PHL paper PHYLLIS

Decision-Making Process of Internal Whistleblowing Behavior in China:

Empirical Evidence and Implications Julia Zhang Randy Chiu Liqun Wei ABSTRACT. In response to the lack of empirical studies examining the internal disclosure behavior in the Chinese context, this study tested a whistleblowing-decision-mak- ing process among employees in the Chinese banking industry. For would-be whistleblowers, positive affect and organizational ethical culture were hypothesized to enhance the expected efficacy of their whistleblowing intention, by providing collective norms concerning legitimate, management-sanctioned behavior. Question- naire surveys were collected from 364 employees in 10 banks in the Hangzhou City, China. By and large, the findings supported the hypotheses. Issues of whistleblowing in the Chinese context and implications were discussed.

KEY WORDS: whistleblowing, Chinese culture, ethi- cal organizational culture, positive affect Introduction Incidents of organizational wrongdoing have made headlines recently. Examples include fraud, corrup- tion, and other unethical acts within organizations like Enron, WorldCom, Andersen, and Tyco. Many of these scandals came to light because of the actions of employees or ex-employees of those companies, who believed that the wrongdoing should be stopped, and reported it to the authorities. This kind of behavior is called whistleblowing: ‘‘the disclosure by a current or former organizational member of illegal, unethical or illegitimate practices under the control of their employers, to persons or organizations who may be able to effect action’’ (Near and Miceli,1985, p. 4).

Internal disclosure as whistleblowing behavior The term whistleblowing can be used for any disclosure about unethical acts of an organizationvia non-hierarchical means (Kaptein,2002; Vandekerckhove and Commers,2004). Miceli and Near (1992) suggest that there are two types of whistleblowing: internal and external disclosure.

However, individuals or employees who witness wrongdoings within their company may not choose to blow the whistle because of a fear of retaliation from their employer or organizational members in- volved in the unethical doing. Over 90% of whis- tleblowers were made to end their career early, or were blacklisted, treated as insane, and/or lost their life savings from lawsuits, their marriage or even lives (Greene and Latting,2004). In order to keep themselves out of trouble and to avoid being called a rat or a snake, these individuals would choose not to disclose anything. If and when dissonance is too great and unbearable, they would choose to ‘‘exit’’ out instead of to ‘‘voice’’ out (Gong,2000). That is why whistleblowing, both external and internal, is considered as a taboo in the minds of people in many countries, may they be in developed, developing, or underdeveloped economies (Carroll and Cannon, 1997).

Studies have shown that differences exist between external and internal whistleblowing in terms of the seriousness of the wrongdoing whistleblowers wit- ness, the retaliation they experience, and the effec- tiveness of their intervention (Dworkin and Baucus, 1995; Miceli et al.1991). It is considered that internal disclosure is the only moral action, unless the whistleblower expects that this channel will result in personal retaliation. In fact, scholars in moral philosophy have generally presented a ‘‘strong moral case’’ supporting internal reports. Ethical issues will arise particularly in external disclosure because disclosing insider information to outsider’s breaches obligations to the organization, violates the Journal of Business Ethics (2009) 88:25–41 Springer 2008 DOI 10.1007/s10551-008-9831-z written or unspoken contract, and elicits damaging publicity. That is why although one can argue that external whistleblowers may believe that the public revelations will actually help the organization in the long run, it is much safer for the management to encourage whistleblowing internally (e.g., Dozier and Miceli,1985). Internal disclosure or whistle- blowing is recognized as bene cial to organizations as well; however, management does not or cannot handle effectively this issue and can expect to incur considerable loss of the company resources as a result of negative company image, poor business relation- ships, and disrupted work routines (Laczniak and Murphy,1991; Miceli and Near,1994; Van- dekerckhove,2006). Hence, this research will focus on examining the internal disclosure as a whistle- blowing behavior which is more important since internal disclosure commonly precedes external disclosure (Miceli and Near,1992).

Whistleblowing-decision-making process Ethic scholars in the past have had concern about the question, ‘‘Who blows the whistle and why?’’ (Miceli et al.,1991). Researchers in various disci- plines have attempted to answer this question with different perspectives, such as business ethics (e.g., Glazer,1983), psychology (e.g., Brabeck,1984), pro-social behavior (Miceli et al.,1991), organiza- tional change (Near and Miceli,1987), and social in uence (Greenberg et al.,1987). There is a com- mon interest found in these studies and that is to identify the antecedents, correlations, moderators, and consequences of the decision to blow the whistle, and analyzing the decision process of potential whistleblowers. At rst, they tried to model the ethical decision-making process of po- tential whistleblowers (cf., Greenberger et al.,1987; Hooks et al.,1994; Lampe and Finn,1992; Miceli and Near,1992; Near and Miceli,1985,1987; Ponemon,1994). Later on, researchers have also examined various individual and situational variables and their interaction in the psychological process of whistleblowing decision making (e.g., King,1997; Miceli et al.,2001; Rothschild and Miethe,1999).

The four-component theory (Rest,1986) portrays the psychological processes that underlie any moral action. This theory has four stage, they are: ethicalsensitivity, ethical reasoning, ethical intention, and the ethical behavior or action. It is noteworthy that these features of Rest’s model were echoed by other positive ethical decision process models (Ferrell et al., 1989; Hunt and Vitell,1986; Jones,1991). A review of these representative models reveals that the ethical decision process occurs in a xed sequence of stages, consisting of moral perception, judgment, intention, and behavior, which are consistent with Rest’s four stages. Speci cally, Ponemon’s ( 1994) application of Rest’s model to the whistleblowing phenomenon is particularly useful.

Based on Rest’s Four-Component Theory (1986), Ponemon (1994) suggested a decision-making model labeling each of the four stages slightly different so that it t into the whistleblowing scenario. The rst stage is the awareness that the wrongdoing is occurring, and the interests of a party are being hurt. The second stage is the ethical judgment that blowing the whistle is the ideal moral choice. The third stage involves balancing different values to formulate the intention of blowing the whistle. The fourth stage is to implement the ethical choice–to blow or not to blow the whistle.

Along with the process, individual and situational factors serve as moderating factors that explain how the outcome of each step affects the next step. Later on, Miceli and her associates (2001) published an article, proposing additional individual and situational characteristics, such as positive affectivity that may intervene in people’s whistleblowing-decision-mak- ing process and make their model more complete.

