Sesi 13 Whistle Blowing System

J Manag Gov (2016) 20:703–727
DOI 10.1007/s10997-015-9311-7
Whistle-blowing regulation in different corporate

governance systems: an analysis of the regulation
approaches from the view of path dependence theory
Esther Pittroff
Published online: 27 February 2015

Ó Springer Science+Business Media New York 2015
Abstract The research question of this paper is, if and why countries need dif-
ferent legal approaches to whistle-blowing regulation. The paper specifically ex-
plores whether regulation approaches from other countries are suitable to regulate
whistle-blowing in the German corporate governance system. First, it is clarified
which factors influence the choice of the desired action—that is, ‘‘internal whistle-
blowing’’—and it is demonstrated that the underlying corporate governance system
has a potential influence on these factors. Next, it is shown that the consistency of
systems is responsible for the lack of success of some legal approaches of the
whistle-blowing regulation in special corporate governance systems, whereas in
other systems they can be very successful. Finally, the paper presents the require-
ments for whistle-blowing regulation that does not damage the consistency of the
underlying corporate governance system. The findings support path dependence
theory, which claims that legal approaches of one country cannot be transferred to
other countries. Moreover, whistle-blowing literature is expanded by the fact that
the underlying corporate governance system of a country influences the power and
loyalty of the employee. It suggests new avenues for whistle-blowing research as
well as for the potential convergence of corporate governance regulation. The
findings offer insights for policy makers interested in the development of legal
proposals for whistle-blowing regulation in their countries. Moreover, it provides a
new perspective to enable managers of multinational firms to design whistle-
blowing systems within different corporate governance systems.
Keywords Whistle-blowing Corporate governance system Path dependence

theory Exit Voice Consistency
E. Pittroff (&)
Institute of Accounting, Finance and Taxation, University of Leipzig, Grimmaische Str. 12,
04109 Leipzig, Germany
e-mail: pittroff@wifa.uni-leipzig.de
123
704 E. Pittroff
1 Introduction
Whilst German regulators are debating the necessity and the design of statutory
protection of whistle-blowers, the importance of the implementation of whistle-
blower regulation has already been discussed by the Group of Twenty (G 20), who
determined that every member state must implement whistle-blower protection by
the end of 2012. Germany has failed to fulfil this requirement. Moreover, the EU is
willing to allow its member states to introduce financial rewards for whistle-
blowers.1
Other countries have made greater progress than Germany. For example, the
USA and the UK have had whistle-blower protection rights for many years.
Consequently, the German legislative proposals are often compared with both of
these countries’ approaches (Wrase and Fabritius 2011; Fleischer and Schmolke
2012; Groneberg 2011). In particular the success of financial rewards in the USA
has led to the consideration to implement this approach in Germany (Fleischer and
Schmolke 2012). When using such a comparison, one has to consider that legal
systems develop differently depending on their environment (Bebchuk and Roe
1999). According to path dependence theory, systems in diverse environments may
be designed differently, but they are nevertheless efficient within their historical and
cultural background. In other words, these systems are optimally adapted.
Particularly sensitive subjects, like the protection of whistle-blowing, require a
closer examination of cultural background. This necessity is emphasised by
empirical results concerning the relationship between the cultural background and
the occurrence of whistle-blowing (Kaptein 2011; Trongmateerut and Sweeney
2013; Zhuang et al. 2005).
Whistle-blowing regulation, therefore, has to be embedded in the underlying
framework. Moreover, any comparison of the approaches has to take into
consideration the underlying corporate governance systems. If an element from
corporate governance system A is transferred to corporate governance system B,
system B might become inefficient because the element does not fit with the other
elements (Schmidt and Spindler 2002). Accordingly, one has to be careful with the
adoption of whistle-blowing regulation approaches of other corporate governance
systems.
The aim of this paper is to analyze the different approaches of whistle-blowing
regulation from the perspective of different corporate governance systems. The
results are used to present the requirements for whistle-blowing regulation that does
not damage the consistency of the underlying corporate governance system. The
findings expand whistle-blowing literature by connecting it with the development of
corporate governance systems. It suggests new avenues of research for the whistle-
blowing literature because many whistle-blowing studies have been developed in a
special corporate governance system and their findings cannot be transferred to
other corporate governance systems. In the end, the findings are important for policy
makers and managers as well because they are useful for developing legal proposals
1
See http://ec.europa.eu/internal_market/securities/abuse/index_en.htm.
123
Whistle-blowing regulation in different corporate governance systems 705
for whistle-blowing regulation in different corporate–governance systems as well as

to design whistle-blowing systems in multinational firms.
The paper begins with a classification of whistle-blowing into the options for
action of employees and explains the related influence factors. The following
section introduces path dependence theory and explains the importance of
consistency for achieving an efficient system. After that, the characteristics of the
different corporate governance typologies are illustrated and it is explained which
options for action are efficient in the different systems. The following section
presents the international regulation approaches and analyses whether they promote
the desired option for action in the different corporate governance systems. In the
next section, these results are used to explain how whistle-blowing might be
promoted while the consistency of the corporate governance system is maintained.
The paper closes with a conclusion.
2 Whistle-blowing as an option of action of employees
In a case of perceived misconduct, whistle-blowing is one of the possible options

that an employee can choose. Whistle-blowing is 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 effect action’’ (Near and Miceli 1985, p. 4). The occurrence of whistle-
blowing depends on several circumstances. For the aim of this paper it is necessary
to analyze the factors influencing the decision to blow a whistle or not. The
assessment of regulation approaches of whistle-blowing in different corporate
governance systems requires an analyses of the suitability of the approach to
influence these factors in such a way that the desired option for action is motivated.
For this reason it is first necessary to examine the possible options for action in the
case of perceived misconduct and the circumstances of the occurrence of these
options.
In accordance with Oliver E. Williamson’s market mechanism, the only possible
option in any situation involving an irregularity is the exit option (Williamson
1985). It is based on the assumption that any irregularity increases the price of
membership within the organization. Therefore, the employees leave the organi-
zation and shift to another organization in order to increase their own benefits.
Hirschman (1970) investigated another option, the so-called voice option. This can
be understood as an act of opposition to the perceived behaviour and can be
interpreted as whistle-blowing (Miceli and Near 1992, p. 16; Schmidt 2005, p. 150).
Hirschman (1970) examined the influence of loyalty on the choice of the exit or
the voice option. A loyal employee has high moral values and benefits from the
voice option because it helps to prevent inefficiencies, hence loyalists are more
likely to choose the voice option than the exit option.2 The loyalty mentioned here is
to be understood as having high moral values toward the society which is connected
with the freedom to speak out against wrongdoing (Lindblom 2007, p. 415). It is not
2
See also Dozier and Miceli (1985).
123
706 E. Pittroff
to be confused with the duty of loyalty to the firm in the sense of an obligation of
confidentiality.3 If loyalty is understood as a kind of duty towards the employer, it
would prevent the employee from giving any information to someone outside the
organization because this might harm the organization, for example through bad
reputation or penalty payments (Bok 1988; Lombardi 1988; Lindblom 2007). The
employee has to weigh the damage caused by the misconduct against the damage to
the organization caused by whistle-blowing. In this regard, employees often
perceive a so-called moral dilemma, which can be understood as a trade-off between
the moral responsibility to society (further mentioned as having high morals) and
the duty of loyalty to the employer (Lindblom 2007; Lombardi 1988).
The duty of loyalty specifically excludes external whistle-blowing, which is
blowing the whistle to persons or institutions outside the organization, for example
the police, the media or a public prosecutor (Miceli and Near 1992, p. 25; Callahan
et al. 2002, pp. 178–179). Although the organization benefits in this case from the
wrongdoing being stopped, it may suffer from the reputational and financial damage
that the external whistle-blower caused (Lobel 2009, p. 440). External whistle-
blowing, therefore, does not conform with the duty of loyalty to the employer
although it is an act of high loyalty in the sense of moral responsibility because
external whistle-blowers help to improve the organisation by ending the wrong-
doing (Lewis 2011). Internal whistle-blowing, which means the whistle-blower
contacts someone inside the organization, would be beneficial because it does not
interfere with the duty of confidentiality. The organization has the possibility to stop
the wrongdoing before it becomes public. Internal whistle-blowing is the best option
if moral responsibility and the duty of loyalty are high.4 If both are low, exit is the
favorable action. If moral responsibility is low and the duty of loyalty is high, the
employee has no incentive to blow the whistle and would stay silent.
One can suggest that the moral dilemma does not actually exist, since the
employee may report the mismanagement to internal channels. This behaviour is
first very loyal to the employer because the information stays inside the
organization. And second, it is an action of high morals insofar as the misconduct
is stopped. The problem is that internal whistle-blowing is often ineffective, which
means that it does not change anything. For that reason, one has to consider another
factor of influence on the options for action. Near and Miceli (1995) as well as
Söllner (2000) state that the power of an employee also influences the options. Exit
and voice are only possible if power is high (Söllner 2000, p. 173). If the employee
does not have enough power and is dependent on the organization, the exit option is
not possible. Furthermore, internal whistle-blowing would be ineffective, since the
employee does not have enough power to end the mismanagement. This situation
also arises if upper management is involved in the misconduct (Donkin et al. 2008;
Miceli and Near 1985). In this case it is not able to inform someone inside the
3
The duty of loyalty comprises all duties of the employee that have to be considered towards the
employer; see Herbert and Oberrath (2005) and Müller (2002).
4
In order to be the best solution, internal whistle-blowing has to be effective; that means that the
wrongdoing is ended. I refer later to the ineffectiveness of internal whistle-blowing as I introduce power
as an essential influence factor. In this cases internal whistle-blowing is not a possible option to end the
wrongdoing.
123
organization. External whistle-blowing would be the only solution if the employee

