepts or theories；inductive construction of abstract categories and the integration of categories into a theoretical framework. Ground theory methods consist of guidelines, which are systematic, but also flexible for qualitative data collecting and analyzing to construct

theories “grounded” in the data. Grounded theory methods fit in-depth interviewing

particularly well because they have many characteristics in common: open-ended yet directed, paced yet unrestricted, shaped yet emergent (Bernard, 2006).

Data Collection Method

The main source of empirical data is shaped by a total of 10 interviews. In-Depth interviews were used to support the researcher in getting detailed information about respondents’ thoughts and behaviors (Boyce & Neale, 2006). The interviews were conducted semi-structured (Bernard, 2006). The book of Bernard “Conducting in-depth interviews: A guide for designing and conducting in-depth interviews for evaluation input” was used to facilitate the designing of the interviews.

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The interviews were structured as the following way. A preparation stage is important to avoid problematic circumstances that could have negative impact once the research is implemented. Following the principles applied by McNamara (2009), the first introductory part of the interview included the following elements: (1) explain the purpose of the interview; (2) address terms of confidentiality; (3) explain the format of the interview; (4) indicate the duration of the interview; (5) asking if the participants have any question before getting started. Then some “warm-up” questions concerning the background the respondents are raised.

After that came the main section of the interview. Since the interviews were semi-structured, only the subjects to be discussed were fixed. The exact questions as well as the sequence of the questions were adjusted alongside the interview process. Follow-up questions were asked according to the responses from the interviewees. The main section of the interview consisted of three parts. The first part asked the respondents their general understanding and awareness of occupational fraud in organizations. A few clarifying questions or comments can keep a story coming and help the respondents understanding the theme (Bernard, 2006). The second part concerned the policies or systems the companies were using against fraud. These two parts lead to the third, which was the core objective of the interviews: the perception of respondents about supporting whistleblowers in organization. The interview guide could be found in appendix 2.

All the respondents agreed that the conversation could be recorded. Both the interviews conducted face-to-face and by skype were recorded by mobile phone. Each interview lasted about 30 minutes. Some interviews were conducted in English, while some others were in Chinese. All the interviews were transcribed afterwards. The ones done in Chinese were translated into English after the transcription process.

Respondents

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more than 10,000 employees and one has around 5,000 employees. The names of the organizations are kept confidential as promised to the interviewees, which is essential for the respondents to speak freely and comfortably. Of all the respondents, 5 were male and 5 were female, which is close to the actual gender distribution in working place. The respondents came from different functions such as R&D, supply chain and marketing. Moreover, all the respondents had overall working tenure over three years, mostly over 5 years. This was to ensure that they have enough relevant experience to answer the questions properly. A detailed overview of the interviews and respondents could be found in appendix 3.

Quality criteria

It is widely acknowledged that the central aim of research is to pursue inter-subjective agreement (Swanborn, 1996). In order to provide the basis for inter-subjective agreements on results of the research, controllability, reliability and validity are the three most important research-oriented quality criteria (Swanborn 1996, Yin 1994).

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guarantee circumstance reliability, the interviews were conducted on different times and days (Aken, Berend & Bij, 2012).

At last, validity of the research results could be assessed from three perspective: construct, internal and external validity, which reveals to what extent the relationship between results and the way it has been generated is justified (Aken, Berend & Bij, 2012). The researcher carefully considered adding new components to measurement or deleting existing items when flaws are detected in order to enhance construct validity. To make the research internal valid, the researcher tried to make sure that there are no plausible competing explanation. Furthermore, by choosing interview candidates from different departments or different levels, the generalizability of the results (external validity) is likely going to increase.

Data Analysis Method

Concurrent data collection and analysis were carried out in accordance with the philosophy of grounded theory method. During the process of conducting interview, the researcher modified the questions when the analysis of existing data raises questions, suggests relationships or highlights gaps (Sbaraini et al, 2011). In this research, the main structure of the interview guide remained unchanged for the duration. But some questions were phrased in different ways according to the stories the respondents told.

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analysis. The researcher also tried to confirm some ideas generated from the early interviews with the respondents coming later.