However, most of the models are proposed con- ceptually, or are built upon others’ theoretical work.

This maybe due to the fact that lacking validated instruments, the impossibility of carrying out studies on actual whistleblowers, the dif culty of getting detailed information about both individuals and organizations, or other method-related issues (Chiu, 2003). Nonetheless, the paucity of empirical research regarding the whistleblowing-decision-making pro- cess has substantially impeded the development of the eld. Thus, conducting such a study will be important for scholars concerned with the psychological process of internal disclosure behavior. Moreover, ethics is culture-speci c. Therefore people with different cultural upbringings, and living under different socio- economical in uences, may have different views of what is ethical or unethical (Chen,2001; Patel,2003).

The study of the decision-making process of internal 26Julia Zhang et al. whistleblowing behavior in China is a necessary step for Chinese policy makers or managers who wish to make good use of internal whistleblowing to bene t their organizations and society at large.

Studying the Chinese context In fact, there are many other recorded incidents about whistleblowing around the world, for instance, Enron, Abbey National, NSAS, Dow Corning, BCCI, WorldCom, Rockwell, etc. As a result, a number of countries have established law/procedures for dealing with whistleblowing (De Maria,2006; Vandekerckhove,2006) to protect whistleblowers (Miceli and Near,1994) and their employers as well (Davis,1997), such as the Sarbanes-Oxley Act of the United States, Protected Disclosures Act of New Zealand, Whistleblowing Policy of France, Audit Reform and Corporate Disclosure Act of Australia, and Public Interest Disclosure Act of the United Kingdom. These actions have prompted Asian countries to reap the bene ts of whistleblowing.

Back to the China front, scholars and researchers have subscribed to the myth that Chinese people do not approve of external disclosure (e.g., Chiu,2003; Vinten,1999), despite encouragement from the gov- ernment (Gong,2000). In fact, ‘‘telling’’ can be con- sidered unacceptable and unethical behavior by any Chinese employee for this act is considered a break of trust between employees and employers and is disloyal and ungrateful (see Fukuyama,1995;Greeneand Latting,2004; Redding,1990). Therefore, when Dr. Jiang Yanyong, a retired Chinese surgeon of Peo- ple’s Liberation Army General Hospital 301, blew the whistle on the Chinese Health Ministry toTime Mag- azineconcerning the Ministry’s handling of the SARS epidemic (Jakes,2003), he surprised the whole world and aroused great interest among western whistle- blowing scholars. In recent years, there are other reports on external whistleblowing in China. For example, a physiotherapist from Shanghai reported the problems regarding buying old medical equipments as new and a pharmacist from Hunan Province blew the whistle on the drug administration for problematic medicine. (China Daily,February13,2007).

Given these cases, more awareness and concern could be observed among Chinese business people.A recent survey of business managers indicates that Chinese managers perceive that the corruption of government has not decreased, and illegal business practices remain a problem (Wright et al.,2003).

Despite the ongoing business reform and restruc- turing of legal and political schemes recently, busi- ness ethical practices endure slow improvement due to path dependence effect and the inertia of insti- tutional changes (Nee,1992; North,1990). How- ever, it is just such a continuous changing process that provides us an opportunity to examine the emergence and development of ethical behaviors such as whistleblowing in Chinese rms. Therefore, research on the Chinese perception toward whis- tleblowing can provide valuable information for international human resource managers, and help them to employ, predict, and manage internal whistleblowing more effectively.

Contributions of the study The objective of this study is to validate a decision- making process of internal disclosure behavior by examining the moderating effects of individual and situational characteristics on the relationship between Chinese people’s judgments concerning whistleblowing and their whistleblowing intentions.

This research attempts to make three contributions to the whistleblowing theory and practice. The rst is to establish theoretical link between whistleblowing judgment and whistleblowing intention. In order to have better understanding of the psychological pro- cess of making whistleblowing decisions, we identify judgment behavior to be an antecedent of whistle- blowing intention. Moreover, we tested the mod- erating effects of individual and organizational characteristics in the judgment-intention relationship so as to further explore the dynamics of this psycho- logical process. The second contribution is to extend whistleblowing research to a Chinese context. By gaining knowledge about the perceptions of Chinese employees with respect to internal whistleblowing, it contributes to international and cross-cultural whis- tleblowing research as a whole. Third, this research is intended to provide normative guidance to both practitioners and policy-makers. Business managers that understand the decision-making processes of whistleblowers will be able to deal with internal Decision-Making Process of Internal Whistleblowing Behavior in China27 disclosure more effectively, reaping positive bene ts while avoiding negative consequences. Hence, con- sistent with China’s recent anti-corruption cam- paigns, internal whistleblowing could be utilized as a useful internal control mechanism to stop misconduct in the banking sector.

The hypotheses Whistleblowing judgment and whistleblowing intention Behavioral intention refers to the process of choosing a particular behavior from a set of alternatives (Hunt and Vitell,1986). Most of the ethical decision-making models propose that intention modi es the relation- ship between ethical judgments and ethical behavior.

According to the theory of planned behavior (Ajzen, 1991), attitude is evaluative in that it leads to a judg- ment of the object and behavioral intention is the immediate predictor of the actual behavior. Thus, in the whistleblowing context, whistleblowing inten- tion is an individual’s probability of choosing whis- tleblowing under certain circumstances. Previous studies have documented the signi cant relationship between whistleblowing intention and whistleblow- ing behavior in the peer reporting context (Barnnet et al.,1996; Chiu and Erdener,2003; Victor et al., 1993). Therefore, an individual’s whistleblowing intention can be strongly predictive of his or her nal behavior.

Ethical judgment represents a person’s belief that a particular action is the most ethical alternative or the ideal ethical choice (Hunt and Vitell,1986; Rest,1986). Whistleblowing judgment encompasses the extent to which one agrees or disagrees with the proposition that reporting the wrongdoing in the workplace would be an inherently fair, just, accept- able, and moral action. Since people have different opinions about what is right or wrong, early research on whistleblowing has rst investigated the ethicality of whistleblowing. In essence, they ascertained how people judge whether blowing the whistle was moral and ethical (Miceli et al.,1991). Scholars have raised various issues relevant to the morality of whistle- blowing, such as anonymity, exhaustion of normal remedies before blowing the whistle, con dentiality of organizational information, loyalty to coworkers or organizations, and seriousness of the wrongdoing(e.g., Jubb,1999). Moreover, some people consider whistleblowing ‘‘tattling’’ or ‘‘ratting’’, and would never approve of it. Surveys have also showed that people chose to keep silent because they thought blowing the whistle violated the loyalty they owed to other parties.