has a high moral attitude (Söllner 2000, pp. 66–67; Schmidt 2005). Moreover,
another option for action may arise: the opportunistic behaviour of the situation
(Lambsdorff and Frank 2011; Joshi and Arnold 1997, p. 826; Williamson 1985,
p. 62). If morals and duty of loyalty are low the employee may exploit the situation
in his favour (Schmidt 2005, p. 157; Söllner 2000, p. 178). For example, an
employee who observes misconduct behaves opportunistically if he also engages in
the observed misconduct in order to gain private benefits. An employee with a high
moral attitude would try to blow the whistle. But in case of low power he is not able
to inform the management and blows the whistle externally. Table 1 shows the
possible options for action for employees dependent on the influence factors (1)
moral responsibility (morals), (2) duty of loyalty and (3) power:
One can state that all options that result from low perceived power are not
beneficial for the organization: external whistle-blowing possibly induces a bad
reputation or penalty fines, opportunistic behaviour is harmful because the employee
exploits the organization and the wrongdoing is not stopped. And finally, if the
whistle-blower stays silent the wrongdoing persists (Söllner 2000, p. 176). This
means that a high perceived power of the employee fosters the beneficial option of
action. Moreover, a high moral attitude and the duty of loyalty influence the choice
of the preferred option ‘‘internal whistle-blowing’’.
An organization may actively influence the perceived power and the loyalty of
the employee by implementing a whistle-blowing system. Assuming that the
organization is really interested in motivating employees to blow the whistle and the
system works effectively, it provides a channel for the employees without the fear of
retaliation, thus fostering the perceived power of the whistle-blower (Miceli et al.
2008; Skivenes and Trygstad 2010). Appropriate communication about the benefits
of the system and the establishment of a code of ethics may increase the moral
responsibility of the employees (Pittroff 2011, p. 96; Skivenes and Trygstad 2010).
Furthermore, whistle-blowing within the system is not in opposition to the duty of
loyalty because the information stays inside the organization.
In order to have an effective whistle-blowing system it is not sufficient to
implement an anonymous whistle-blowing hotline. Effectiveness depends on
several other conditions, for example the implementation of protection rights,
communication about the whistle-blowing-process and monitoring of the whistle-
blowing system. Several best practice guidelines (BSI 2008; Data-Protection-Group
Table 1 Options for action

Low duty of loyalty High duty of loyalty
Low power High power Low power High power
Low morals Opportunistic behaviour Exit Silence Silence

High morals External Internal/external External Internal
whistle-blowing whistle-blowing whistle-blowing whistle-blowing
123
708 E. Pittroff
2006; Nitsch et al. 2005) and empirical studies (Brown 2008; Hassink et al. 2007;
Lee and Fargher 2013; Vandekerckhove and Lewis 2012) have pointed out how a
whistle-blowing system can work effectively.
However, in many cases whistle-blowing systems are not implemented
effectively, they seem to be only symbolic (Lee and Fargher 2013; Pittroff
2014b). Since these organizations are not really convinced of the benefits of whistle-
blowing systems potential, whistle-blowers will not use the whistle-blowing system
because they fear that nothing will change and that they will nevertheless face
retaliation. Thus, most of the benefits are greatly weakened by reservations about
the behaviour of a whistle-blower. Whistle-blowers are often seen as traitors or
villains (Gobert and Punch 2000; Moberly 2006). Since the parameters of the
organization and those of the society essentially influence the perception of whistle-
blowing, they also have an impact on the implementation of whistle-blowing
systems and the options for action of employees (Kaptein 2011; Trongmateerut and
Sweeney 2013; Zhuang et al. 2005). For this reason, not all systems work
effectively. The establishment of a culture that promotes whistle-blowing is a long-
term process because it mainly depends on earlier attitudes and circumstances that
may persist for a long time. In other words, the background of a society has a major
influence on what is considered to be a legitimate option for action and this is a
crucial factor for the success of any regulation approach. For this reason, the
following section analyzes the development of different corporate governance
systems.
3 Corporate governance and path dependence theory
3.1 Theory of path dependence
Path dependence theory is often applied to explain the development of institutions