Results

The following section contains the main findings from interviewing, which forms the base of empirical data. First of all, when being asked whether support from coworkers play a role in the process of whistleblowing, almost every respondent gave positive answer. Most respondents thought that support from co-workers could be seen as affirmation for the whistleblowers’ action. One representative answer is:

Respondent 8: “I think we all need support from others. I think that the support from others

could at least help the reporter make sure that he or she is not biased or overreacting about something. Everybody else think the same way.”

Although one respondent thought that the decision of reporting should not be affected by whether others are going to support or not, there is also no negative effect caused by the support from co-workers.

Respondent 4: “No. If you find something wrong and important, you should report it anyway.

It should not be affected by others.”

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Figure 1 Elements that might encourage or discourage co-workers to support the

whistleblowers

Severity of the fraudulent behavior

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Severity is among the most frequently mentioned elements in the examples respondents raised. Respondents acknowledged that severity is the determinant factor of the amount of cost caused by the fraudulent behavior.

Respondent 6: “The cost of wrongdoing depends on what kind of wrongdoing we are talking

about. If it is severe, the loss could be very large.”

One respondent claimed that if he discovered a wrongdoing, he would decide whether to report it to the manager by evaluating the severity of the behavior.

Respondent 3: “I think that you cannot expect anybody working the whole time. Sometimes

they just don’t have anything to do. Or when they have worked very hard for two months for example, it is ok to relax a bit. But if this happens too much, it is not good behavior. I will tell them going back to work. If this is still a problem, I have to report to the manager.”

Severity is not necessarily determined by the one-off impact brought by certain fraudulent behaviors. For instance, frequency of the wrongdoing could not be neglected as well.

Respondent 1: “People are not likely to report, unless the wrongdoing is severe or happens

too much time. Even with tiny things such as printing personal material using company printer, the company would have to spend a lot of money on this over time. This cost could not be neglected.”

Despite the variety of fraudulent behaviors the respondents could think of, they all tended to agree that fraudulent behaviors could bring large amount of financial loss to the organizations over time. Furthermore, one respondent also mentioned one kind of intangible harm caused by wrongdoings other than financial loss.

Respondent 5: “If the wrongdoing is small, it is not worth to deal with it because this could

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Evidence

The second issue people concern is to what extent the fraudulent behavior could be confirmed. One respondent claimed that he usually got information about wrongdoing from gossips. Respondent 6: “I could always collect some information about wrongdoings, mostly from

gossips.”

However, people need more reliable source of information to take further steps. On one hand, the observer of wrongdoings needs evidence to be able to report them.

Respondent 7: “Lack of evidence is one reason that people don’t report wrongdoings. And

most people actually don’t bother with things that are not relevant to them.”

On the other hand, lack of evidence also stops bystanders from supporting the whistleblower. Respondent 4: “The person who is reporting needs to investigate the wrongdoing and let me

know the result or evidence, then I can decide whether to support him.”

Alert and Persuasion

Several respondents expressed the point that the wrongdoers deserve one chance to correct their fraudulent behaviors. It would be unreasonable and too harsh to report them right away. Respondent 4: “When I notice something wrong, I just ask the wrongdoer not to do it

anymore. Normally I don’t want to make it a big issue, unless the problem is really severe and bad for the organization.”

Therefore, they also prefer that the person who witnesses the wrongdoing firstly do some alert or persuasion job privately to the wrongdoer. If this doesn’t work, one could raise this issue again before colleagues’ eyes.

Respondent 1: “I think colleagues are more likely to help when they see that the

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Policy

Many respondents referred to the impact of policies or systems the companies use to prevent wrongdoing from happening or guide the treatment afterwards. However, a large proportion of respondents were not familiar with the policies of their current organizations.

Respondent 2: “I don’t know much about the policies. Different organizations work in very

different ways. I think that we only make use of the hierarchy between people to control this issue”

A coupe pf respondents mentioned that the only policies regarding fraud they have seen in their companies were the regulations on the employment contracts.

Respondent 1: “I am not familiar with the policies in our company. When I signed the

employment contract, there were some regulations on it, which states something like that you are not allowed to misuse the company’s property, otherwise the contract might be terminated.”

Lack of knowledge about the policies inevitably has drawbacks. For instance, it could lead to confusion for employees when confronting wrongdoings.

Respondent 10: “If I want to report one colleague’s wrongdoing, I will discuss with my line

manager first about to whom I should report and whether I should report. I don’t really know the exact process to do this. And perhaps I lack some evidence, but it is the investigation team’s job to figure it out. I just tell what I have seen.”