On the other hand, there is evidence that pro les of inactive observers versus whistleblowers indicated that whistleblowers tended to have stronger belief in the desirability of whistleblowing (Miceli and Near, 1984). For example, some anecdotal evidence indi- cated that whistleblowers were just doing what they thought was the ‘‘right’’ thing, and they would do it again when faced with the same situation (Jos et al., 1989; Rothschild and Miethe,1999). Since whis- tleblowing involves a lot of ethical tension points, an individual’s evaluation of the ethicality of whistle- blowing is a necessary prior step, the outcome of which will predict his or her decision about whether or not to engage in the practice. Given the con- nection between moral attitude and behavioral intention and given that intention is a strong ante- cedent of behavior (Ajzen,1991); people who judge an action to be highly ethical are more likely to arrive at the behavior intention to perform that action. The rst hypothesis is presented as: H1: There is a signi cant correlation relationship between whistleblowing judgment and whis- tleblowing intention in the decision-making process of whistleblowing.

Moderating role of positive affect and organizational ethical culture A substantial body of literature on ethical decision- making shows that people’s ethical preferences do not necessarily always result in behavioral intentions.

The discrepancy could be explained by anticipated undesirable outcomes, or costs that outweigh the bene ts. Hunt and Vitell’s model (1986) suggest that after people reach an ethical judgment, namely the ideal ethical choice of behavior, the next step is to consider whether to put the ethical choice into practice. Rest (1986) suggested affect may in uence the individual’s anticipation of future consequences of ethical decision making. Affect is an umbrella term encompassing a broad range of feelings that a person has, including feeling states and trait states 28Julia Zhang et al. and it affects one’s decision-making process, choice of prosocial behavior, and con ict resolution mode (Barsade and Gibson,2007). In addition, since an ethical dilemma often requires a person to exercise his/her decision on value judgment, prosocial behavior and resolving con icts, therefore, affect can increase or decrease the likelihood of transforming the ethical judgment into an ethical intention. This proposition is applicable to the whistleblowing case.

Since people with positive affect will have a more positive expectation of the complaint recipient’s benevolence, and ability to correct the wrongdoing, they will be more likely be motivated to act. In addition, people in a positive affect are found to think less about potential risks, and are more likely to be involved in risk-taking activities (Bless et al., 1996). Therefore, high positive affect will diminish people’s expectations of negative outcomes, and make people believe that there is little risk involved in blowing the whistle, and that severe retaliation will not take place.

Apart from the effects noted above, positive affect has other peripheral effects. People in a positive affect tend to use direct, problem-focused coping strategies (Parkes,1990), and engage in upward in uence activities to affect organizational change (Forgas,2001; Isen et al.,1987). People with posi- tive affect are also usually found to be more self- ef cacious and have better self-con dence (Laucas, 2000). These characteristics will add more idiosyn- crasy credits to the person, so that he or she will have more power to resist pressure and in uence others (Greenberger et al.,1987), perhaps through whis- tleblowing.

Moreover, the role of positive affect in helping behavior implies that people with positive affect are more moral, more empathetic, less fearful, and have more self-con dence as well as concern for other’s welfare. Therefore, when positive affect people have to make a moral judgment of what is right or wrong, and the judgment affects others’ welfare, they are more likely to transform their judgment of what is right into an intention to do what is right. In order to summarize, positive affect will bias the perception and evaluation of the whistleblowing outcome, and make people more willing to help the others. Gau- dine and Thorne (2001) proposed that positive affect may interact with cognition in the whistleblower’s decision-making process because people in positiveaffect are more likely to perform the ‘‘ideal’’ ethical choice they arrive at. We therefore hypothesized, in the decision-making process of whistleblowing, that: H2a: The relationship between whistleblowing judgment and whistleblowing intention is moderated by positive affect. The relationship will be stronger for employees with more positive affect.

Organizational ethical culture represents a multidi- mensional interplay among various formal and informal systems of behavioral control that have an effect on one’s ethical or unethical conduct (Trevino et al.,1995) and, as an organizational factor, in u- ences one’s ethical behavior (Hunt and Vitell,1986; Trevino,1986). Previous empirical studies further demonstrate that ethical conduct should be higher in organizations when leaders and norms encourage ethical conduct, and where ethical conduct is re- warded and unethical conduct is punished, than in organizations without such characteristics (Trevino et al.,1985). Therefore, the ethicality of top man- agement sets up an ethical model of normative behavior that determines what is acceptable in the organization; that is, what is good and appropriate behavior (Brown et al.,2005). Research shows that perceptions of what peers and top management do in their usual business activities have the greatest in uence on self-reported unethical behavior (Ferrell and Gresham,1985; Zey-Ferrell and Ferrell, 1982). This is consistent with what was suggested by Ajzen (1991) in his theory of planned behavior: that one’s intention to take certain action has to be in line with the views of his/her peers.

Rest (1986) also suggested that in the progress from ethical judgment to ethical intention, personal interests are likely to compromise ethical choice.

Possible organizational reinforcements either posi- tive or negative represent powerful personal inter- ests. An ethical organizational culture will provide guidance about what is legitimate, encouraged behavior in the organization. If organizations are perceived to encourage ethical behaviors and disci- pline unethical behaviors, observers will have more con dence that their reporting will be considered as legitimate and appropriate, and accepted by man- agement and coworkers. If the organizational culture Decision-Making Process of Internal Whistleblowing Behavior in China29 is ethical, decision makers will feel less fear of reporting the wrongdoing because possible retalia- tion is less likely to take place, and their intervention may lead to a desirable outcome. An ethical culture may also educate employees to conduct ethical behavior and reward people who terminate unethi- cal behavior in the organization. It follows that employees in such an environment will feel pre- scribed responsibility to behave ethically – that is, to follow their ethical choice.