(Chizema and Buck 2006; North 1990; Schmidt and Spindler 2002). According to
this theory, the varying development of institutions depends on the social and legal
environment (Bebchuk and Roe 1999, p. 168). Initial circumstances and historical
accidents lead to differences between institutions (Arthur 1989; Bebchuk and Roe
1999) and from a traditional neoclassical view, these alternatives may be seen as
inefficient (Arthur 1989; Beyer 2005, p. 7). Path-dependence theory tries to explain
why such inefficient institutions arise and why they persist (Bebchuk and Roe
1999). The most common example of a path dependent development is the
QWERTY-keyboard-layout mentioned by David (1985). Initially, the letters on
typewriters were arranged in this way for technical reasons but the kind of
arrangement persisted even as technical improvements eliminated this reason and
new, more efficient alternatives had been developed. The long-term predominance
of such inefficient institutions is explained as a path-dependent process that starts
with an initial or small event. That means a decision is made due to prior choices or
initial conditions and leads unintentionally to a self-reinforcing process (Arthur
1989; Schreyögg and Sydow 2011, p. 323). As a consequence, a dominant
alternative is build up and new alternatives face problems to be accepted. Finally,
123
this leads to a lock-in effect and the path is created (Arthur 1989; Schreyögg and
Sydow 2011, p. 325).
Path dependence theory was initially used to explain technological paths, like the
QWERTY-keyboard (David 1985). Later on, North (1990) used this theory in order
to explain how institutions change. Other authors used this theory (1) for an
explanation of the establishment of varieties of capitalism (Hall and Gingerich
2009; Hall and Soskice 2001), (2) for the existence of organizational path
dependence (Sydow et al. 2009; Schreyögg and Sydow 2011), (3) in the context of
political science (Mahoney 2000; Pierson 2000a, b; Orren 1991), and (4) for the
development of corporate governance systems (Bebchuk and Roe 1999; Chizema
and Buck 2006; Schmidt and Spindler 2002).
An essential explanation of path-dependent development of institutions is the
consistency of a system of institutions (Buck and Shahrim 2005; Heine 2003,
p. 219; Schmidt and Spindler 2002). In the context of regulation, consistency
implies that a system of rules is worth the sum of all the parts of the rules (Heine
2003, p. 219). In a consistent system, all parts of the rules have to be
complementary (Heine 2003, p. 219; Schmidt and Spindler 2002). This means
that, theoretically, every single rule has to fit with the others in order to be
consistent. In other words, the rules mutually support each other in a consistent
system (Buck and Shahrim 2005, p. 43). An example are the different corporate
governance systems, that will be discussed more in detail in the following section:
in a market-controlled system the rules focus on strengthening the rights of the
shareholders. In this regard, every single element of the rules supports the others. It
would be inconsistent in the market-controlled system to implement a rule that
strengthens the rights of other stakeholders even if one may say that this would be
efficient from the view of other corporate–governance-systems (Chizema and Buck
2006, p. 490). The change of one element might fail to achieve its goal because of
the lack of corresponding changes elsewhere (Buck and Shahrim 2005, p. 43). The
whole system could become unstable if the interdependencies of the single elements
are not considered. Whistle-blowing regulation, therefore, has to be embedded into
the whole corporate governance setting. One cannot pick out whistle-blowing
regulation as a single element and select an approach that is considered to be
efficient from the view of one corporate governance system. It has to be tested if this
alternative fits the system where it is to be implemented. The path dependent
development of legislation is strongly connected with the legitimacy of rules
(Mahoney 2000; Orren 1991). The legitimacy explanation implies that special laws
persist because they are seen as morally right. In order to have a consistent system
of rules, every single law has to be viewed as legitimate with regard to the currently
prevailing norms and beliefs.
Nevertheless, path dependence theory does not imply that a change of institutions
is impossible. Institutions are rather in a permanent process of change (North 1990).
But there is not only one efficient alternative; development is connected with the
coexistence of different efficient alternatives. A change of institutions therefore
does not mean that an inefficient system will become an efficient system, but rather
that institutions are constantly and gradually changing in order to remain efficient
(Beyer 2005, p. 9; Mahoney 2000; Orren 1991). For example, changes of laws are
123
710 E. Pittroff
not merely possible but rather necessary if the attitudes towards the relevant norms
and values change. In order to have a consistent system of rules, every single law
has to be viewed as legitimate with regard to the currently prevailing norms and
beliefs.
This institutional change is especially important if convergence of rules is
targeted. Path dependence theory does not imply that convergence is impossible, but
rather that it is a long-term process. Only gradual institutional changes are possible
and serious changes of rules can lead to inefficiency. Changes of special aspects of
corporate governance regulation, such as the regulation of whistle-blowing, can
therefore only be achieved if the interdependencies with other parts of regulation are
taken into account. Finally, convergence requires a uniform societal framework in
order to establish an efficient system (Heine 2003, p. 267). A convergence of
whistle-blowing regulation is therefore only possible if the same values and norms
are seen as legitimate. The following section shows that the corporate governance
systems differ significantly between Germany and the countries with a broad
whistle-blowing regulation.
3.2 Typologies of corporate governance systems
Corporate governance systems are generally divided into two special extremes.5
There is a wide variety according to the titles of the two extremes in literature.6 In
this paper the two systems are designated as the Continental-European system
(voice system) and the Anglo-American system (exit system), which refers to the
designation used, for example, by Aguilera and Jackson (2003) and La Porta et al.
(1998). The titles of the systems should not be confused with a geographical
categorization, rather the titles refer to the origin of their legal family. For example,
Australia, South Africa and United Kingdom just as much belong to the Anglo-
American system as the United States of America. Moreover, South Korea and
Taiwan can be classified into the Continental-European System as well as Germany
(La Porta et al. 1998).
The two systems differ in several elements (Aguilera and Jackson 2003; Baums
and Scott 2005; Garcia-Castro et al. 2008; La Porta et al. 1998). The Continental-
European system is mainly stakeholder-orientated, that means that all interests of
persons or institutions connected with the organization have to be protected (Brühl
5
There are some studies that differentiate between three groups because they separate the Japanese
system as an extra group due to the special relationship between employee and employer (Aguilera and
Jackson 2003; Groenewegen 1997). This distinction is not applied in this paper since most of the studies
include the Japanese group in the Continental-European group (Garcia-Castro et al. 2008; Hall and
Gingerich 2009; La Porta et al. 1998; Nooteboom 1999; Weimer and Pape 1999).
6
Several studies label these groups differently because they focus on other characteristics. For example,
the study of La Porta et al. (1998) defines different legal families: (1) Common-law or English-origin
countries, and (2) Civil law countries or Roman-law countries that can be separated into German-origin,
French-origin and Scandinavian-origin countries. Weimer and Pape (1999) separate between market-
oriented systems (Anglo-Saxon system) and network-oriented systems (German/French/Japanese
systems). Hall and Gingerich (2009) separate different economies with regard to their model of co-
ordination and find two extremes (1) liberal market economies and (2) co-ordinated market economies.
Finally, these studies result in the same classification of the countries, only the titles of the groups differ.
123
2009, p. 84; Garcia-Castro et al. 2008, p. 260). One important example is the co-
determination rights of the employees through a works council (Monks and Minow
2008, p. 363). Moreover, there is a high concentration of owners, which leads to a
high incentive to monitor the management (Lentfer 2005, pp. 39–43; Garcia-Castro
et al. 2008). Continental-European organizations are more financed by bank loans
than by the capital market (La Porta et al. 1998). Banks therefore play an important
role in monitoring the management (Brühl 2009, p. 85). The Continental-European
system is also called an insider-system because the organization is supervised by an
internal institution, the supervisory board (La Porta et al. 1998; Garcia-Castro et al.
2008; Velte and Weber 2011, p. 478).
In contrast, the Anglo-American system is more shareholder-orientated because
the organizations principally pursue the goals of the shareholders (Garcia-Castro
et al. 2008; Velte and Weber 2011). The shares are widely spread, so the single
investor has no incentive to play an active role in the supervision of the management
because free rider problems appear (Brühl 2009, p. 84). Organizations are more
financed by capital markets than by banks (La Porta et al. 1998) so the system is
market-orientated (von Werder 2004, p. 165). The supervision typically comes from
outside the organization. Mismanagement would decrease the prices of shares,
which ultimately increases the risk of hostile takeovers and a change of
management (Garcia-Castro et al. 2008; Velte and Weber 2011, p. 474).
The characterization of the outsider- and the insider-system derives from the kind
of supervision. There are different distributions of power between the corporate
governance systems (La Porta et al. 1998). The supervisory board in the
Continental-European system often ensures, for example, a co-determination of
employees (for example § 96 Abs. 1 AktG). The Anglo-American system is
supervised by the market, that is, by an external institution. Accordingly, it is
possible to classify the corporate governance systems into exit and voice typologies
(Groenewegen 1997; Kostant 1999; Nooteboom 1999). Exit systems are charac-
terised by the fact that individuals leave the organization if there is mismanagement
(Kostant 1999; Nooteboom 1999). For that reason, the Anglo-American system
conforms to this typology. Pursuing the goals of the shareholders implies a focus on
the best usage of the capital invested by the shareholders (Rappaport 1999, p. 14). If
mismanagement is perceived, the shareholders move to an organization with a better
use of the capital invested. Thus, the costs of selling and purchasing shares are
relatively low and the capital market is very liquid (Brühl 2009, p. 96; Velte and
Weber 2011, p. 475).
The exit mentality is also reflected in the job market; that means, exit systems
have a higher labour turnover and a lower rate of co-determination than voice
systems (Garcia-Castro et al. 2008; Hall and Gingerich 2009; Kostant 1999;
Nooteboom 1999). Due to the fluid job-market, employees invest more in general
skills that can be taken to other jobs whereas investments into industry-specific
skills are relatively weak (Hall and Gingerich 2009, p. 453). However, the exit
mentality among employees has its boundaries in tight labour markets. If there are
no possibilities to change the organization, the employee finally has low power and
would prefer to stay in the company than be unemployed (Morrell et al. 2008).
123
712 E. Pittroff
In contrast, voice systems are characterised by strong co-determination rights for

the employees (Monks and Minow 2008, p. 363; Velte and Weber 2011, p. 478).
The employees and the few shareholders have a strong influence on managerial
decisions. A change to another organization is more difficult compared to exit
systems. Since shareholders often have a high proportion of the shares and therefore
high investments it is easier for them to enforce their interests than to try to sell the
shares (Aguilera and Jackson 2003). The employees benefit from the co-
determination rights because the labour turnover is not as high as that in the exit
system. Furthermore, the higher protection from dismissal strengthens long-term
commitment to the employer.
As mentioned above, the choice of exit and voice options depends partially on the
degree of loyalty. This also holds for the corporate governance typologies. The
loyalty of the employees and of the shareholders results from the long-term
commitment to the organization (Aguilera and Jackson 2003; Brühl 2009, p. 101).
The high investments of shareholders and the investments in the human capital, that
is the employees, are very specific and cannot easily be changed or shifted to
another organization (Hall and Gingerich 2009). This leads to a long-term allocation
of the capital invested and strengthens confidence and loyalty. As a result, investors
and employees have a high incentive to take part in co-determination in order to
assure goal congruency. From the view of labour law, loyalty is understood as a
duty of confidentiality7 and is therefore strongly regulated in voice systems.
The separation of corporate governance systems into different typologies shows
that a consistent system depends on several components (Heine 2003; Schmidt and
Spindler 2002). The framework of each corporate governance system influences the
perception of the legitimacy of the options for action. The choice to blow the whistle
or not, therefore, depends on the underlying corporate governance system.
3.3 The choice of options for action depending on the type of corporate
governance system
The previous section has shown that different frameworks of prevailing norms and
beliefs lead to the development of different corporate governance systems. And it
will be shown that the choice of an option for action in cases of mismanagement
depends on the underlying corporate governance system. One option may be
superior in a voice system but inferior in an exit system. This depends principally on
the level of loyalty. As stated above, exit systems are characterised by a low duty of
loyalty to the employer. All options for action that depend on a high duty of loyalty
are thus less likely (Pittroff 2014a, p. 420). Finally, internal whistle-blowing and
silence should be less likely than the exit option, external whistle-blowing or
opportunistic behaviour. Empirical results have supported the fact that internal
whistle-blowing is less likely in exit systems than in voice systems (Zhuang et al.
2005). It will be shown that internal whistle-blowing is only possible in exit systems
in one special situation.
7
An example for the regulation is § 242 BGB (the German Civil Code).
123
Since the duty of loyalty is assumed to be low in exit systems, the choice of the
option for action depends on the one hand on the perceived power of the employee
and on the other hand on the level of moral responsibility towards the employer. If
morals are low then whistle-blowing is not likely (Jos et al. 1989; Lindblom 2007;
Miceli et al. 2008). Exit and opportunistic behaviour remain as the only possible
options. If the low morals situation is combined with high power, then shifting to
another organization is easy, and the superior option is to exit. Employees in a low
power position are not able to exit, the only way to increase the own benefits is
opportunistic behaviour, that means the employee exploits the situation in order to
obtain benefits (Joshi and Arnold 1997, p. 826; Williamson 1985, p. 62). For
example, an employee who is offered bribery payments would rather take these
payments if this is a low power position combined with low morals (Lambsdorff and
Frank 2011).
A high morals situation ultimately leads to whistle-blowing. With regards to the
bribery example, the employee would not take the payments but rather blow the
whistle. If high morals is combined with low power then external whistle-blowing is
the preferred action. This is supported by studies that examined external whistle-
blowing being more likely if the whistle-blower has less trust in management
(Donkin et al. 2008), when there is less co-worker support (Miceli et al. 2012) and
when the threat of retaliation is high (Miceli and Near 1985) because these factors
indicate that the whistle-blower perceives to have low power (Near and Miceli
1995). If high morals is combined with high power the employee would be
indifferent to the whistle-blowing channel and select the most effective option. For
this reason, internal whistle-blowing is only possible if it is perceived to be an
effective option. Empirical results support the fact that most of the whistle-blowers
raise their concern first inside the organization and if not successful they go outside
the organization (Donkin et al. 2008; Miceli and Near 1994). Table 2 shows the
options for action in exit systems.
Voice systems are characterised by a higher duty of loyalty resulting from the
long-term commitment. The options exit and opportunistic behaviour are therefore
not superior. Internal and external whistle-blowing as well as silence are, instead,
more likely. Nevertheless, the voice system has the inherent danger that a moral
dilemma arises if the employee has high morals in addition to a high duty of loyalty.
In this case, the superior option for action is internal whistle-blowing. But internal
whistle-blowing is less likely if the whistle-blower perceives to have low power,
that means his voice would not lead to the termination of the mismanagement. The
Table 2 Options for action in exit systems

