“Larger and more profitable firms have more resources to throw at better governance,” he said, including hotlines for employees who can help companies prevent lawsuits and regulatory entanglements.

The more internal reporting activity there was at a company, the greater the increase in return on assets over the study period.

Company boards should be demanding data on internal reporting, he said, and compliance personnel should be putting this information in front of their directors alongside other measures of business performance.

Investors can’t typically get at that reporting data, Welch said, but they can take some lessons from the study, nonetheless.

“The ideal situation would be that whistle-blowing reports were made available to the public, but I don’t know if that will ever happen,” said Welch. “As stakeholders, investors benefit as a whole as companies become more informed about these systems and engage in better compliance and auditing.”

Are We Bad?

Of course, it might look to outsiders that a company has whistle-blowers only because it needs them—that it has more problems, in other words. So there’s a stigma people need to get past.

“There’s cultures where whistle-blowing is associated with really bad things and there are serious stigmas against whistle-blowing,” said Welch. “Your background has a lot to do with how you think about whistle-blowing. Then there’s this idea that somehow there’s a silver bullet manager who can solve all of a company’s problems and eliminate all reporting and complaints—but if you’re managing humans, you’re going to have problems. Whistle-blowing allows you to identify problems that you might not see otherwise.”

Welch and his fellow researchers used NAVEX Global’s database of internal reporting systems—the world’s largest—to study businesses with higher levels of internal reporting. NAVEX made available 3 million internal report records from 5,000 public companies covering a 14-year period from 2004 to 2017.

The study looked at firms actively using their internal reporting systems, at firms with more employees participating and at firms where staff was providing more information in their reports. The study also considered whether management regularly followed up on the reporting.