In order to summarize, value congruence be- tween observers and their organizations could lead to more reporting of wrongdoing (Enz,1986) and Near and Miceli (1996) indicating that whistle- blowing was more likely to happen when individuals expected support from colleagues and supervisors, and in organizations that supported whistleblowing in various ways. Given that organizational ethical culture is proposed to have an impact on observers’ disclosure behavioral choice, we therefore hypoth- esized, in the decision-making process of whistle- blowing, that:

H2b: The relationship between whistleblowing judgment and whistleblowing intention is moderated by organizational ethical culture.

The relationship will be stronger for employees with higher organizational ethical culture. Method The sample Previous studies of whistleblowing have utilized a wide range of samples; however, a few studies have been conducted in internal disclosure behavior in the banking industry. This is a signi cant omission.

First, the banking industry has a high rate of orga- nizational malfeasance. For instance, in 2005, 1,272 crimes and irregularities were detected in banks in China, causing a total monetary loss of 1.47 billion RMB (Xin,2006). Second, most of the crimes in the banking sector were dif cult to detect because of low visibility and high complexity; therefore, nd- ing and reporting wrongdoing falls on the individ- uals within the banks. Third, instead of distributing the information about wrongdoing to be the publicand in order to keep the image of the bank, would- be whistleblowers would see the desirability to blow the whistle internally to regulatory agencies.

However, it has been argued that the merit of single industry research is undesirable (Delery,1998). This is because industry context has an important effect on the relationships between variables of interest, and thus constrain the external validity of the research ndings. However, by focusing only on the banking industry, researchers can get an in-depth under- standing of bank employees’ perception of whistle- blowing behavior, and identify their decision-making process and correlates. This approach was adopted previously in a number of studies (e.g., King,1997; Miceli et al.,1991; Near, et al.,2004), which high- lighted the advantage that ‘‘the unknown sources of variance due to organization type could be con- trolled’’ (Near et al.,2004, p. 224).

The sample target chosen in this study was employees in ten major banks in the Hangzhou City, PRC, one of the most developed cities with respect to economic and modernization. Questionnaires were distributed to the prospective participants through the assistance of friendly contacts in each bank. Respon- dents returned the completed questionnaire, sealed in an envelope, by dropping them into the box to be collected by the principal researcher The instruments The questionnaire included four sets of items (whistleblowing judgment, whistleblowing inten- tion, positive affect, organizational ethical culture) and a scenario. The scenario approach was utilized in this study because it provided a more realistic con- text for the respondents, who were able to put themselves in the position of a character portrayed in a hypothetical situation (Patel,2003).

A four-item semantic differential scale of behav- ioral intention (Barnett et al.,1996) was used to measure the dependent variable – whistleblowing intention. Respondents rst read a short scenario that placed them in the role of a bank teller dis- covering embezzlement conducted by his/her senior colleague. Based on the scenario given, participants were asked to assess the probability of blowing the whistle to the general manager both in terms of ‘‘supposing you were in the same situation’’ and 30Julia Zhang et al. ‘‘supposing your peers were in the same situation’’.

The purpose of asking them to imagine their peers’ behavioral intention was to identify any social desirability response bias that might be present in the response (Watkins and Cheung,1995). The scale included ve points ranging from 5 (de nitely would) to 1 (de nitely would not). The alpha reli- ability for this scale was 0.96.

Whistleblowing judgment was measured by Reidenbach and Robin’s (1988,1990) multidi- mensional ethics measure. The utilization of this multidimensional instrument was justi ed by prior research that suggested that multiple attribute scales were generally more valid, more reliable and less error-prone than single attribute measures (Cohen et al.,1993). Previous researchers have adopted this measure in business ethics and whistleblowing studies (Barnett et al.,1996; Chiu,2003; Patel, 2003).

After reading the scenario, respondents were asked to judge the actions of the whistleblower in the scenario. The actions were assessed ‘‘just (unjust), morally right (not morally right)’’ etc. The responses ranged from 1 (strongly agree with the positive statement) to 5 (strongly agree with the negative statement). This scale was shown to have high levels of internal, convergent, and discriminant validity by previous researchers (Reidenbach and Robin,1988,1990). The alpha reliability for this scale was 0.80.

The Chinese version of Positive Affect Negative Affect Scale (PANAS) (Watson et al.,1988), trans- lated by Yik and Russell (2003), was used to assess the positive affect of the participants. In this study, 10 Positive Affect (PA) items from the scale were used to measure positive affect. Subjects were presented with adjectives related to affect; e.g., ‘‘active’’, ‘‘excited’’, ‘‘interested’’. Each respondent indicated the extent to which each adjective described him or heron that day, using a 5-point scale ranging from 1 (very slightly) to 5 (extremely). Yik’s Chinese ver- sion of PANAS has been validated using a Hong Kong sample, showing a similar affective structure for both English-speaking and Chinese-speaking respondents (Yik and Russell,2003). The Cronbach’s alpha for this scale was 0.83.

The ethical culture scale developed by Trevino et al. (1995) was used to measure organizational eth- ical culture. This 21-item scale has been shown to tapmultiple dimensions of organizational ethical culture, including ethical environment, obedience to author- ity, and ethics code implementations. Respondents were asked to indicate how strongly they agreed or disagreed with statements about their organization’s culture, such as ‘‘the top managers of this organization represent high ethical standards’’ or ‘‘management in this organization disciplines unethical behavior when it occurs.’’ The responses ranged from 1 (strongly agree) to 5 (strongly disagree). The scale was shown to have a high alpha reliability of 0.94.

Since our sample target was Chinese bank employees, all of the respondents’ rst language was Chinese. Therefore, the questionnaire was adminis- tered in Chinese. All the scales except ‘‘positive affect’’ were developed in the English language, and Chinese versions had not yet been translated and validated.

Thus, for the purposes of this study, the scale items were translated to Chinese using the back-translation method as outlined by Brislin (1986). In order to ensure a good study design, a pilot study was con- ducted in Shenzhen, P. R. China. As suggested by Baker (1994), a pilot study can be a small-scale study, done in preparation for the major study. A total of 67 usable questionnaires were collected from a company located in Shenzhen.