Other than that the companies may lack relevant policies indeed, another possible reason for limited knowledge about fraud-prevention policies is that employees are not having enough training regarding this issue.

Respondent 10: “We had to participate some training when we entered the firm. The training

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There are two respondents from one organization mentioned a particular department in their company, which specialized in dealing with fraudulent behaviors.

Respondent 6: “We have a compliance department. You can send them message about the

wrongdoings you discover. Their job is to investigate and deal with it.”

But one respondent felt that the effectiveness of such department was still questionable. Respondent 7: “The compliance department is newly established. It was built two years ago. I

think the system is by far not very user-friendly. For example, I am not sure if the anonymity of the reporter could be guaranteed. Besides, we don’t have guideline, which teach you how exactly you should do in different circumstance. The company only introduced this department by some presentations, which are not even mandatory for us to attend.”

However, according to the respondents, the policies do play an important role in fraud prevention. Policies could encourage the co-workers to support the whistleblower. The motivation for this could from two perspectives. Firstly, policy that clearly states what is right or wrong provides a basis for judgement.

Respondent 1: “The company policy might also influence my decision. If the wrongdoing is

literally against some policies, I will support the whistleblower.”

Secondly, policies that protect the employees who support the whistleblower could eliminate the concern of being harmed and thus to some extent enhance people’s willingness to support the whistleblowers.

Respondent 7: “If we have good policy, which could ensure the anonyms of my support, I

would love to help. I think wrongdoings would harm the company, which eventually would harm the benefit of each individual.”

Leadership Style

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coping with fraudulent behaviors. For instance, the understanding and positive attitude towards the co-workers who support the whistleblower could be a large encouragement. Respondent 5: “Understanding from the team leader is also an encouragement. If we won’t

be blamed for not telling the truth at first place, we are more willing to support the person who reports. I hope that the attitude towards the whistleblower or the people who support the whistleblower could be positive.”

The characteristic of the leader and his or her general attitude towards wrongdoing also play an important role.

Respondent 6: “It depends on the characteristic of the leader as well. If the leader is very

silent and always tries to stay out of trouble, he is probably helpless in such circumstance. But if the leader has strong sense of justice, he might be an encouragement.”

Personal Characteristics

Different personal characteristics of the employees also lead to different opinions. Some respondents showed their curiosity to wrongdoings happening around them.

Respondent 2: “I pay attention to wrongdoings every day. As I understand, as a team, you

always want to understand the team better. You need to know the strength of your team members, as well as weakness.”

At the same time, many people are risk-averse. They simply want to stay out of trouble and protect themselves from potential hurt of being involved in reporting of fraudulent behaviors. Respondent 2: “People are afraid of being exposed. If you expose others’ wrongdoings, you

might be misjudged. I think that people are not sure, if they report, whether or not they would be at a secure position. And most people are afraid of taking risk.”

One respondent pointed out that the threat could come from the company.

Respondent 6: “I have heard about some news from other companies. It has happened in

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outcomes usually turn out to be not ideal for the reporter. Some companies don’t even like the kind of people, who would report wrongdoings. ”

One other respondent perceived the background of the wrongdoer as a threat.

Respondent 1: “The background of the wrongdoer might also discourage me from supporting

the whistleblower. I might be afraid that he would use his power to do something unfavorable to me, or even to my family. Family is a big concern for me.”

This might be among the reasons of that most of the interviewees in this research claimed that they had not witnessed any reporting of wrongdoings to the managers or relevant department. Only one respondent (respondent 5) has witnessed reporting of wrongdoings from a colleague:

“One colleague in the management team of our company was suspected by the upper level that she was involved in some fraudulent behaviors. All the team members under this colleagues’ lead were asked to participate in the investigation initiated by the HR and legal department. Everyone just tried to stay in a neutral place, except for one, who told all the truth she knew. In the end, the wrongdoer was forced to leave the company.”

Sometimes, however, people are willing to contribute to battle against fraud despite of the personal risk, because they are more driven by some internal impetus. Sense of justice is an element that has been frequently acknowledged.

Respondent 5: “We all have a sense of justice. We know what is right and what is wrong. The

reason we don’t report might be lack of courage. We don’t want trouble. If somebody leads us, we all want to do the right thing.”