Low duty of loyalty
Low power High power
Low morals Opportunistic behaviour Exit

High morals External whistle-blowing Internal/external whistle-blowing
123
714 E. Pittroff
employee may rather stay silent or blow the whistle externally if moral
responsibility outweighs the duty of loyalty (Pittroff 2014a, p. 420). The experience
in Germany with whistle-blowers is relatively negative. Whistle-blowers are often
called villains or traitors (Müller 2002). The perceived power of a whistle-blower is
therefore relatively low. This does not imply that employees in Germany do not
blow the whistle internally. Low power is sometimes only perceived if internal
whistle-blowing was unsuccessful or it is connected with retaliation. The employee
therefore has to consider other options for action. One can conclude that the risk of
harmful external whistle-blowing also exists in Germany. Table 3 shows the options
for action in voice systems.
The generalization of the options within the corporate governance systems
disregards the hierarchical position of the whistle-blower within the organization.
The power of the accused wrongdoer is especially important (Near and Miceli
1995). The perceived power is relatively low if the employee has information about
fraud in the top management level. Accordingly, it is important to implement
institutions that put the employee in a status of high power (Miceli et al. 2008,
pp. 150–151). Furthermore, the organization has to perceive internal whistle-
blowing as a beneficial action of employees in order to signal a credible interest in
receiving the information of the employee (Skivenes and Trygstad 2010). Otherwise
the perceived power will not change even if a whistle-blowing system is
implemented. Some states try to motivate organizations to implement such
structures and to change their attitude towards whistle-blowing. These regulation
approaches are discussed in the following section.
4 Regulation approaches
4.1 Overview of the different national approaches
Whistle-blowing is regulated in many countries. The longest tradition of whistle-

blowing rules is in the USA, with different approaches to protection rights. One
important regulation is the Sarbanes–Oxley Act (SOX) from 2005, which obliges
listed organizations to implement whistle-blowing systems and provides protection
rights for whistle-blowers.
A former regulatory approach, the Organizational Sentencing Guidelines from
1991, tried to motivate organizations to implement whistle-blowing systems by
reducing the degree of penalty if a whistle-blowing system was implemented. These
guidelines have not been very successful (Dworkin 2007), whereas another
Table 3 Options for action in

High duty of loyalty
voice systems
Low power High power
Low morals Silence Silence

High morals External whistle-blowing Internal whistle-blowing
123
approach has more success in motivating employees to blow the whistle. The False
Claims Act from 1986 offers financial incentives to potential whistle-blowers. The
success of this approach (Dyck et al. 2010) has led to an extension of the incentives
from the Dodd-Frank-Act of 2010 (Sec. 21F of the Securities and Exchange Act).
The extent of the reward depends on the degree of the penalty and varies between 10
and 30 % thereof.
With the Public Interest Disclosure Act (PIDA) of 1998, the United Kingdom
established an approach that protects whistle-blowers, dependent on several
conditions.8 External whistle-blowers are virtually unprotected if the organization
has implemented a whistle-blowing system (Schmidt 2005).
Germany has not yet established widespread whistle-blower regulations. Whistle-
blowing is only protected in special cases, for example in case of a report
concerning security risks.9 German legislation concerning whistle-blowing has been
greatly shaped by historical events. During the Third Reich the German security
service (Gestapo) imposed a ‘‘moral obligation’’ on German citizens to contribute to
national security, i.e. to report about ‘‘deviating’’ behaviour, like homosexuality and
relationships between Germans and Non-Aryan people. In the end this culture of
denunciations led to fear and distrust in Germany (Rauhofer 2007, p. 367).
A few years later, the Ministry of security service (Stasi) was founded in the
GDR and established structures similar to the Gestapo. The Stasi used a network of
‘‘Inofficial Contributors’’ that had to spy on their neighbours, co-workers and even
family members. This network undermined trust and social solidarity among the
people (Rauhofer 2007, p. 368).
Due to the actions of former regimes, whistle-blowers are still often seen as
villains or traitors (Dowling 2008, pp. 12–13; Schmolke 2012, p. 229). This attitude
is reflected in the dearth of protection rights for whistle-blowers. However, there are
several proposals for legislation that all include disclosure rights and partially
include the obligation to implement whistle-blowing systems.10 These proposals
aim to fulfil the demands of the G20 that all member states have to establish whistle-
blower protection rights by the end of 2012. Until now they failed to be
implemented because most of the opponents claim that the present jurisdiction
offers sufficient protection for whistle-blowers and additional regulation is not
necessary (von Busekist and Fahrig 2013; Fröhlich and Schelp 2009; Grimm and
Windeln 2009). However, whether the whistle-blower is indeed protected depends
on the specific case. It is therefore very unclear whether the court will classify a
certain case as worthy of protection. Moreover, former court decisions concerning
whistle-blowing cases have revealed that the interests of the employer overweigh
the interests of the employee (Wisskirchen et al. 2006). This reflects the importance
of the duty of loyalty in Germany which goes so far that interests of the society are
subordinated (Schmidt 2005, p. 156).
8
See § 8–15 of the PIDA.
9
§ 17 Abs. 2 ArbSchG, see also Schmolke (2012).
10
See the legal proposals for German whistle-blower protection in Bundestag publications 17/8567 and
17/9782.
123
716 E. Pittroff
The latest reform is the proposal by the European Union that its member states
offer financial rewards for information about market abuses.11 The proposal is
ostensibly based on the American Dodd-Frank Act, which extended financial
rewards in the USA.
It is apparent that whistle-blowing is more regulated in exit systems as compared
to voice systems. The great importance of the duty of loyalty in voice systems
especially contradicts all approaches that would motivate external whistle-blowing,
such as the protection of dismissal for external whistle-blowers or the financial
incentives for external whistle-blowing. Historical events shaped this attitude of
loyalty towards the employer. In order to be consistent with the underlying
framework in voice systems, whistle-blowing regulation should foster internal and
prevent external whistle-blowing. However, as mentioned above, internal whistle-
blowing is often not effective and external whistle-blowing should be a possible
option for the employee in order to end the misconduct. Protecting and motivating
external whistle-blowing seems therefore necessary in order to prevent damages to
the society but it is ostensibly only consistent with corporate governance systems
that rest on a lower duty of loyalty towards the employer, such as exit systems.
Motivating employees to take the desired action in different corporate governance
systems requires an analysis of the different kinds of regulation approaches with
regard to their incentives in voice and exit systems. The following sections analyse
the different approaches. These results will be used to evaluate a whistle-blowing
regulation that is consistent with the underlying corporate governance system.
4.2 Analysis of the approaches against the background of the different corporate
governance systems
4.2.1 Protection against dismissal
The special approaches to regulate whistle-blowing contain different incentives in

order to reveal mismanagement without disadvantages for the whistle-blower
(Schmidt 2005). Most of them are anti-retaliation laws that protect the whistle-
blower against dismissal. This approach signals to the whistle-blower that the
information is desired and strengthens the perceived power of the whistle-blower
(Miceli et al. 2008, p. 151). Moreover, the protection rights decrease the costs for
the whistle-blower that are connected with the information and the possible
dismissal. The cost-benefit-relationship is therefore changed so that employees with
low morals will possibly decide to blow the whistle.
However, exit systems generally are assumed to have a lower duty of loyalty and
a more fluid job market. The costs for employees to change the organization are
therefore not as high as in voice systems. For this reason, the protection against
dismissal is less effective in exit systems than in voice systems. Empirical results
show that protection against dismissal is not very successful in motivating
employees to blow the whistle in an exit system like that of the USA (Dworkin and
11
See § 36 of the proposal for the regulation against market abuse, to be downloaded at: http://db.
eurocrim.org/db/en/doc/1961.pdf.
123
Near 1997; Miceli et al. 2008, p. 151). In addition, the relevant anti-retaliation laws
in the USA are insufficient, since first they protect employees only in special cases
and second, they have not promoted internal whistle-blowing but rather encouraged
employees to blow the whistle externally (Lobel 2009; Moberly 2006,
pp. 1126–1127). Apart from SOX, most of the laws at federal level only protect
external whistle-blowing (Lobel 2009, p. 444) because the protection of internal
whistle-blowing interferes with the managerial prerogative of the employer (Lobel
2009, p. 446). As a consequence, protecting internal whistle-blowing is not
considered to be legitimate in a corporate governance system with a lower duty of
loyalty and fewer co-determination rights. Finally, the type of protection in the USA
negatively influences the duty of loyalty, so this approach hardly encourages
internal whistle-blowing.
In contrast, protection against dismissal would support the co-determination-
rights in voice systems. The employees should have high perceived power due to
internal reports without losing the long-term relationship to the organization. The
protection against dismissal is clearly consistent with a voice system (Pittroff 2014a,
p. 421). Moreover, there is a higher duty of loyalty, which should lead to a lower
fear of external whistle-blowing. One may further strengthen internal whistle-
blowing by protecting external whistle-blowing only if the whistle-blower has first
tried to blow the whistle internally (Fleischer and Schmolke 2012, p. 365). The
protection of internal reports is considered to be legitimate in voice systems since
the duty of loyalty is high and it strengthens co-determination rights.
Moreover, irrespective of the underlying corporate governance system the
protection of external whistle-blowing decreases the employees’ costs for external
whistle-blowing and simultaneously increases the costs of illegal behaviour for the
employer (Lobel 2009, p. 460). Thus, the organizations should be motivated to
implement whistle-blowing systems in order to avoid these costs. But as long as the
organizations do not realise that whistle-blowing is a resource, internal reports
remain undesired and the employee might turn to an external institution. The
attitude of the management towards whistle-blowing is therefore important in order
to create a whistle-blowing culture (Skivenes and Trygstad 2010).
Another problem that is connected with protection against dismissal is the
opportunistic behaviour of employees. Employees may exploit the protection status
if the organization announces dismissals in order to save on labour costs. It is
possible that employees would blow the whistle only to be protected against
dismissal (Anechiarico and Jacobs 1996; Schmidt 2005, p. 160). The fear of
opportunistic behaviour is higher in the exit system because the duty of loyalty is
assumed to be lower and the employees have little protection against dismissal apart
from the whistle-blower protection.
4.2.2 Obligation to implement whistle-blowing systems combined with protection