Data analysis Demographic variables were measured at the end of the questionnaire. Previous researchers included gender (e.g., Near and Miceli,1985), age (e.g., Brewer and Selden,1995), educational level (e.g., Keenan and Sims,1995), tenure (e.g., Barnett et al.,1996), and job position (e.g., Trevino and Victor,1992) in whistleblowing studies. Although there has been no consistent evidence to date regarding the direction of the relationships between these demographic variables and internal whistle- blowing behavior, any possible effect of these factors should be minimized.

All the data were recorded and analyzed. Cron- bach’s alpha for the four scales ranged from 0.76 to 0.91, which indicated acceptable reliability. Demo- graphic information of respondents was analyzed.

Sample size, means, standard deviations, and ranges among the studied variables were calculated and reported. Con rmatory Factor Analysis (CFA) was Decision-Making Process of Internal Whistleblowing Behavior in China31 conducted on the dependent variable and indepen- dent variables to see if the factor loadings of these measures showed a good model t in agreement with their underlying constructs. Zero-order corre- lation, linear regression, and hierarchical moderated regression analyses were used to test the hypotheses.

Results and discussion A total of 399 usable questionnaires were collected from 10 banks, representing a 57% response rate.

After excluding a number of incomplete responses, 364 usable questionnaires were used, with an effec- tive response rate of 52%. The demographic char- acteristics of respondents are shown in TableI.

A series of con rmatory factor analyses were carried out with the aid of the LISREL 8.51 software package (Joreskog and Sorbom,1993). The result of the re ned scale showed improvement in the t indices suggesting that the model tted the data reasonably well (Hair et al.,1998) (TableII). In general, the average variance explained by items representing each construct was larger than the acceptable level at 0.45 (Hair et al.,1998). The composite reliability for each construct in this study was encouragingly high, ranging from 0.841 to 0.896, which showed a good reliability of the translated measures. Cronbach alpha reliability of all the studied variables was also well above 0.70, the acceptable threshold recommended by Nunnally (1978).

TableIIIshows the means, standard deviations, and zero-order Pearson correlations among control, independent, and dependent variables. The overall means score of whistleblowing judgment and whis- tleblowing intention were 2.24 and 2.39, respec- tively. Being lower than the mid-point of the scales used for both of these items, these gures appeared to be somewhat on the low side. The average score of respondents in positive affect was 2.84 which again re ecting that Chinese people tend to score low on dispositions (Chiu and Kosinski,1999). However, we are delighted to see that the means score of organi- zational ethical culture was at 3.33 indicating that most respondents were happy with the ethical stan- dard and norm demonstrated in their respective banks. The correlation matrix shows that whistle- blowing judgment was signi cantly positively relatedto the whistleblowing intention (r= 0.49,p< 0.01).

All demographic characteristics were found to be signi cantly negatively related to the whistleblowing TABLE I Gender, age, tenure, education level, position in the company, and bank distribution (Sample size = 364) Demographics Number of respondentsPercentage Gender Male 187 48.6 Female 177 51.4 Age 25 or below 157 43.1 26–35 146 40.1 36–45 46 12.7 46 or above 15 4.1 Tenure 3 years or below 207 52.5 4–8 years 74 18.8 9–13 years 53 13.5 14–18 years 22 5.6 Over 18 years 38 9.6 Education level Junior high school 32 8.8 Senior high school 84 23.1 Bachelor’s degree 224 61.5 Master’s degree 24 6.6 Position in the bank General staff 301 82.7 Middle manager 60 16.5 Senior manager 3 0.8 TABLE II Con rmatory factor analysis and reliability results (Sample size = 364) Indice/Variable Resultpvalue/Alpha v 2 1452.15p= 0.00 Degree of freedom 612 IFI 0.89 GFI 0.86 CFI 0.88 RMSEA 0.04 Positive affect 0.853 Alpha = 0.848 Ethical culture 0.811 Alpha = 0.801 Whistleblowing judgment 0.799 Alpha = 0.790 Whistleblowing intention 0.896 Alpha = 0.891 32Julia Zhang et al. intention. It suggested that for Chinese, younger people, with less tenure in the organization, and in a lower position, would be more likely to blow the whistle. It also implied that older Chinese employees would be more tolerant of the wrongdoing, and were less likely to use the whistleblowing strategy. Though the conclusions of the effects of demographic char- acteristics such as age, gender, tenure, and position on whistleblowing is inconsistent in the literature (Miceli and Near,1992), the ndings of this study showed that there is just the opposite to American ndings. For Americans, age, tenure and position are positively related to the whistleblowing behavior (Near and Miceli,1996).

Hypothesis 1 investigated whether there was a signi cant correlation between whistleblowing judgment and whistleblowing intention. This was tested using linear regression and revealed that the predictors and control variables explained a total 30% (R 2) of the variance in whistleblowing inten- tion (TableIV). Apart from the effect of control variables, whistleblowing judgment made a signi - cant contribution to the explained variance,DR 2= 0.23,b= 0.48,p< 0.001 and nal stepDF (1,356) = 115.67,p= 0.000. Thus, Hypothesis 1 is supported.Hypotheses 2a and 2b predicted that there was a moderating effect contributed by positive affect and organizational ethical culture respectively on the relationship between whistleblowing judgment and whistleblowing intention. Though positive affect correlates with whistleblowing judgment and whis- tleblowing intention representatively, the results of the hierarchical moderated regression analysis, dis- played in TableV, showed no signi cant two-way interaction effect between whistleblowing judgment and positive affect,DR 2= 0.00,b= 0.05,p> 0.05; nal stepDF(1,354) = 1.32,p= 0.25. In other words, positive affect was not a moderator of the relationship between judgment and intention, and adding positive affect in the model did not contribute a signi cant increment in variance.