One respondent believed that emotion should not be involved too much in the case of wrongdoing.

Respondent 7: “Business is business. Not too much emotion should be involved. If something

is terribly wrong, it has to be stopped.”

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Respondent 10: “The first encouragement is the value. If a colleague shares the same value

with the person who is reporting, he will probably on the same side with him. But if the colleague approves the value, but not agree with the way of reporting, then it might be a problem. For me personally, even I had a good relationship with the wrongdoer, I think I will still support. I focus more on the particular issue, not on the person. I value my principle.”

Working environment and atmosphere

Another element that might encourage or discourage people support the whistleblower found in this research is their concern of the working environment and atmosphere around them. Respondent 3: “People don't want to stir up the atmosphere of the working place. If you

report something about your colleague to the upper boss, there is high chance that your colleague will know that. That is not good within the organization.”

More specifically, when making the decision of whether to support the whistleblower, people usually take the relationship with the whistleblower into consideration.

Respondent 3: “I think one big reason is to create better relationship with people. For

example, you want to create a better relationship with the whistleblower. Or if the person who has wrongdoing is somehow a competitor to you, you will also support the whistleblower. By getting the competitor out of game, you can get a better position. It’s like that the enemy’s enemy is a friend.”

Nevertheless, the consideration of relationship with colleagues could be a double-edged sword. As two opposed parties, the wrongdoer and the whistleblower’s emotion and feeling could hardly be well taken care of at the same time. Therefore relationship could also be a discouragement for people to support the whistleblower.

Respondent 8: “I think in most cases, the bystanders just want to stay in a neutral place

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Stakeholders

The stakeholders involved in whistleblowing also affect respondents’ perception. People care about who is going to benefit from a successful reporting. They tend to support the whistleblower, if the company or their own performance could be harmed by the fraudulent behaviors.

Respondent 2: “One person’s mistake can speak a lot of things. Everything in an

organization is kind of standardized. If you don’t follow that standard, you could make a lot mistakes, delays or quality issues. This could harm the colleagues also. It is every team members’ responsibility to make sure the wrongdoing does not happen again. As long as the reporting is for the benefit of the organization, it is good to support.”

In the meantime, some people don’t want to support the whistleblower because that they see the wrongdoing as a loophole of the company system, which they could also use to gain benefit. If the reporting fills up the loophole, the opportunities will also be eliminated.

Respondent 3: “Some people might think this way: Ok, they are doing this, maybe I can get

benefit by doing this as well. Under such situation, people don’t support the whistleblower because otherwise the opportunity for potential benefit would be eliminated.”

Institutionalizing Culture

It is also revealed in the interviews that organizational culture has large impact on the employees’ decision-making process concerning whistleblowing as well.

Respondent 3: “The reason people don’t report is that either the wrongdoing has minor effect

or a large amount of people are having such behavior.”

One respondent mentioned the anxiety that the managers might misjudge employees who involve in discovering wrongdoing.

Respondent 3: “Your boss might think: you report a lot, what are you doing? Shouldn’t you

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In some organizations, employees are discouraged to spend much time watching each other and look for other’s shortcomings, which might also stop co-workers supporting the whistleblower.

Respondent 9: “It depends on the organizational culture as well. Some firms don’t like that

employees gathering together to report bad things. They think that it is unhelpful for creating a good working atmosphere.”

Discussion

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minds. In consequence of the diversity of fraud types, there is large possibility that when someone becomes aware of a certain wrongdoing, he or she has not experienced it before. The reaction thus to some extent is determined by how he or she tries to understand the wrongdoing.

There is no qualified research specifically concerned the elements that encourage or discourage co-workers to support the whistleblower yet (to the researcher’s knowledge). Nevertheless, large attention has been paid on prediction of whistleblowing. By comparing the findings of this research with the classification of whistleblowing predictors from Cassematis and Wortley (2013), the researcher believes that many elements revealed in this study are in common with the ones, which could affect the employees’ decision making of whistleblowing. This does make sense because supporting the whistleblower and blowing the whistle oneself share some characteristics, for instance, the motivation of creating a better workplace and the risk of being retaliated. Inspired by the study of Cassematis and Wortley, the researcher further categorizes the elements found into following three groups.