against dismissal
As mentioned above, protection against dismissal is often not sufficient to motivate

organizations to implement whistle-blowing systems. For this reason, SOX
combines the protection with an obligation to implement whistle-blowing systems.
123
718 E. Pittroff
Protection against dismissal should encourage organizations to implement whistle-

blowing systems that are more than lip service because the fear of external whistle-
blowing only decreases if the system works effectively (Dworkin 2007). As a
consequence, the employees will have higher perceived power and they are
motivated to blow the whistle internally. Moreover, the system lowers the costs for
the employees to blow the whistle. Employees with low intrinsic motivation, that is,
a low moral attitude, will possibly decide to blow the whistle because the costs of
whistle-blowing fall under the low benefit. In corporate governance systems with a
low duty of loyalty, as is the case in exit systems, the lowering of costs may also
lead to a higher possibility of internal whistle-blowing than of external whistle-
blowing because the costs of searching for a suitable contact person can be saved
and the fear of retaliation from colleagues can be prevented.12
Despite the benefits of this approach, SOX destroys the incentive to implement
whistle-blowing systems because external whistle-blowers are less likely to be
protected. The protection is limited to special kinds of misconduct.13 The employee
cannot be sure whether the reported misconduct is protected. This uncertainty is
unsettling since many lawsuits are dismissed for formal reasons (Dworkin 2007,
pp. 1764–1767). Additionally, there has to be ‘‘reasonable belief’’ for a successful
lawsuit.14 The success of external whistle-blowing is therefore relatively limited. As
a consequence, this approach does not motivate organizations to incentivise
employees to blow the whistle internally. Organizations that still consider whistle-
blowing to be an illegitimate action are not convinced of the benefits of a whistle-
blowing system and they will not implement the system effectively because the risk
of external whistle-blowing is low despite the protection against dismissal.
This result is not limited to exit systems. In voice systems, such as Germany, an
obligation to implement whistle-blowing systems would hardly change the
historically shaped attitude against whistle-blowers and the systems might remain
ineffective. Moreover, the insufficient protection against dismissal in Germany
supports the fact that external whistle-blowing is less likely and the motivation to
implement systems that work effectively is quite low. The obligation to implement a
whistle-blowing system might finally lead in every corporate governance system to
cosmetic compliance or window dressing (Dworkin 2007; Lobel 2009, p. 497;
Moberly 2008). This means that the systems only pay lip service, the costs for the
employee to blow the whistle are not decreased and the employee’s power is not
strengthened. Ultimately, the approach hardly ever leads to an incentive to blow the
whistle.
12
Even though the external whistle-blower is protected against dismissal, he may suffer retaliation; see
Moberly (2008).
13
The protection is limited to fraud; see sec. 806 SOX.
14
Empirical results show that 14.5 % of whistle-blowers’ claims failed because there was no ,,reasonable
belief‘‘for an illegal activity; see Moberly (2007).
123
4.2.3 Incentives to implement whistle-blowing systems
Since an obligation to blow the whistle does not change the attitude of the
management towards a whistle-blowing system, but rather leads to window
dressing, several regulations try to provide incentives for the management. The
British PIDA and the US American Organizational Sentencing Guidelines give
certain incentives to the management to encourage the implementation of whistle-
blowing systems (Schmidt 2005). In Great Britain employees who make use of
external whistle-blowing are almost completely unprotected against dismissal if the
organization has implemented a whistle-blowing system. The risk of uncontrolled
external whistle-blowing is therefore decreased. The Organizational Sentencing
Guidelines encourage implementation because the organization can decrease the
expected penalties if a whistle-blowing system exists. The PIDA in particular is
seen as a very successful approach (Lobel 2009). In the case of external whistle-
blowing the organization would only incur high costs if they have not implemented
a whistle-blowing system.
Nevertheless, these approaches are hardly better than the obligation to implement
whistle-blowing systems. If the management has reservations towards whistle-
blowing and employees are not motivated to use the system, the ‘‘window dressing’’
problem persists (Dworkin 2007; Gobert and Punch 2000). Organizations decrease
the risk of external whistle-blowing if a whistle-blowing system is implemented. It
does not matter if the system is actually effective. This problems holds for exit and
voice systems as well. Window dressing may be prevented if organizations are
obliged to communicate about the effectiveness of the system (Lobel 2009, p. 498;
Moberly 2006, p. 1167). In order to signal effectiveness it is essential that the
organization not only describes the implemented system but also provides
information about reported cases and solutions. This would finally decrease the
‘‘window dressing’’ problem.
4.2.4 Financial incentives
Another regulation approach addresses the goals of the employee instead of the
management by setting financial incentives for reporting misconduct. The reward
changes the cost-benefit-relationship for the employee so that whistle-blowing
becomes beneficial, independent of the moral attitude of the employee (Dworkin
2007, p. 1774; Callahan and Dworkin 1992). This approach works like protection
against dismissal since the cost-benefit-calculation is addressed. While protection
against dismissal decreases the costs of whistle-blowing, the financial reward
increases the benefits. Both approaches address employees who are less intrinsically
motivated to blow the whistle, but in the USA financial incentives are much more
effective (Dworkin 2007; Dyck et al. 2010; Pope and Lee 2013). The reason for this
is the underlying corporate governance system. Protection against dismissal is less
beneficial, since a change to another organization is less costly. Moreover, empirical
results show that the fear of retaliation is not the decisive factor for the choice
against whistle-blowing (Miceli and Near 1984). Financial rewards are therefore
123
720 E. Pittroff
more effective in exit systems to encourage whistle-blowing. However, the

organization has no possibility to end the misconduct before it becomes public.
In contrast to the exit system, the relationship between employees and employer
in the voice-system is more long-term. The financial benefit of whistle-blowing
should therefore be less relevant than in an exit system. Moreover, financial rewards
work as extrinsic incentives and could destroy the intrinsic motivation to blow the
whistle (Fleischer and Schmolke 2012, p. 364). Increasing disloyalty and denun-
ciation might be expected (Miceli and Near 1994; Schmidt 2005). For this reason,
reward programs are associated with former regimes in Germany and portray
whistle-blowers as those who foul their own nest.15
The approach is additionally criticised for the fact that it especially motivates
employees to blow the whistle externally (Lobel 2009). All efforts that aim to
encourage internal whistle-blowing and prevent external whistle-blowing are
undermined by financial rewards (Buchert 2013). For this reason the approach is not
seen as legitimate in voice systems because it contradicts the duty of loyalty.
The organization might counteract these financial incentives by increasing the
benefits of internal whistle-blowing so that they exceed the benefits of external
whistle-blowing. It is hardly conceivable that an organization would be able to pay
rewards similar to those of the courts, despite the fact that US American
organizations do just this (Callahan and Dworkin 1992, p. 273; Pope and Lee 2013).
But non-financial rewards might also play an important role. Non-financial rewards
seem to be especially beneficial for employees in voice systems, who have a higher
duty of loyalty and a long-term commitment to the organization. Internal rewards
ensure on the one hand that the employee remains loyal to the organization and on
the other hand that the employee will fear less retaliation compared to the case of
external whistle-blowing (Callahan and Dworkin 1992, p. 335).
4.3 Consistency of whistle-blowing regulation
The approaches mentioned above have different consequences in the particular

corporate governance systems. As mentioned in chapter three the consistency of a
corporate governance system depends on what is considered to be legitimate within
the norms and the values of the underlying corporate governance system. In contrast
to exit systems, regulation in voice systems has to support the duty of loyalty and
the co-determination rights of employees. Any regulation that encourages external
whistle-blowing is therefore not legitimate in voice systems. Employees should be
motivated to blow the whistle internally in order to comply with the duty of loyalty
and to strengthen the co-determination rights. However, the problem of unsuccess-
ful internal reports persists. Regulation should therefore motivate management to
implement whistle-blowing systems that work effectively so that internal whistle-
blowing is perceived to be the superior option for action.
Regulation approaches in exit systems, conversely, should not focus on the duty
of loyalty towards the employer. Even though internal whistle-blowing is the best
option for action for every corporate governance system, internal whistle-blowing is
15
For a negative association of whistle-blowing see Schmolke (2012), pp. 229–230.
123
not directly encouraged by legal approaches in exit systems because protecting