Hypothesis 2a is rejected as a result. Hierarchical moderated regression analysis revealed that the two- way interaction term organizational ethical culture by whistleblowing judgment was signi cant,b= 0.09,p< 0.05,DR 2= 0.01. The overall model tted very well,Fchange for the nal stepDF (1,354) = 3.966,p= 0.047. TableVIshows that apart from the aforementioned control variable ef- fect and main effect, the moderating effect of orga- nizational ethical culture added a signi cant TABLE III Means, standard deviations, and pearson correlation coef cients of studied variables (Sample size = 364) Variable Mean SD1234567891011 1. Gender 0.52 0.50 2. Age 28.84 7.12 0.17** 3. Education 2.66 0.73 0.08)0.08 4. Tenure 6.23 7.10 0.18** 0.82**)0.16** 5. Position 1.17 0.42 0.14** 0.38** 0.16** 0.36** 6. Per.Exp. 0.17 0.38 0.08 0.20** 0.04 0.23** 0.24** 7. Oth.Exp. 0.43 0.50 0.08 0.17** 0.00 0.22** 0.17** 0.38** 8. PA 2.84 0.70 0.07 0.01 0.09 0.03 0.14** 0.02 0.02 9. OEC 3.33 0.53)0.01)0.14**)0.03)0.11*)0.02)0.07 0.07 0.19** 10. WBJ 2.24 0.87 0.07 0.02 0.01 0.01 0.00)0.09)0.03 0.00)0.14** 11. WBI 2.39 1.05 0.03)0.17**)0.00)0.12*)0.13*)0.20**)0.12*)0.05)0.05 0.49** Per.EXP., Personal experience of whistleblowing; Oth.Exp., Knowledge of other’s experience of whistleblowing; PA, Positive affect; OEC, Organizational ethical culture; WBJ, Whistleblowing judgment; WBI, Whistleblowing intention.

Gender: 1 = ‘‘male’’ 0 = ‘‘female’’; Education: 1 = ‘‘junior high school’’ 2 = ‘‘senior high school’’ 3 = ‘‘bachelor de- gree’’ 4 = ‘‘master degree’’; Position: 1 = ‘‘general staff’’ 2 = ‘‘middle manager’’ 3 = ‘‘senior manager’’; Personal/Other Experience: 1 = ‘‘have experience’’ 0 = ‘‘have no experience’’.

*p< 0.05, **p< 0.01 (Two-tailed test). Decision-Making Process of Internal Whistleblowing Behavior in China33 increment in variance. Thus, Hypothesis 2b is therefore supported.

In view of the moderating analysis results obtained in H2b, a plot diagram is drawn to illustrate the moderating role of Organizational Ethical Cul- ture on the relationship between Whistleblowing Judgment and Whistleblowing Intention (Figure1).

Based upon theories of ethical decision-making models in the literature, whistleblowing judgment and whistleblowing intention were hypothesized to be the two major decision-making steps in the whistleblowing decision-making process. It was predicted that an individual’s whistleblowing judg- ment would be positively related to his/her whis- tleblowing intention. This hypothesis was strongly supported by the ndings of the Chinese sample.

This con rmed the prediction that if people are in a whistleblowing dilemma, and if they judge blowing the whistle to be the acceptable, fair, ethical, and right choice, then they are more likely to form an intention to blow the whistle. However, one additional interesting observation derived from the descriptive statistics of the ndings is that our respondents appeared to score lower on bothwhistleblowing judgment and whistleblowing intention than those in similar studies conducted by Chiu (2003) and Chiu and Erdener (2003), using very similar instruments. These studies covered subjects of Chinese ethnic origin from Shanghai, Guangzhou, and Hong Kong respectively. We suggest that there could be possible that the employees from the banking industry in Hangzhou tend to be more uncomfortable with the ethicality of whistleblowing than are their counterparts in these three Chinese cities.

The concept of organizational ethical culture, as developed by Trevino et al. (1995), is a multi- dimensional construct that provided cues about the organization’s efforts to promote either ethical or unethical behavior. It was hypothesized to be a contextual in uence on people’s whistleblowing decision-making process, in that it affected people’s tendencies to transform their whistleblowing judgment to the whistleblowing intention. This TABLE IV Results of hierarchical regression analyses on the rela- tionship of Whistleblowing Judgment (WBJ) to the whistleblowing intention Independent variables Step 1 Step 2 b a b Control variable Gender 0.07 0.03 Age)0.20*)0.22** Education 0.01 0.00 Tenure 0.10 0.11 Position)0.05)0.05 Personal experience)0.16*)0.12 Other’s experience)0.04)0.04 Main effect variable WBJ 0.48*** DF3.69*** 115.68*** R 2 0.07 0.30 DR 2 0.07 0.23 aStandardized regression coef cients.

*p< 0.05.

**p< 0.01.

***p< 0.001. TABLE V Results of hierarchical regression analyses of regressing whistleblowing intention on controls, Whistleblowing Judgment (WBJ), Positive Affect (PA), and their Interactions (WBJ PM) Independent variables Step 1 Step 2 Step 3 b a bb Control variable Gender 0.07 0.03 0.03 Age)0.20*)0.22**)0.21** Education 0.01 0.00 0.01 Tenure 0.10 0.11 0.10 Position)0.05)0.04)0.05 Personal experience)0.16**)0.12*)0.12* Other’s experience)0.04)0.04)0.04 Main effect variable WBJ 0.48*** 0.48*** PA)0.04)0.04 Moderation effect WBJ PA 0.05 DF3.69*** 58.27*** 1.32 R 2 0.07 0.30 0.30 DR 2 0.07 0.23 0.00 aStandardized regression coef cients.

*p< 0.05.

**p< 0.01.

***p< 0.001. 34Julia Zhang et al. assumption was also held true by the ndings. Thus, employees’ perception of their organizational ethical culture positively interacts with their whistleblowing judgment to the produce whistleblowing intention.

Therefore, people who perceive their organizations as highly ethical will have less concern about retal- iation, and have more con dence that their report- ing will be considered as legitimate and appropriate by the management. They will also have a more optimistic outlook concerning the success of their intervention, because the ethical culture provides them with the cue that ethical conduct is encour- aged, and unethical behavior is disciplined. Since people feel a sense of ‘‘value congruence’’ with their organization when they perceive that their ethical judgment agrees with organization’s ethical culture, they will be more likely to report the wrongdoing (Enz,1986). Therefore, if people perceive their organization to be ethical, the relationship between their whistleblowing judgment and whistleblowing intention will be stronger.

On the other hand, research in social psychology indicated that people experiencing positive affect were more likely to protect their organization and make constructive suggestions to improve their organization well-being (George,1991; Van Scotter and Motowidlo,1996) and Gaudine and Thorne (2001) suggested that positive affect might interact with cognition in the whistleblowing phenomenon.

