To detect corporate misconduct, regulators frequently rely on firms’ employees, who are often privy to private information and the first to identify wrongdoing. To encourage employees and others to share what they know, many regulators have implemented whistleblower programs. Some agencies, such as the SEC and IRS, even pay substantial financial rewards to those who come forward.[1]
However, the whistleblowing process is subject to well-known frictions. For example, the risk of retaliation can lead would-be whistleblowers to remain silent for fear of losing their jobs or facing discrimination. Thus, prior academic and policy-oriented work has primarily focused on mitigating such frictions by designing whistleblower programs that convince employees to step forward when they have relevant information.
But what happens after an employee does blow the whistle? In principle, regulators should evaluate the substance of the allegation and act on its merit. However, regulators are human, and studies in other contexts – ranging from mortgage lending to employment screening – suggest that human involvement can lead to disparities based on demographic factors.
In a recent study, we peek into the black box of how regulators process whistleblower complaints. In particular, we investigate whether regulators’ response to the complaints exhibits disparities based on the racial composition of the whistleblower’s workplace.
We focus on the Occupational Safety and Health Administration (OSHA), the agency responsible for workplace safety and health in the United States. Like many other agencies, OSHA relies heavily on employee whistleblowing for enforcement, with more than half its inspections triggered by employee complaints.
To examine our research question, we filed a series of Freedom of Information Act (FOIA) requests and obtained employee whistleblower complaints filed with OSHA between 2012 and 2019, creating a dataset of over 285,000 cases. Importantly, these data do not contain information on the whistleblower’s race.[2] However, they do contain the address of the facility alleged to have engaged in corporate misconduct related to workplace safety and health, and we can use this information to estimate the racial composition of the facility’s workforce. Thus, we analyze the regulatory response to whistleblower complaints about facilities with variation in the underlying racial composition at the facility (rather than the whistleblowers’ race).
Empirically, we find that whistleblower complaints from facilities with larger shares of racial-minority employees are less likely to result in inspections. This disparity is especially pronounced at facilities with higher shares of Black employees, where OSHA is significantly less responsive. Even when inspections do occur, we find that they take longer at facilities with higher shares of Black employees, prolonging the period in which workers remain exposed to unsafe conditions. These initial findings are surprising because OSHA employees, like many regulatory agency employees, have standardized protocols for recording and evaluating whistleblower complaints.
While we control for location, industry, and time effects as well as complaint types, one might suspect that these results simply reflect unobserved differences in the severity of complaints. In particular, if employees in minority-prevalent workplaces were filing less meritorious complaints, regulators might reasonably respond less often or more slowly. Yet, additional analyses suggest the opposite; inspections in response to whistleblower complaints at facilities with more Black employees uncover more severe problems and are assessed higher regulatory penalties. Thus, our evidence suggests that regulators seem to be imposing a higher threshold for acting on complaints from facilities with higher shares of Black employees.
Our next set of analyses examines resource constraints. Informally, if an OSHA officer could conduct an inspection in response to every complaint, we would document no difference in response rates among facilities with workforces of varying racial makeup; as resource constraints increase, so does the extent to which officers must use their judgment to determine which complaints are worth following up on. Consistent with this argument, we find that racial disparities are more pronounced at OSHA offices that face greater resource constraints. These findings are important in light of regulators’ increasing resource constraints and debates about the scope of regulatory authority.
Conversely, we find that the documented disparities are smaller when regulators live in racially diverse neighborhoods or work in offices with greater political diversity. This suggests that exposure to a wider range of community types and perspectives – both demographic and ideological – correlates with regulators who are more responsive to complaints from workplaces with higher shares of minority employees and show less bias in decision-making. This pattern is especially interesting in the current era of political polarization, where individuals increasingly filter information through partisan perspectives. Our findings suggest that exposure to diversity within regulatory teams may foster more balanced responses to whistleblower complaints. In contrast, traditional safeguards for whistleblowers appear not to help: Neither anonymity nor union presence reduces the disparities we document.
Our results are economically meaningful; in our final set of tests, we attempt to estimate the excess injuries and associated costs from the failure to conduct OSHA inspections. We estimate that the excess injuries attributable to racial disparities in response rates amounted to at least $27.5 million in additional costs during our sample period.
Our study has significant implications. For workers, especially minorities, the unequal processing of complaints can mean greater exposure to unsafe conditions. For regulators, disparities undermine the effectiveness of enforcement and distort the allocation of scarce resources. For society, it raises questions about the fairness and credibility of institutions that rely heavily on whistleblowers to detect misconduct.
Whistleblower programs are rightly celebrated as tools to enhance enforcement, and the SEC’s multibillion-dollar payouts illustrate just how important they have become to regulators. However, our evidence suggests that programs can improve, and that a more complete evaluation – of both regulatory response and nonresponse – can provide crucial insights into the effectiveness of whistleblower programs.
ENDNOTES
[1] The SEC alone has awarded nearly $2 billion to whistleblowers since 2012, including a record $279 million in a single case.
[2] OSHA confirmed to us, in response to our FOIA, that it does not collect this information at any point in the process.
This post comes to us from Marco Errico at Tilburg University, Sinja Leonelli at New York University’s Stern School of Business, and Aneesh Raghunandan at Yale School of Management. It is based on their recent working paper, “Racial Disparities in the Processing of Whistleblower Complaints,” available here.