Trust in management

Employee trust has significant impact on employee attitude, employee behavior and consequences for organizations (Colquitt et al, 2007; Dirks & Ferirn, 2002). Observers of wrongdoing tend to remain silent when they doubt the management team’s ability to stop it (Lewis, 2011). Similarly, Bhal and Dadhich (2011) suggested that appropriate leadership seems to be a pre-condition for subordinates to feel comfortable in reporting wrongdoings. Consistent with the prior researches, the effect of trust in managers has also been found in this study. Employees are more encouraged to support the whistleblower when they trust their supervisors. The reason could be that employees believe a trustworthy leader have the willingness and ability to deal with the wrongdoing properly and could protect them from being hurt if they involve themselves in a whistleblowing process.

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employees’ trust in management (Burke et al, 2007). This research further confirmed the impact of policies. People tend to be timid and hesitant when they confront fraudulent behaviors, if they are not backed up with valid policies. In fact, The Sarbanes-Oxley Act of

2002 (SOX) already urged publicly trade organizations to establish protection mechanisms

for employees who report wrongdoing, and required audit committees to take a role in reducing fraud. Bierstaker et al (2006) further suggested that every organization should create and maintain a fraud policy. However, recent data revealed that the costs of compliance with SOX could be very large (Eaton & Akers, 2007). Besides, a good fraud policy, which could guide the employees, should be separate from the code of conduct or other ethics policy of the organization, and there is no universal method or guideline yet to create such policy. In addition, various communication tools should be used to make sure that employees are aware of and understand the policies. The tools include using orientation of new hires, training seminars or annual performance evaluations (Bierstaker, Brody & Pacini, 2006). Bierstaker et

al. (2006) pointed out that despite the increased incidence of fraud and law enforcement,

many organization’s anti-fraud efforts are still incomplete and superficial. This research also discovered this problem. The high cost and complication of maintaining and promoting a robust anti-fraud policy are probably the reason for this.

Situational factors

Several elements in the finding, including wrongdoing severity, evidence, personal characteristics, alert and persuasion, working atmosphere and stakeholders of the whistleblowing have been classified into this category.

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cost for the company was also acknowledged, which conform to the argument that the damage of fraud goes beyond direct financial losses. Some examples of other collateral damage could be firm reputation, branding, relationship with partners and so on (Bierstaker, Brody & Pacini, 2006).

Evidence of the fraud is another element people care about. The findings in this research is in accordance with the argument raised by Near and Miceli (2016), majority of people who discover fraudulent behaviors will not report them to the upper level. They only tend to do so when they perceive that the wrongdoing is really severe, and the evidence is clear (Near & Miceli, 2016). In this case, co-workers also require credible evidence when deciding to support the whistleblower. This is not hard to understand because a rational person needs clear evidence as premise before he or she accept some certain information.

The researcher believes that fear of retaliation and sense of justice act as a pair of contradictory elements. On one hand, some elements listed in the results section, including risk-averseness of the co-workers and the concern of relationship with colleagues could more or less be summarized as fear of retaliation. According to the analysis conducted by Mesmer-Magnus and Viswesvaran (2005), the intention to blow the whistle is reduced by fear of retaliations. Although the fear of potential retaliation perceived by the whistleblower probably far exceed which perceived by co-workers who intend to help the whistleblower, this study reveals that co-workers do consider it as one of the major concerns. On the other hand, sense of justice could also influence people’s attitude toward supporting whistleblowers. Previous researches verified that employees who evaluate workplace behaviors with reference to strongly held principles are more willing to report the wrongdoing they discover (Henik, 2008; Taylor and Curtis, 2010). This study suggests that it is the same story in regard to supporting the whistleblower.

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wrongdoing, some people still believe that the negative effect caused by wrongdoing to the organization in general could eventually more or less harm the benefit of each individual inside. However, previous study has found that being indirectly affected by the wrongdoing is a far less significant encouragement for whistleblowers than being directly affected (Cassematis & Wortley, 2013). The author thus deduces that perceived personal victimization does have impact on the decision making process of co-workers. However the impact is not major.