However, our nding does not support these argu- ments and this result was evident by the poor rela- tionship between positive affect and whistleblowing intention (r=)0.05). That Chinese people with positive affect are unlikely to conduct whistleblow- ing may be because they would avoid unnecessary troubles, a signi cant behavioral outcome under the in uence of traditional Chinese cultural values.

Theoretical implications in the Chinese context Whistleblowing provides ordinary citizens in China with a legal weapon to ght against of cial malfea- sance, misfeasance, and nonfeasance (Gong,2000, p. 1899) because it is used in the context of an anti- corruption campaign in recent years. As our ndings suggest, younger and less experienced respondents tended to have higher potential to blow the whistle if the cause is just; it is not so of older counterparts. TABLE VI Results of hierarchical regression analyses regressing whistleblowing intention on controls, Whistleblowing Judgment (WBJ), Organizational Ethical Culture (OEC), and their Interactions (WBJ OEC) Independent variables Step 1 Step 2 Step 3 b a bb Control variable Gender 0.07 0.03 0.03 Age)0.20*)0.22**)0.22** Education 0.01 0.00 0.00 Tenure 0.10 0.11 0.11 Position)0.05)0.05)0.04 Personal experience)0.16**)0.12**)0.12* Other’s experience)0.04)0.04)0.04 Main effect variable WBJ 0.48*** 0.47*** OEC 0.00 0.00 Moderation effect WBJ OEC 0.09* DF3.69*** 57.68*** 3.97* R 2 0.07 0.30 0.30 DR 2 0.07 0.23 0.01 aStandardized regression coef cients.

*p< 0.05.

**p< 0.01.

***p< 0.001.

Figure 1. Plots of the moderating role of organizational ethical culture on the relationship between whistle- blowing judgment and whistleblowing intention. Decision-Making Process of Internal Whistleblowing Behavior in China35 Perhaps, older Chinese people are more conservative and obedient (Gong,2000; Patel,2003) and are less likely to challenge the status quo and less willing to speak out their true opinion (Bond,1996). On the other hand, younger Chinese people today are less in uenced by the traditional values of the ve- cardinal relationships and subsequently they do not accept the notion and practice of paternalism (Chiu and Erdener,2003; Redding,1990). Thus, they do not consider listening without question to senior colleagues and organizational authorities as virtues of courtesy, obedience, and loyalty. Furthermore, in China, the younger generations are taught to speak up and expose the unjust in order to protect the common bene ts or welfare of the community, even speaking up against their signi cant others on self- centered behavior for personal gain (Chiu,2003; Ma,1996). This was evidenced in cross-cultural whistleblowing literature, which highlighted the impact of cultural characteristics such as power dis- tance and collectivism on whistleblowing (Tavakili et al.,2003) when it was suggested that the younger generation of Chinese are more individualist and are less concerned about power distance than their older counterparts.

However, we should be mindful if we attempt to conclude that the sharp cross-cultural differences about the desirability of whistleblowing action which have been found in the whistleblowing lit- erature (e.g., Keenan,2002; Park et al.,2005; Patel, 2003) does not necessarily stand here, especially when ethicality of whistleblowing appears to be a universal phenomenon. Looking at the mean score of our respondents on whistleblowing judgment and whistleblowing intention, they were rather on the low side on a scale of 1 to 5 indicating that, although Chinese people despise corruption, many of our respondents would not take the initiative to ght against the authority on corruption or unethical charges. Among various explanations to this obser- vation, we believe that there are two major ones.

First, in the Chinese societies, there is still a very real and demanding pressure to keep unity within the in-group, to mind one’s own business, to conform to the norm and to maintain harmony (Bond,1996; Greenberger et al.,1987; Redding,1990). This is by far a contradiction of the characteristics of whistle- blowers as suggested by the literature including, but not limited to, utilitarian, unconformity, andaltruism (Greene and Latting,2004). These Chinese cultural characteristics, such as high power distance and high uncertainty avoidance (Hofstede, 1980) may even explain why people with positive affect would choose not to blow the whistle in order to not put themselves in any undesirable consequences.

Second, it is commonly seen in the literature that often most whistleblowers have to pay for their honesty and courage because retaliation is most certain and severe especially when there is no law protecting them at the time. An example, Gong, in his article ‘‘Whistleblowing: What does it mean in China?’’ published inInternational Public Administra- tionin 2000, reported that, cited fromRenmin Xinfang(January 1992), ‘‘an of cial estimate, by 1991 more than 10,000 whistleblowers had suffered different forms of reprisal ranging from dismissal, job transfer, demotion, to harassment and intimidation, with three being murdered’’ (p. 1903).

Again, referring to the psychological process of whistleblowing decision making, Chinese traditional cultures, social values, and political ideology con- cerning whistleblowing do in uence Chinese peo- ple’s perception on the ethicality of whistleblowing overall; but, its impact may be different from one city to the other in the country. As Chen ( 2001) suggested, people with different societal backgrounds and subject to different socio-economical in uences have differ- ent views on what is ethical or unethical. In fact, the work by Chiu and Erdener (2003) indicates that there is a signi cant difference between Hong Kong Chinese and Shanghai Chinese in whistleblowing judgment because of differences in, on one hand, social, political, and legal environments, and on the other, ethical ideology and social norms. However, having said that, whistleblowing is likely to be found in big cities in the country because of the exposure to international ethical business standards and there are great challenges ahead for business executives to bal- ance their ‘‘good business’’ and ‘‘good ethics’’ under the conditions of the contemporary market economy in China.

Practical implication in the Chinese context The results of this study provide valuable insights for senior executives who are in charge of human resource management (HRM) in the banking 36Julia Zhang et al. industry of China. Internationally, the importance of disclosure of organizational wrongdoing as a mis- conduct control mechanism is most clearly illustrated byTimemagazine at the end of 2002 (December, 22, 2002), which selected three whistleblowers at Enron, WorldCom, and the FBI as Persons of the Year for 2002. The disclosure of unethical behavior can protect companies from expensive lawsuits, nancial loss and decreased morale. In fact, whis- tleblowing can be seen as a core strategic and operational component to maintain and improve quality (Lewis,1997). An early detection of wrongdoing, and early intervention, may be bene- cial in both the short and long run. It is an espe- cially important aspect to Chinese businesses, which are competing in both domestic and international arenas. When disclosure is positively encouraged and proper channels are provided, whistleblowing will not challenge the authority. On the contrary, when appropriate mechanisms are not available, would-be whistleblowers have no alternative but to take and place the issue under the public spotlight. Unfortu- nately, this is the usual avenue observed in China recently. Therefore, the research ndings of this study have signi cant management implications concerning how Chinese banking rms may en- hance their ability to deal with proper internal dis- closure behavior when things get out of hand.

