Good news for compliance officers: a recent ethics study finds that whistleblowers almost always make some effort to report wrongdoing internally before going outside the company with their concerns.

According to the National Business Ethics Survey, “Inside the Mind of a Whistleblower,” only two percent of 4,600 employees polled went outside their companies to report misconduct.

The survey, conducted by the Ethics Resource Center, also debunks a couple of common misconceptions about what motivates whistleblowers to come forward. “The first is that whistleblowers are rogue employees who are really out to get money and don't really care about the company,” says ERC President Patricia Harned.

Employees generally turn to the government or other outside sources where the violation is substantial and the company has been slow to respond, or because they fear people will be harmed by the misconduct they've observed. “So employees who are going outside their organization to the government are doing it in the best interest of the company,” she says.

Second, many companies feared that the whistleblower provisions under Dodd-Frank that award employees financially for reporting wrongdoing would undermine internal reporting mechanisms and hurt corporate culture. “That's absolutely not that the case,” says Harned. “The least motivating reason for somebody to go outside their company to the government is the possibility of monetary rewards.”

In addition to insights about employees who take problems to outside sources, the report looks at employees who report only internally through company channels. Among the key findings, 56 percent of those who reported misconduct took their reports to someone they know and trust inside the company, such as a direct supervisor.

“One of the biggest challenges for compliance and ethics officers is having a system in place so that they're sure managers recognize a report of misconduct, but also that they follow up on it,” says Harned. “Having a system in place to support managers to effectively respond to reports will diminish the likelihood that employees feel like they need to go outside the company.”

The more companies can do to reward employees for coming forward for reporting misconduct, the better, Harned adds.  If they offer encouragement and let employee know how much it benefits the company, “it would likely change the way people think about the whole process of reporting,” she says.

Effective rewards can be as simple as a handwritten note of thanks or recognition of the report during the employee's annual performance review. The supplemental study said that 72 percent of workers who believe their company rewards ethical conduct reported wrongdoing, compared to 57 percent who did not believe ethical conduct was recognized.

The belief that reporting wrongdoing has an impact is a powerful motivator.  Among those who believe they are “influential” in their workplace, more than three quarters (76 percent) reported misconduct, compared to 52 percent who believed their voice is unlikely to be heard.  A sense of personal security also makes a difference. 

Seventy-four percent of those who said they could question management without fear of retaliation reported misconduct, compared to 51 percent who feared retaliation.

Reporting numbers are higher at companies that are showing signs of recovering from the recession than those that are still struggling.  At companies demonstrating no signs of recovery, 63 percent of those who witnessed wrongdoing reported it. That number goes up to 77 percent at companies where five or more signs of recovery are evident. This suggests that employees are reluctant to add to company problems at a time of financial difficulty.

“Employees who have the courage to raise their hand and report wrongdoing form the front line of a culture of compliance,” said Michael McLaughlin, Dell Chief Ethics and Compliance Officer. “At Dell, we ask our team members to act as owners and speak up when they see things that aren't in line with our core values of winning with integrity and doing the right thing each time, every time. And we applaud them when they do.”

Employees prefer to keep the resolution of company violations inside the company.  Eighty-two percent of initial reports of misconduct were directed either to the immediate supervisor (56 percent) or to a more senior manager (26 percent). 

Across almost all demographic groups, only about one in 20 individuals (five percent) would be motivated to report outside the company by a monetary reward.

Monetary incentives are more likely to motivate workers who have experienced recent financial disappointment. Thirteen percent of workers whose salaries had declined in the last two years said they would report wrongdoing to the government only if there was a chance for substantial financial reward.

In addition, the study found that employees are three times as likely to report misconduct when there is a hotline present, and are eight times more likely to report misconduct when the company effectively takes action against employees who commit wrongdoing. “So it's good evidence that the efforts companies have in place—all the programs, all the money they're putting into those programs—they do pay off when it comes to employee reporting,” says Harned.