Triggering changes in corporate governance: before and after external whistleblowing

Abstract

Purpose

The purpose of this paper is to investigate whether a change of corporate governance occurs after financial crimes 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 publicly exposed during the 1995–2012 period.

Findings

The analysis suggests that firms had a weak traditional corporate governance mechanism before the external whistleblowing occurred. 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. Regarding the consequences for corporate governance after whistleblowing, the analysis shows that the companies that survived the whistleblowing had enhanced their internal corporate 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 policy before the event, the situation did not change quickly, and they only implemented a policy after the enforcement of the new regulation in the year 2003.

Originality/value

This paper adds new insights to the research on financial crime by investigating the relation between corporate governance and whistleblowing.

Citation

Smaili, N. and Arroyo, P. (2022), "Triggering changes in corporate governance: before and after external whistleblowing", Journal of Financial Crime, Vol. 29 No. 3, pp. 1027-1041. https://doi.org/10.1108/JFC-06-2021-0134