First, there is a clear demand for people devel- opment in China. Indeed, improving the overall quality of their human capital is an eminent task ahead. According to the ndings, given that whis- tleblowing judgment was an important antecedent of whistleblowing behavior, employees who perceive whistleblowing as an ethical behavior will be more likely to blow the whistle. Since a person’s moral development level can be enhanced by some inter- vention strategies (Trevino,1986), human resource department should provide various training pro- grams to further develop employees’ moral sensi- tivity, such as T-group, in-basket exercise, attitude training, behavioral modi cation workshops and so forth. This could include opportunities for employees to perform role-taking exercises and resolve moral con icts in the workplace. These complementary approaches could help employees to develop their ethical sensitivity, reinforce their ethical values, and take more ethical behavior responsibility.Second, the results of this study clearly demon- strated that an ethical corporate culture, functioning as an informal organizational system, dictates indi- vidual ethical behavior of the organizational mem- bers. Therefore, fostering a company-wide ethical culture is a way for managers to encourage positive reporting in Chinese businesses. Effective HRM delivery is particularly important in sustaining a strong corporate culture (Robbins,1993). Social learning theory indicates that employees would learn to model their behavior after that of their superiors (Brown et al.,2005), hence senior management should view themselves as standard moral leaders of the organizations, and show concern for, as well as exhibit, ethical behavior. In China, such effect will be more prominent, due to the authoritarian nature often found in Chinese business management con- texts. If only the leaders would clearly express an ethical orientation, other management people may follow to openly emphasize the powerful effects of moral beliefs on the decision to blow the whistle.

Such practices will encourage employees to behave more ethically and strengthen the ethical atmosphere of the organization. Speci cally, policy makers in Chinese business are expected to make more effort to establish due system, including de nition of the issues, avenues to raise concerns, and channels for receiving feedback.

Finally, this study provides insights for westerners conducting business in China. Different from their western counterparts, Chinese employees tend to be bounded more by the group due to a collectivism culture. That is why developing a moral corporate culture is most critical in encouraging the disclosure behaviors in Chinese rms. To this end, we would suggest to employ a formal organizational system to encourage positive and healthy internal whistle- blowing behavior, such as an ethical standards com- mittee, a code of conduct, an ethic of cer, and/or an internal disclosure policy (Vinten,1992). In fact, it is suggested that having internal reporting procedures encourages internal disclosures but not external whistleblowing (Keenan,2002). A sensible internal disclosure policy could include de nition of the issues, avenues to raise concerns, channels for receiv- ing feedback, appeal system, and con dentiality (Lewis, 1997). Anonymity is an essential prerequi- site to safe guard con dentiality and to encourage healthy whistleblowing behaviors. Unlike people Decision-Making Process of Internal Whistleblowing Behavior in China37 from individualist societies, Chinese employees may not be ‘bold’ enough to conduct whistleblowing behaviors, simply because of their cultural orientation and personality traits. Failure of this individual factor in determining the whistleblowing behavior also calls for more cautiousness and patience of westerners doing business in China. Therefore, while anonymity is usually adopted to encourage healthy whistle- blowing behaviors, it may be useful enough in China due to the complexity of the guanxiconcept (Xin and Pearce,1996) and a much higher extent of fear in employees, derived from a hierarchical management system.

Limitations and conclusion First, this cross-sectional study cannot shed light on the causal directions of the relationships (Churchill and Iacobucci,2002). Longitudinal studies and eld experiments would help to map the causal rela- tionships among judgment and other predictors of whistleblowing intention, when other researchers have suggested that ethics studies based on cross- sectional survey data have serious doubts (Keenan, 2002; Victor et al.,1993). Second, in this study, the scenario approach was utilized as a substitute for an experimental setting to investigate the whistle- blowing-decision-making process. While scenarios provide a close to reality picture to capture behav- ioral intentions, the scenario approach has limita- tions. Only one scenario is used; and it did not contain all the information that would be available in a real-world situation. Third, the data obtained may re ect some self-reported bias and common method bias, even though the social desirability response bias was found to be insigni cant. However, as suggested by Chiu (2003), it is quite dif cult to nd a second source of information about an individual’s ethical behavior, one that is neither distorted nor biased.

Fourth, the sample was predominantly general banking staff in a Chinese city. Although a cross- industry design could provide some evidence of the general perceptions of people toward whistleblow- ing, it is doubtful whether the results of such research design could be exempted from the con- founding effects of industry-related contingencies involved in a wide range of industry types. Applying the results of this study to employees working in anindustry other than the banking sector should be made with caution (Shaw et al.,1998). As suggested by Miceli and Near (1992), the workforce attracted to certain industries may be different from that at- tracted to other industries, and this could have an impact on their propensity to blow the whistle.

Individuals who join banks, for example, may have more ethical training and more experience in blowing the whistle. Thus, this result limits the generalization of the study to other populations, in different regions and different industries. Hence, future research is needed to examine that of other business sectors and geographic locations.

In order to conclude, this study was the rst attempt to test a whistleblowing decision-making model among Chinese employees working in the banking industry. Based on a decision-making model derived from western theories, we would like to explain the psychological processes of Chinese employees in regards of internal whistleblowing behavior. This study enriches the literature of whistleblowing psychological process by testing in a context with unique cultural characteristics. This study has shown that in China, people’s perception of their organizational ethical culture is a signi cant factor in uencing people’s judgment of whistle- blowing and the whistleblowing intention during their decision-making process whether or not to blow the whistle. With the institutional transfor- mation and government’s campaign to root out corruption, we would expect more improvement in establishing an effective ethics management system, along with the reform and internationalization of Chinese businesses. References Ajzen, I.: 1991, ‘The Theory of Planned Behavior’, Organizational Behavior and Human Decision Processes50, 179–211.

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