Stakeholder treatment disparity and employee whistleblowing: A multi‐stakeholder, multidimensional framework of social comparison

Abstract Research Summary We integrate social comparison theory into stakeholder research to develop a multi‐stakeholder, multidimensional framework to investigate how firms' relative treatment of employees affects employee whistleblowing. We theorize that a higher compensation disparity between the CEO and employees and treatment disparity between external stakeholders and employees will decrease employees' loyalty, leading to more external whistleblowing. The effects will be amplified with increased external labor market mobility. We use a multi‐method approach to test these predictions. In Study 1, we rely on archival data to test the influence of treatment disparities on whistleblowing. In Study 2, with two experiments, we demonstrate causality and examine employee loyalty as the explanatory mediating mechanism. Our study contributes to stakeholder theory by highlighting the critical implications of stakeholder treatment disparities. Managerial Summary This study examines the relationship between firms' treatment toward employees and employee whistleblowing to an outside entity. External whistleblowing may generate unintended short‐term negative consequences for firms. Firms need to be aware of the potential reputational damage of external whistleblowing and make strategic decisions that could prevent such behavior. Based on data from US publicly listed firms from 1992 to 2013 as well as two experiments, we find that employees will make comparisons among different references groups (i.e., CEOs and other stakeholders). Unfavorable comparison will decrease employee loyalty toward the firms, leading to more whistleblowing. This effect is even stronger if employees have more opportunities in the external labor market. The results suggest that firms need to be careful about creating huge disparities in stakeholder treatment.