Final answer:
External whistle blowing often indicates that a firm's corporate culture perceives internal reporting to be ineffective, potentially due to a lack of trust in internal mechanisms or fear of retaliation.
Step-by-step explanation:
External whistle blowing often indicates about a firm's corporate culture that internal reporting is perceived to be ineffective. This perception could stem from a culture where employees fear retaliation, lack trust in the confidentiality of internal reporting mechanisms, or do not believe that appropriate action will be taken if they report misconduct internally. When an employee takes the step to inform outside parties, such as the media, regulators, or law enforcement, it suggests a lack of faith in the company's ability to address issues on its own, thereby reflecting a potential problem in the firm's corporate culture.
Institutions such as the Merit Systems Protection Board and legislation like the Whistleblower Protection Act of 1989 and its Enhancement Act of 2012 highlight the importance of providing protections for employees who come forward to report wrongdoing within an organization.
Therefore, external whistleblowing serves as a red flag, suggesting that the corporate culture may not be supportive of ethical behavior, dissent, or may not have in place effective mechanisms to handle internal reporting of unethical or illegal activities. This is often an indication that employees do not feel safe or heard when reporting internally and instead resort to external avenues for action to be taken.