Triggering changes in corporate governance: before and after external whistleblowing
| DOI | https://doi.org/10.1108/JFC-06-2021-0134 |
| Published date | 04 August 2021 |
| Date | 04 August 2021 |
| Pages | 1027-1041 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Nadia Smaili,Paulina Arroyo |
Triggering changes in corporate
governance: before and after
external whistleblowing
Nadia Smaili and Paulina Arroyo
Department of Accounting Studies, School of Management,
University of Quebec in Montreal, Montreal, Canada
Abstract
Purpose –The purpose of this paper is to investigate whether a change of corporate governance occurs
after financialcrimes in Canada revealed through external whistleblowing.
Design/methodology/approach –Based on the methodology of Smaili and Arroyo (2019),the authors
implement a qualitative research framework to examine 11 alleged Canadian corporate financial statement
fraud cases publiclyexposed during the 1995–2012 period.
Findings –The analysis suggests that firms had a weak traditional corporate governance mechanism
before the external whistleblowingoccurred. In almost every case, the chief executive officer (CEO) was also
the chair of the board of directors. Although the reports by Dey and Saucier recommend that independent
directors make up at least 75%of Canadian boards,we note that the percentage of independent directors was
under 70% in six cases.Moreover, only two firms had a whistleblowing policy in place, and seven firms had a
major shareholder. Regardingthe consequences for corporate governance after whistleblowing,the analysis
shows that the companiesthat survived the whistleblowing had enhanced their internalcorporate governance
by the third year after the whistleblowing.In fact, at all the surviving companies, the CEO was no longer the
chair, and the percentage of independent directors had increased to 80%. However, for those survival
companies that did not have a whistleblowing policybefore the event, the situation did not change quickly,
and they onlyimplemented a policy after the enforcementof the new regulation in the year 2003.
Originality/value –This paper adds new insights to the researchon financial crime by investigating the
relationbetween corporate governance and whistleblowing.
Keywords Board of directors, Corporate governance, Fraud, Whistleblowing
Paper type Research paper
1. Introduction
According to the Associationof Certified Fraud Examiners (ACFE),whistleblowing appears
to be an efficient means of preventing and detecting occupational fraud (Association of
Certified Fraud Examiners (ACFE), 2020). Interest in whistleblowing is growing in various
disciplines such as accounting, financial crime and management. In an extensive literature
review on whistleblowing, Culiberg and Mihelic (2016) show that a large body of literature
examines the five “W”questions (Who, What, to Whom, Why, hoW) related to
whistleblowing, and they highlight that in-depth analysis on the relation between the
whistleblower and the organization was needed. Earlier studies examined the factors that
influence whistleblowing intentions, legislation and the consequences of whistleblowing
(Lee and Xiao, 2018), but little is known about the relation between corporate governance
and whistleblowing. Corporate governance, mainly through the board of directors, is an
important tool for fostering internal whistleblowing aimed at preventing and detecting
fraud. We assume that firms with an effective internal corporate governance mechanism
would empower whistleblowers to report wrongdoings internally, and that weak internal
Changes in
corporate
governance
1027
Journalof Financial Crime
Vol.29 No. 3, 2022
pp. 1027-1041
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2021-0134
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