Despite that all the situational factors discussed above seem to have the potential to influence co-workers’ intention to support the whistleblower, the author is not suggesting that each factor alone could be used to accurately predict co-worker’s behavior. On the contrary, each factor needs to be considered along with others. The researcher believes that a cost-benefit approach might be suitable to help understand the triggers of co-worker’s support. Cost-benefit analysis is a useful tool for program evaluation, which identifies and place dollar values on the costs of programs and weighing those costs against the dollar value of the

program benefit (Cellini et al, 2010). Miceli and Near (1992) adopted the notion of

cost-benefit analysis to address whistleblowing issue. They suggested that the choice of whether or not to blow the whistle depends on whether the benefits of blowing outweigh the costs. The researcher believes that this approach could also be applied to the situational factors found in this study. For example, the choice to support the whistleblower could indicate that the perceived benefit of a successful whistleblowing (e.g. intrinsic rewards due to the wrongdoing severity, eliminating indirect harm on oneself caused by wrongdoing or the better relationship with the whistleblower) outweighs the cost of the whistleblowing (e.g. risk of lacking evidence and risk of retaliation).

Institutionalizing culture

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Institution is commonly defined in OIE as “a way of thought or action of some prevalence and permanence, which is embedded in the habits of a group or the customs of people.” (Hamilton, 1932). Burns and Scapens regarded institution as “imposing form and social coherence upon human activity, through the production and reproduction of settled habits of thought and action.” (Burns & Scapens, 2000). On one hand, institutions comprise the taken-for-granted assumptions that underpin the behaviors of individual actors. On the other hand, these taken-for-granted assumptions themselves are also the outcome of social actions (Burns & Scapens, 2000). Moreover, Burns and Scapens (2000) also referred to a framework, which shows how institutional principles are encoded into rules and routines, how these rules and routines are reproduced in action and how they are institutionalized over time by repeating. While OIE provides us knowledge on the mechanism of organizational change, some researcher argued that social skill is required to initiate changes to the organizational fields where meanings are taken for granted. Social skill here means the ability to read the current situation and respond to it by taking the position of other actors (Fligstein, 1997). Although such taken-for-granted assumptions are not easily recognizable, and once formed it could take very long time to change, it is optimal for whistleblowers to keep in mind the impact of institutionalizing culture at their working place and take this into consideration when making their decisions.

Table 1 Elements that encourage / discourage coworker to support whistleblower

Trust in management

Leadership

Style Policy

Situtional Factors

Severity Evidence _RetaliationFear of

Risk-‐averseness _RelationshipConcern of Sense of Justice Stakeholder of the

whistleblowing Persuasion Alert & Institutionalizing

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Considering the above classification of elements found in this research (Table 1 shows a brief summary), this researcher suggests the ideal situation in which the observer of wrongdoing could expect the support from co-workers is: There is relevant and effective policies regarding whistleblowing in the organization and the supervisor is considerate and supportive; the co-workers’ perceived benefit of supporting due to a series of situational factors outweighs the perceived costs; and institutionalizing culture that is favorable for employees who fight against wrongdoings is exists in the organization. Besides, the researcher believes that these conditions are interdependent. For example, the trust for managers has the potential to enhance the benefit side and reduce perceived harm in the cost-benefit analysis; when the policy is strengthened, there is more possibility that a favorable institutionalizing culture against wrongdoings exists in the organization, etc. In general, these conditions could hardly be met at the same time. The extent of willingness for co-workers to support the whistleblower thus depends on to what extent these conditions are satisfied.

Conclusion and Implication

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latent collective norm, value and belief, namely institutionalizing culture in the organization towards fraud and whistleblowing affect their decision-making process.

This study aims to contribute to the research field of whistleblowing by concentrating on a group of stakeholders that has not been paid much attention on: the co-workers. The researcher did not necessarily intend to reveal the whole structure of this topic. Or rather, the target is to offer a few commonplace remarks by way of introduction so that others may come up with more valuable opinions in the future. The findings of this research do have some practical implication for actors in organizations. On one hand, employees who observe fraudulent behaviors and plan to report them could use the insights of this paper to predict to what extent their co-workers are going to offer help. This is important for enhancing the effectiveness of the whistleblowing and avoiding the potential harms to a large extent. On the other hand, this study revealed that the policy against fraud, especially whistleblowing policy in many organizations is still a shortcoming. This study could be seen as a reminder to management layer of the organizations. In order to combat occupational fraud and reduce the cost of it, organizations are in urgent need of complete policy, which could guide employees take action when they witness wrongdoing and protect them from retaliation, as well as corresponding training to promote such policy. Based on these moves, an anti-fraud institutionalizing culture is also more likely to emerge. At last, this research also sends a signal to the regulators that mandatory requirement for establishing whistleblowing policy is just a start point, and an implementation guideline is still needed.