internal whistle-blowing is not compatible with the employers managerial
prerogatives. For this reason, most of the legal approaches in exit systems focus
on external whistle-blowing. In contrast to voice systems external whistle-blowing
is considered to be legitimate in exit systems because duty of loyalty is less
emphasized.
Nevertheless, some legal approaches in exit systems indirectly motivate
management to promote internal whistle-blowing. Even if, for example, financial
rewards motivate employees to whistle-blow externally, the approach indirectly
encourages managers to promote internal whistle-blowing in order to prevent
external whistle-blowing. Some organizations also grant financial rewards if an
employee blows the whistle internally. For that reason the US American legislature
has provided an effective incentive to organizations to encourage their employees to
blow the whistle internally.
In contrast, it has been shown that financial rewards are incompatible with voice
systems because they directly encourage illegitimate external whistle-blowing. A
regulatory approach has to take into consideration that loyalty is maintained and the
employee claims the right to co-determine the organization by internal whistle-
blowing. Protection against dismissal is therefore more suitable in voice systems
because it enforces the long-term commitment to the organization. The risk of legal
consequences is currently the most important factor that prevents employees in
voice systems from blowing the whistle (Müller 2002; Wisskirchen et al. 2006).
This seems to be different in exit systems due to its fluid job market. For this reason,
protection against dismissal is less successful in exit systems.
In order to maintain loyalty to the employer only internal whistle-blowing is
considered to be legitimate in voice systems. For example, most of German courts’
decisions about whistle-blowing insist on internal reports before the employee goes
outside the company (von Busekist and Fahrig 2013; Schmidt 2005). This restriction
is based on the duty of loyalty (Müller 2002). To achieve consistent regulation,
whistle-blower protection should include a subsidiarity of external whistle-blowing,
which means that external whistle-blowing should only be protected if internal
reports were not successful. This type of regulation would be legitimate with
regards to the norms and beliefs in voice systems because it would not counteract
any internal procedures that motivate internal whistle-blowing (Fleischer and
Schmolke 2012, p. 365) and the whistle-blower would remain loyal to the
organization (Lobel 2009, p. 493).
Nevertheless, protection against dismissal does not change the historically
shaped attitude of the management towards whistle-blowing. The information of the
employees might be undesired, which leads to external whistle-blowing. Although
internal whistle-blowing would be efficient for both, the employer could perceive
this behaviour as disloyal. The major challenge is, therefore, to make clear that
whistle-blowing is an act of great loyalty. The attitude towards whistle-blowing
varies among different cultures significantly (Schmolke 2012; Zhuang et al. 2005).
In the USA, for example, whistle-blowers are often revered as heroes (Dowling
2008, p. 13). In 2002, Time Magazine elected several whistle-blowers to be the
123
722 E. Pittroff
‘‘Persons of the Year’’ (Lacayo and Ripley 2002).16 In contrast, Germany and other
Continental-European countries (i.e. which are the so-called voice systems) have a
more negative association with whistle-blowers due to historical events (Dowling
2008, pp. 12–13; Schmolke 2012, p. 229).
National regulation should therefore not only encourage employees to blow the
whistle but also define and explain why whistle-blowing is beneficial to society. In
other words, regulators should actively influence the norms and beliefs of the
society so that whistle-blowing is considered to be a legitimate action. Great Britain
is an example for a successful state campaign that led to cultural change17: British
society now perceives whistle-blowing as a positive option for action (Fleischer and
Schmolke 2012, p. 365). If whistle-blowing is perceived as an act of great loyalty,
the moral dilemma will disappear because the whistle-blower acts in line with the
organization’s goals (Lindblom 2007; Lobel 2009; Vandekerckhove and Commers
2004). Recent developments in Germany have shown that a cultural change is
already observable because many German organizations have implemented whistle-
blowing systems and some even report success of the system (Pittroff 2011, p. 132).
Due to these different attitudes towards whistle-blowers, financial rewards should
not be offered in a culture that regards whistle-blowers as traitors or denunciators.
The rewards would only strengthen these reservations. The protection against
dismissal would better signal that whistle-blowing is an action that is worth
protecting.
The consideration is, so far, only based on the two extremes of corporate
governance systems—the exit and the voice system. In considering a change of a
system, it is important to maintain the consistency of the system. It can be stated that
the German corporate governance system as well as other voice systems are already
changing because some parts of the system already contain elements of the exit
system (Buck and Shahrim 2005; Melis 2000). For example, the capital market has
been strengthened in many areas: more transparency is demanded, insider trading is
prohibited, and takeovers are more regulated since the cases of hostile takeovers
have increased.
According to the path dependent theory, a change of a corporate governance
system is a result of altering circumstances that influenced the norms and beliefs of
a society. The system only remains efficient if the institutions within the system are
adjusted to the new circumstances. For this reason, nowadays organizations in voice
systems have to neglect the needs of the employees and the creditors to a certain
extent because the focus has to be on the demands of the capital markets. In other
words, it is no longer legitimate to disregard the interests of the capital market in
order to maintain the power of certain stakeholders. For this reason the long-term
relationships to the banks and the employees are considerably more relaxed
(Schmidt 2006) and the duty of loyalty decreases (Müller 2002). With regards to
16
Despite this positive connotation in the media, managers in the USA might, of course, have
reservations towards whistle-blowing (Lobel 2009, p. 488).
17
The change of the attitude towards whistle-blowing already started with the introduction of PIDA in 1998.
Furthermore, the British Committee on Standards in Public Life issued standards of conduct in public life.
The focus lies, among other things, on the attitude towards whistle-blowing, see for example https://www.
gov.uk/government/uploads/system/uploads/attachment_data/file/336897/10thFullReport.pdf.
123
labour law there has so far been no important convergence to the exit system. But
the change of the securities law has led to changes in the relationship between
employee and employer.
As mentioned in chapter three, the changing of a system is a permanent process
because circumstances constantly evolve. For that reason the German system will
develop further (Schmidt 2006). If the change is directed towards the exit system,
financial rewards may become efficient in regulating whistle-blowing. The disad-
vantages of the system may be solved by introducing a compulsory subsidiarity of
external whistle-blowing and the requirement of an affidavit that the information is
true in order to prevent opportunistic behaviour (Fleischer and Schmolke 2012,
p. 365). But current events like the financial crisis give rise to doubts about the success
of the exit system. The sustainable success of organizations should be connected with
the consideration of the demands of the stakeholders (von Werder 2011). For that
reason the direction of the changes of corporate governance systems remains unclear
and financial rewards should currently not be introduced. In particular labour law and
the corporate culture are mainly based on elements of the voice system that cannot be
combined with financial rewards. Protection against dismissal seems to be more
appropriate. This approach is also suitable for the development of a culture that
perceives whistle-blowing as a positive behaviour of employees.
5 Conclusion
The introduction of a whistle-blower regulation in Germany and other countries has

