The Effects of Leader-Member Exchange on Whistle Blowing

Bhal, K., & Dadhich, A. (2011). Impact of Ethical Leadership and Leader-Member Exchange on Whistle Blowing: The Moderating Impact of the Moral Intensity of the Issue. Journal of Business Ethics, 103(3), 485-496. doi:10.1007/s10551-011-0876-z

 

Corporate governance has become even more complex after the mandatory requirements of the Sarbanes –Oxley Act -2002 were implemented.   Along with extra accounting and reporting requirements, corporations were also required to establish a system for fraud reporting (whistleblowing) (Bhal and Dadhich, 2011). Bhal and Dadhich present a hypothesis testing study that explores the factors that support whistleblowing and how they impact the corporate systems established. The article presents three experimental studies conducted on post graduate engineers in India, which tests ethical leadership and quality of leader-member exchange (LMX) and the morale intensity as in relates to the magnitude of the consequences (MOC) of fraudulent behavior.  Interpersonal interactions or coworkers and the support and encouragement of immediate ethical leaders have a significant impact on the decision to report fraudulent behavior. 

The authors present the following hypotheses:

·         “H1 Ethical leader behavior will be positively related to whistleblowing by the subordinates” (Bhal and Dadhich, 2011, p. 487).

·         “H2 Leader-member exchange quality will be positively related to whistle blowing by subordinates” (Bhal and Dadhich, 2011, p. 487).

·         “H3 Whistleblowing will be highest for ethical leaders in situations with high magnitude of consequences” (Bhal and Dadhich, 2011, p. 488).

·         “H4 The positive relationship between high quality leader-membership exchange and whistle blowing would be stronger for situations with high magnitude of (negative) consequences” (Bhal and Dadhich, 2011, p. 488).

The first study designed around presenting scenarios and asking participants to indicate the level of ethical leadership, high or low and the LMX as low or high. The dependent variable, whistle blowing, was used in a measure of willingness to report without fear and comfort level of delivering bad news of ethical wrong doing. The results of the first study showed that both ethical leadership and the leader-member exchange were successful in predicting whistleblowing (Bhal and Dadhich, 2011).

The second study involved the testing of hypothesis three using vignette scenarios again and crossed the ethical and unethical leadership with low and high magnitude of consequences. The results showed that the effects of ethical leadership and MOC are significant. Moreover, that the interaction between leadership and MOC significantly predicts whistleblowing.

The third study involved the testing of hypothesis 4 (H4), estimating the marginal means for whistleblowing where ethical leadership and MOC were independent variables and whistle blowing as the dependent variable. The results of testing illustrated that the interaction between LMX and whistleblowing is most significant when the magnitude of consequences is also high (Bhal and Dadhich, 2011).

The authors explain limitations in the testing with consideration that engineers were used in the study as participants. In fact, all of the participants were from India, which brings up the concern that India’s culture is characterized by collectivism where relationships are more personal than professional, making reporting more difficult. Additionally, regulations in India concerning fraudulent behavior are considerably weak. Another weakness in the study, not noted as such, is that the average age of the study participants is 26. The post-graduate student engineers most likely had little work experience. A selection of a wider cross-section of participants would add credibility to the well-thought out study.

Practical implications for managers regarding these findings are that the more likely the organization encourages ethical behavior and high consequences along with encouragement for reporting without retaliation, the more likely the corporation will prevent unethical behavior from occurring in the first place.