Limitations and Future Research

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that the grounded theory fits this study well, this methodology has received many criticisms as well. For instance, some might argue that it is impossible to free oneself of preconceptions in the data collection and analysis process. Thirdly, the dataset is relatively small. It is still hard to tell whether a sufficient saturation point has been reached. Saturation point refers to a turning point that no new or relevant data are emerging (Strauss & Corbin, 1990). The researcher therefore can hardly guarantee that all possible elements regarding the research topic have been captured. An open mind is needed to more emerging elements. Fourthly, the research is done in the Netherlands. Although the respondents came from various countries, the Dutch culture might have influence on their answers. Moreover, some interviews were translated from Chinese to English, which might influenced the accuracy of expression to a minor extent.

The findings and limitations of this paper also open up opportunities for future research. Foremost, qualitative studies with more respondents are needed to confirm and complete the findings of this paper. Secondly, the intensity of each element is still unknown. Some element might be dominant while some might be dispensable. And the interaction among the discovered elements has not been tested in this study. Future research is needed to address this issue, especially by using quantitative approach. Thirdly, although this research revealed a series of elements whistleblower should pay attention to, which could influence the extent of support from the co-workers, more researches are needed to guide the whistleblower to preciously judge and evaluate these elements so that they could really gain a better understanding of the co-workers. Last but not least, more similar researches should be carried out in different cultural setting to refine our understanding of this issue.

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Appendix

Appendix 1

Initial detection of fraud

2014 2012 Tip 42.4% 43.3% Management Review 16.0% 14.6% Internal Audit 14.1% 14.4% By Accident 6.8% 7.0% Account Reconciliation 6.6% 4.6% Document Examination 4.2% 4.1% External Audit 3.0% 3.3% Surveillance/Monitoring 2.6% 1.9%

Notified by Law Enforcement 2.2% 3.0%

IT Controls 1.1% 1.1%

Confession 0.8% 1.5%

Other 0.5% 1.1%

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Appendix 2

Interview Guide Introduction

Welcome—Explain purpose of the interview

• My name is Yifeng. First I would like to thank you for your time and your kindness to help me with my master thesis.

• I would like to discuss with you about your opinion on prevention of wrongdoings in organizations and whistleblowing.

• The interview should take about half an hour.

Ground rules

• Do you agree that the interview will be recorded with my mobile phone because I cannot write notes fast enough and it would be more convenient for my further analysis?

• All responses will be kept confidential. Any information I include in my report will not identify you as the respondent.

• The responses will only be share with my thesis supervisors.

• Please feel free to let me know if you have any questions along the process. • Moreover, you don’t have to answer questions that you are not willing to answer. • Is everything I explained OK for you? Are there any questions?

Background

I'd like to briefly know your background first. • Position at the organization • Working tenure

• Working tenure in current organization • Working tenure in current position

• Can you briefly describe your role in your organization?

Main Topics

1. Understanding and awareness of occupational fraud

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company’s resource. Such wrongdoings could be significant. But most of times, they are less severe and happen around us all the time.

• To what extent have you paid attention to wrongdoings happened in your workplace?

• Could you think of some types of wrongdoings, which could happen in organizations and harm the interests of the organizations?

• To what extent do you think such wrongdoings could bring loss to the organization?

• Could you give me one example of wrongdoings you have discovered in your organization?

• How did you react when witnessing such wrongdoings? • What is the reason for your action?

2. Policy and system organization are using against fraud

• Could you tell me something about the system or policy your organization use to deal with wrongdoings?

• Could you give an example when wrongdoing occurred in your organization, how did the system or policy work?

3. Perception on supporting the whistleblower

• Have you ever witnessed your colleague report wrongdoing to the upper level?

If yes,

• How did the colleague do?

• How did your organization deal with this report? • How did coworkers support your colleague? • What is the reason of this in your eyes? If no,

• What is the reason you think that people don’t report wrongdoings?

• To what extent do you think coworkers’ support will influence the situation? • Under what circumstances you think that coworkers would be encouraged /

discouraged to support the colleague who report the wrongdoing?

Closing

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Master Thesis BA O&MC