Governance of corporate misconduct through employee whistleblowing: a tripartite evolutionary game analysis.

backgroundCorporate misconduct is a ubiquitous issue, especially acute in economies undergoing transition. In China, the government has progressively refined its regulatory hotline system, while online new media have gained widespread traction. Employees often expose misconduct within enterprises through these external channels, resulting in serious damage to enterprises’ reputation. Conversely, if employees report internally and enterprises respond actively, it not only curbs misconducts but also reduces enterprises’ losses and government regulatory costs. This paper argues that employees’ strategy in choosing whistleblowing channels, enterprises’ management strategy, and the government’s regulatory strategy are the dynamic results of long-term learning and improvement through tripartite game.

methodsDrawing on the theories of good governance and incentive regulation, we constructed a 2 × 2 × 2 tripartite evolutionary game model. Employees choose between internal and external whistleblowing; enterprise management opt for either active or passive management; and the government selects either strict or relaxed regulation. In addition, we employed numerical simulation to investigate the evolutionary dynamics among these three parties.

resultsThis study identified an ideal and realistic stable state in the system: the government enforces strict regulation, enterprises adopt active management, and employees choose internal whistleblowing. Reducing the government’s financial rewards for whistleblowers or lowering the probability of whistleblower identity disclosure facilitates the system's evolution towards this ideal state. Conversely, high whistleblowing rewards offered by enterprises, increased fines imposed on enterprises, or higher government costs for misconduct rectification exert only transient effects.

conclusionOffering high rewards to whistleblowers, imposing heavy fines on enterprises and having the government shoulder excessive rectification costs are ineffective in the long run. In contrast, reducing government whistleblowing rewards and safeguarding whistleblowers’ personal information are both effective measures. Therefore, we recommend that the government provide moderate whistleblowing rewards and impose moderate fines for corporate misconduct, while ensuring that enterprises take primary responsibility for rectifying misconducts. Enterprises, in turn, should focus not on high monetary rewards but on strengthening the protection of whistleblowers’ personal information.