been discussed for many years. The most commonly discussed approaches are
protection against dismissal and financial rewards. Many arguments for and against
these approaches are based on the success and failure in other countries. Such a
consideration is inappropriate from a path dependence view because different
corporate governance systems demand different considerations. The elements of
exit systems cannot easily be transferred to voice systems. Financial rewards cannot
be introduced in a system that is based on the duty of loyalty. Protection against
dismissal seems to be more suitable in order to preserve a system that promotes a
long-term relationship between employee and employer.
An overview of the current developments shows that the corporate governance
systems of Germany and also of other EU states are changing. The suggestion of the
EU to introduce financial rewards seems to confirm this change. Path dependence
theory implies that due to changing circumstances the systems themselves
constantly have to change to adjust to the new framework. But implementing
financial rewards would imply a very serious step in the direction of the exit system,
and this seems to be undesired, at least at the present stage. Policy makers should
take into account that regulation of whistle-blowing has to fit into the current
corporate governance system. In particular labour law and the developments in
corporate culture are relevant for this decision. Since this is just the beginning of a
cultural change in voice systems, protection against dismissal could be more
appropriate to support this development.
123
724 E. Pittroff
But not only policy makers should consider these findings. Managers of
multinational firms should also take into account the different attitudes towards
whistle-blowing in countries with different corporate governance systems. Intro-
ducing anonymous hotlines or financial rewards in different countries is not only
challenging from a legal viewpoint but also from a cultural viewpoint because the
norms and beliefs of society towards whistle-blowers might differ.
The findings are also useful for researchers of whistle-blowing because it
provides a new basis for interpretation of existing whistle-blowing studies. Most of
the studies are developed in a special corporate–governance system and their
findings might not be transferable to other systems. This provides new avenues for
researchers of whistle-blowing.
References
Aguilera, R. V., & Jackson, G. (2003). The crossnational diversity of corporate governance: Dimensions
and determinants. Academy of Management Review, 28(3), 447–465.
Anechiarico, F., & Jacobs, J. B. (1996). The pursuit of absolute integrity. Chicago: University of Chicago
Press.
Arthur, W. B. (1989). Competing technologies, increasing returns, and lock-in by historical events. Tec
Economic Journal, 99, 116–131.
Baums, T., & Scott, K. E. (2005). Taking shareholder protection seriously? Corporate governance in the
U.S. and Germany. Journal of Applied Corporate Finance, 17(4), 44–63.
Bebchuk, L. A., & Roe, M. J. (1999). A theory of path dependence in corporate ownership and
governance. Stanford Law Review, 52(1), 127–170.
Beyer, J. (2005). Pfadabhängigkeit ist nicht gleich Pfadabhängigkeit—Wider den impliziten Konser-
vatismus eines gängigen Konzepts. Zeitschrift für Soziologie, 34(1), 5–21.
Bok, S. (1988). Whistleblowing and professional responsibility. In T. L. Beauchamp & N. E. Bowie
(Eds.), Ethical theory and business (3rd ed., pp. 292–299). Englewood Cliffs: Prentice Hall.
Brown, A. J. (2008). Whistleblowing in the Australian public sector. Canberra: ANU E Press.
Brühl, K. (2009). Corporate Governance, Strategie und Unternehmenserfolg. Wiesbaden: Gabler.
BSI. (2008). PAS 1998:2008 whistleblowing arrangements. Code of practice. British Standards Institute,
London.
Buchert, C. (2013). Der Irrweg der EU-Kommission—Zu den Überlegungen über die Einführung einer
staatlichen Whistleblower-Prämie. Corporate Compliance Zeitschrift, 6, 144–149.
Buck, T., & Shahrim, A. (2005). The translation of corporate governance changes across national
cultures: The case of Germany. Journal of International Business Studies, 36(1), 42–61.
Callahan, E. S., & Dworkin, T. M. (1992). Do good and get rich: Financial incentives for whistleblowing
and the False Claims Act. Villanova Law Review, 37, 273–336.
Callahan, E. S., Dworkin, T. M., Fort, T. L., & Schipani, C. A. (2002). Integrating trends in
whistleblowing and corporate governance: Promoting organizational effectiveness, societal
responsibility and employee empowerment. American Business Law Journal, 40(1), 177–215.
Chizema, A., & Buck, T. (2006). Neo-institutional theory and institutional change: Towards empirical
tests on the ‘‘Americanization’’ of German executive pay. International Business Review, 15,
488–504.
Data-Protection-Group. (2006). ‘Stellungnahme 1/2006 zur Anwendung der EU-Datenschutzvorschriften
auf interne Verfahren zur Meldung mutmaßlicher Missstände in den Bereichen Rechnungslegung,
interne Rechnungslegungskontrollen, Fragen der Wirtschaftsprüfung, Bekämpfung von Korruption,
Ban’, Artikel-29-Datenschutzgruppe, WP 117 00195/06/DE.
David, P. A. (1985). Clio and the economics of qwerty. American Economic Review, 75, 332–337.
Donkin, M., Smith, R., & Brown, A. J. (2008). How do officials report? Internal and external
whistleblowing. In A. J. Brown (Ed.), Whistleblowing in the Australian public sector (pp. 83–108).
Canberra: ANU E Press.
123
Dowling, D. C, Jr. (2008). Sarbanes–Oxley whistleblower hotlines across Europe: Directions through the
maze. International Lawyer, 42(1), 1–58.
Dozier, J. B., & Miceli, M. P. (1985). Potential predictors of whistle-blowing: A prosocial behavior
perspective. The Academy of Management Review, 10 (4), 823–836.
Dworkin, T. M. (2007). SOX and whistleblowing. Michigan Law Review, 105, 1757–1780.
Dworkin, T. M., & Near, J. P. (1997). A better statutory approach to whistle-blowing. Business Ethics
Quarterly, 7, 1–16.
Dyck, A. J., Morse, A., & Zingales, L. (2010). Who blows the whistle on corporate fraud. Journal of
Finance, 65, 2213–2254.
Fleischer, H., & Schmolke, K. U. (2012). Finanzielle Anreize für Whistleblower im Europäische
Kapitalmarktrecht? Rechtspolitische Überlegungen zur Reform des Marktmissbrauchsregimes. Neue
Zeitung für Gesellschaftsrecht, 15(10), 361–368.
Fröhlich, O., & Schelp, T. (2009). Die geplante Neufassung des § 612a BGB—mehr als, alter Wein in
neuen Schläuchen? Arbeits-Rechts-Berater, 1, 48–51.
Garcia-Castro, R., Arino, M. A., Rodriguez, M. A., & Ayuso, S. (2008). A cross-national study of corporate
governance and employment contracts. Business Ethics: A European Review, 17(3), 259–284.
Gobert, J., & Punch, M. (2000). Whistleblowers, the public interest, and the Public Interest Disclosure
Act 1998. The Modern Law Review, 63, 25–54.
Grimm, D., & Windeln, N. (2009). ‘‘Whistleblowing’’—Zum Vorschlag für eine gesetzliche Regelung
des Informantenschutzes für Arbeitnehmer. Arbeits-Rechts-Berater, 1, 21–24.
Groenewegen, J. (1997). Institutions of capitalisms: American, European, and Japanese systems
compared. Journal of Economic Issues, 31(2), 333–347.
Groneberg, R. (2011). Whistleblowing: Eine rechtsvergleichende Untersuchung des US-amerikanischen,
englischen und deutschen Rechts unter besonderer Berücksichtigung des Entwurfs eines neuen §
612a BGB. Berlin: Duncker & Humblot.
Hall, P. A., & Gingerich, D. W. (2009). Varieties of capitalism and institutional complementarities in the
political economy: An empirical analysis. British Journal of Political Science, 39(3), 449–482.
Hall, P. A., & Soskice, D. (2001). An introduction to varieties of capitalism. In P. A. Hall & D. Soskice
(Eds.), Varieties of capitalism. The institutional foundations of comparative advantage (pp. 1–68).
Oxford: Oxford University Press.
Hassink, H., de Vries, M., & Bollen, L. (2007). A content analysis of whistleblowing policies of leading
European companies. Journal of Business Ethics, 75, 25–44.
Heine, K. (2003). Regulierungswettbewerb im Gesellschaftsrecht. Berlin: Duncker & Humblot.
Herbert, M., & Oberrath, J.-D. (2005). Schweigen ist Gold? - Rechtliche Vorgaben für den Umgang des
Arbeitnehmers mit seiner Kenntnis über Rechtsverstöße im Betrieb. Neue Zeitschrift für
Arbeitsrecht, 23, 193–199.
Hirschman, A. O. (1970). Exit, voice and loyalty: Responses to decline in firms, organizations, and states.
Cambridge: Harvard University Press.
Jos, P. H., Tompkins, M. E., & Hays, S. W. (1989). In praise of difficult people: A portrait of the
committed whistleblower. Public Administration Review, 49, 552–561.
Joshi, A. W., & Arnold, S. J. (1997). The impact of buyer dependence on buyer opportunism in buyer–
supplier relationships: The moderating role of relational norms. Psychology & Marketing, 14(8),
823–845.
Kaptein, M. (2011). From inaction to external whistleblowing: The influence of the ethical culture of
organizations on employee responses to observed wrongdoing. Journal of Business Ethics, 98,
513–530.
Kostant, P. C. (1999). Exit, voice and loyalty in the course of corporate governance and counsel’s
changing role. Journal of Socio-Economics, 28, 203–246.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of
Political Economy, 106(6), 1113–1155.
Lacayo, R., & Ripley, A. (2002). Persons of the year 2002, Cynthia Cooper, Coleen Rowley and Sherron
Watkins. Time Magazine, 160(27), 30–33.
Lambsdorff, J. G., & Frank, B. (2011). Corrupt reciprocity—Experimental evidence on a men’s game.
International Review of Law & Economics, 31(2), 116–125.
Lee, G., & Fargher, N. (2013). Companies’ use of whistle-blowing to detect fraud: An examination of
corporate whistle-blowing policies. Journal of Business Ethics, 114(2), 283–295.
Lentfer, T. (2005). Einflüsse der internationalen Corprate-Governance-Diskussion auf die Überwachung
der Geschäftsführung. Wiesbaden: Deutscher Universitäts-Verlag.
123
726 E. Pittroff
Lewis, D. (2011). Whistleblowing in a changing legal climate: Is it time to revisit our approach to trust
and loyalty at the workplace? Business ethics: A European review, 20(1), 7187.
Lindblom, L. (2007). Dissolving the moral dilemma of whistleblowing. Journal of Business Ethics, 76,
413–426.
Lobel, O. (2009). Citizenship, organizational citizenship, and the laws of overlapping obligations.
California Law Review, 97, 433–499.
Lombardi, L. G. (1988). Moral analysis—Foundations, guides and applications. New York: State
University of New York Press.
Mahoney, J. (2000). Path dependence in historical sociology. Theory and Society, 29(4), 507–548.
Melis, A. (2000). Corporate governance in Italy. Corporate Governance: An International Review, 8(4), 347–355.
Miceli, M. P., & Near, J. P. (1984). The relationships among beliefs, organizational position, and whistle-
blowing status: A discriminant analysis. Academy of Management Journal, 27, 687–705.
Miceli, M. P., & Near, J. P. (1985). Characteristics of organizational climate and perceived wrongdoing
associated with whistleblowing decisions. Personnel Psychology, 38(3), 525–544.
Miceli, M. P., & Near, J. P. (1992). Blowing the whistle. New York: Lexington Books.
Miceli, M. P., & Near, J. P. (1994). Whistleblowing: Reaping the benefits. Academy of Management
Executive, 8(3), 65–72.
Miceli, M. P., Near, J. P., & Dworkin, T. M. (2008). Whistle-blowing in organizations. New York: Taylor
& Francis Group.
Miceli, M. P., Near, J. P., Rehg, M. T., & van Scotter, J. R. (2012). Predicting employee reactions to
perceived organizational wrongdoing: Demoralization, justice, proactive personality and whistle-
blowing. Human Relations, 65(8), 923–954.
Moberly, R. E. (2006). Sarbanes Oxley’s structural model to encourage corporate whistleblowers.
Brigham Young University Law Review, 5, 1107–1176.
Moberly, R. E. (2007). Unfulfilled expectations: An empirical analysis of why Sarbanes-Oxley
whistleblowers rarely win. William and Mary Law Review, 59, 65–155.
Moberly, R. E. (2008). Protecting whistleblowers by contract. University of Colorado Law Review, 79,
975–1043.
Monks, R. A. G., & Minow, N. (2008). Corporate governance (4th ed.). Chichester: Wiley.
Morrell, K., Loan-Clarke, J., Arnold, J., & Wilkinson, A. (2008). Mapping the decision to quit: A
refinement and test of the unfolding model of voluntary turnover. Applied Psychology: An
International Review, 57(1), 128–150.
Müller, M. (2002). Whistleblowing—Ein Kündigungsgrund? Neue Zeitschrift für Arbeitsrecht, 20, 424–437.
Near, J. P., & Miceli, M. P. (1985). Organizational dissidence: The case of whistle-blowing. Journal of
Business Ethics, 4(1), 1–16.
Near, J. P., & Miceli, M. P. (1995). Effective whistle blowing. Academy of Management Review, 20(3),
679–708.
Nitsch, D., Baetz, M., & Christensen Hughes, J. (2005). Why codes of conduct violations go unreported:
A conceptual framework to guide intervention and future research. Journal of Business Research,
57, 327–341.
Nooteboom, B. (1999). Voice- and exit-based forms of corporate control: Anglo-American, European,
and Japanese. Journal of Economic Issues, 33(4), 845–860.
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge
University Press.
Orren, K. (1991). Labor, the law, and liberal development in the United States. Cambridge: Cambridge
University Press.
Pierson, P. (2000a). Increasing returns, path dependence, and the study of politics. The American Political
Science Review, 94(2), 251–267.
Pierson, P. (2000b). Not just what, but when: Timing and sequence in political processes. Studies in
American Political Development, 14(1), 72–92.
Pittroff, E. (2011). Whistle-Blowing-Systeme in deutschen Unternehmen—Eine Untersuchung zur
Wahrnehmung und Implementierung. Wiesbaden: Gabler.
Pittroff, E. (2014a). Finanzielle Belohnungen für Whistle Blower in Deutschland—ein Vergleich mit dem
Kündigungsschutz. Zeitschrift für Wirtschaftsstrafrecht und Haftung im Unternehmen, 4(11),
417–423.
Pittroff, E. (2014b). Whistle-blowing systems and legitimacy theory: A study of the motivation to
implement whistle-blowing systems in German organizations. Journal of Business Ethics, 124,
399–412.
123
Pope, K. R., & Lee, C.-C. (2013). Could the Dodd–Frank wall street reform and Consumer Protection Act
of 2010 be helpful in reforming corporate America? An investigation on financial bounties and
whistle-blowing behaviors in the private sector. Journal of Business Ethics, 112, 597–607.
Rappaport, A. (1999). Shareholder value: Ein Handbuch für Manager und Investoren. Stuttgart:
Schaeffer-Pöschel.
Rauhofer, J. (2007). Blowing the whistle on Sarbanes–Oxley: Anonymous hotlines and the historical
stigma of denunciation in modern Germany. International Review of Law Computers and
Technology, 21(3), 363–376.
Schmidt, M. (2005). Whistle blowing regulation and accounting standards enforcement in Germany and
Europe—An economic perspective. International Review of Law and Economics, 25, 143–168.
Schmidt, R. H. (2006). Stakeholderorientierung, Systemhaftigkeit und Stabilität der corporate governance
in Deutschland. In U. Jürgens, D. Sadowski, G. F. Schuppert, & M. Weiss (Eds.), Perspektiven der
Corporate Governance (pp. 31–54). Baden-Baden: Nomos.
Schmidt, R. H., & Spindler, G. (2002). Path dependence, corporate governance and complementarity.
International Finance, 5(3), 311–333.
Schmolke, K. (2012). Whistleblowing-Systeme als Corporate Governance-Instrument transnationaler
Unternehmen. Recht der internationalen Wirtschaft, 58(4), 224–232.
Schreyögg, G., & Sydow, J. (2011). Organizational path dependence: A process view. Organization
Studies, 32(3), 321–335.
Skivenes, M., & Trygstad, S. C. (2010). When whistle-blowing works: The Norwegian case. Human
Relations, 63(7), 1071–1097.
Söllner, A. (2000). Die Schmutzigen Hände—Individuelles Verhalten in Fällen von institutionellen
Misfits, Tübingen.
Sydow, J., Schreyögg, G., & Koch, J. (2009). Organizational path dependence: Opening the black box.
Academy of Management Review, 34(4), 689–709.
Trongmateerut, P., & Sweeney, J. T. (2013). The influence of subjective norms on whistle-blowing: A
cross-cultural investigation. Journal of Business Ethics, 112, 437–451.
Vandekerckhove, W., & Commers, R. (2004). Whistle blowing and rational loyalty. Journal of Business
Ethics, 53, 225–233.
Vandekerckhove, W., & Lewis, D. (2012). The content of whistleblowing procedures: A critical review of
recent official guidelines. Journal of Business Ethics, 108, 253–264.
Velte, P., & Weber, S. C. (2011). Outsider- und Insider-Systeme der Corporate Governance. Zeitschrift
für Planung und Unternehmenssteuerung, 21, 473–482.
von Busekist, K., & Fahrig, S. (2013). Whistleblowing und der Schutz von Hinweisgebern. Betriebs
Berater, 68, 119–124.
von Werder, A. (2004). Corporate governance. In G. Schreyögg & A. von Werder (Eds.), Handwörter-
buch Unternehmensführung und Organisation (4th ed., pp. 160–170). Stuttgart: Schaeffer-Pöschel.
von Werder, A. (2011). Neue Entwicklungen der Corporate Governance in Deutschland. Schmalenbachs
Zeitschrift für betriebswirtschaftliche Forschung, 63, 48–62.
Weimer, J., & Pape, J. C. (1999). A taxonomy of systems of corporate governance. Corporate
Governance: An International Review, 7(2), 152–166.
Williamson, O. E. (1985). The economic institutions of capitalism: Firms, markets, relational
contracting. New York: The Free Press.
Wisskirchen, G., Körber, A., & Bissels, A. (2006). Whistleblowing und Ethikhotlines. Probleme des
deutschen Arbeits- und Datenschutzrechts. Betriebs-Berater, 61, 1567–1572.
Wrase, S., & Fabritius, C. (2011). Prämien für Hinweisgeber bei Kartellverstößen? Zeitschrift für
Corporate Compliance, 4, 69–73.
Zhuang, J., Tomas, S., & Miller, D. L. (2005). Examining culture’s effect on whistle-blowing and peer
reporting. Business & Society, 44(4), 462–486.
Esther Pittroff has been a research assistant and lecturer at the Institute of Accounting, Finance and
Taxation of the University of Leipzig since 2005. Her research focuses on whistle-blowing, corporate
governance, regulation of accounting and the different aspects of legitimacy theory. Dr. Pittroff earned
her doctoral degree in 2011 with a thesis about whistle-blowing systems in German organizations.
123
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

Sesi 13 Whistle Blowing System

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Sesi 13 Whistle Blowing System

Caricato da

Copyright:

Formati disponibili

J Manag Gov (2016) 20:703–727

Whistle-blowing regulation in different corporate

Published online: 27 February 2015

Keywords Whistle-blowing Corporate governance system Path dependence

for whistle-blowing regulation in different corporate–governance systems as well as

2 Whistle-blowing as an option of action of employees

In a case of perceived misconduct, whistle-blowing is one of the possible options

organization. External whistle-blowing would be the only solution if the employee

Table 1 Options for action

Low power High power Low power High power

Low morals Opportunistic behaviour Exit Silence Silence

3 Corporate governance and path dependence theory

3.1 Theory of path dependence

Path dependence theory is often applied to explain the development of institutions

3.2 Typologies of corporate governance systems

In contrast, voice systems are characterised by strong co-determination rights for

Table 2 Options for action in exit systems

Low power High power

Low morals Opportunistic behaviour Exit

4.1 Overview of the different national approaches

Whistle-blowing is regulated in many countries. The longest tradition of whistle-

Table 3 Options for action in

Low morals Silence Silence

4.2.1 Protection against dismissal

The special approaches to regulate whistle-blowing contain different incentives in

4.2.2 Obligation to implement whistle-blowing systems combined with protection

As mentioned above, protection against dismissal is often not sufficient to motivate

Protection against dismissal should encourage organizations to implement whistle-

4.2.3 Incentives to implement whistle-blowing systems

4.2.4 Financial incentives

more effective in exit systems to encourage whistle-blowing. However, the

4.3 Consistency of whistle-blowing regulation

The approaches mentioned above have different consequences in the particular

not directly encouraged by legal approaches in exit systems because protecting

The introduction of a whistle-blower regulation in Germany and other countries has

Potrebbero piacerti anche