Why Corporate Women Are More Likely to Blow the Whistle

When Enron whistleblower Sherron Watkins was one of Time’s 2002 "People of the Year," the magazine asked her whether she thought women were somehow more ethical than men. She said no, venturing only that perhaps society's reduced expectations for women in business freed them from some of the peer pressure that prevented men from speaking out against crooked practices at their workplaces.

Seven years later, Watkins says her thoughts on the issue have "crystallized considerably." She thinks women are more likely to blow the whistle than men, for reasons that have as much to do with nature as with nurture. Some research supports her new stance, and also suggests that the way that women report corporate violations is different from the methods that men use.

The financial crisis has brought with it enough women lie detectors to convene a veritable Davos of Bitches Who Told You So. There is Brooksley Born, the former chairman of the Commodity Futures Trading Commission who spent three years pushing for regulation of over-the-counter derivatives only to be struck down repeatedly by Alan Greenspan, Larry Summers, and Robert Rubin. There is Sheila Bair, the only government regulator in either administration who can credibly claim to have seen the crisis coming. And this month brings us news of Genevievette Walker-Lightfoot [2], an SEC attorney who labored in vain in 2004 to get the agency to dig deeper into Bernie Madoff's questionable investment operation.

To be sure, plenty of men have also blown the whistle during the years that preceded the current crisis, from egalitarian short-seller David Einhorn to Harry Markopoulos, who wrote a detailed 21-page memo titled "The World's Biggest Hedge Fund Is A Fraud" to the SEC in 2005 (only to be dismissed—by a female SEC attorney in another branch of the agency). But a statistics-minded observer might expect nearly all of the contrarians and dissenters to be men, given the pitiful representation of women in the upper echelons of finance—not one among the 18 "major figures" of the credit crisis cited on the New York Times page dedicated to the topic [3] is female.

Watkins became convinced whistle-blowing was one of the few types of "risk" that come more naturally to women after meeting Judy Rosener, a management professor at the University of California at Irvine. Rosener is best known for a somewhat controversial 1990 Harvard Business Review article that encouraged working women to stop imitating men and embrace "a woman's way of leading." While academic studies in fields ranging from management to neuroscience had linked maleness and male hormones to an increased propensity for risk, Rosener draws a distinction between the types of risk one takes with encouragement from an audience, and the types of risk one takes in spite of the disapproval of the audience. Watkins calls these "arena risk" and "moral risk." Women, she contends, are more likely to take the latter form of plunge. Watkins says she was taking a moral risk when she wrote her now-famous memos to the late Ken Lay, warning that the company could "implode in a wave of accounting scandals" if he did not get a grip on the dire cash flow problems concealed behind its inscrutable financial statements.

Is there a biological basis for Rosener’s theory? In a widely cited 2008 study of hormonal fluctuations in the saliva of 18 male traders on a London trading desk, researchers found consistently elevated levels of testosterone on traders' profitable days. (Only men were tested because there are so few women traders.) Also, scientists found elevated levels of the "stress hormone" cortisol among the men in more uncertain, volatile markets. The researchers extrapolated that the self-reinforcing interplay between the two hormones might provide some biological clues to why the "good times" in overheated markets last so much longer than fundamentals could ever justify, while fear and stress take over when the market crashes, prolonging the bad times as well.

In other words, men are biologically inclined to take profitable risks on the way up, but too stressed and anxious to take the right kinds of risk in the middle of a crash.

In addition, when women see wrongdoing, they try to fix it within their own organizations. Men, by contrast, tend to alert the media—even though women whistleblowers are the ones more often portrayed as opportunistic "media darlings" chasing Erin Brokovichian adulation [4]. "Virtually every time a woman blows the whistle, she sees something amiss, investigates it, and sends a detailed memo right to the very top of the organization," says Kurt Eichenwald, the former New York Times reporter who wrote the Enron saga Conspiracy of Fools [5]. “In twenty years of covering corporate fraud I have seen maybe one male take the same approach.”

Watkins didn’t speak to a reporter until her memo was released in a congressional probe. When Brooksley Born was Chairman of the Commodity Futures Trading commission, the Washington Post ignored or smeared her. A decade later, they have devoted hundreds of column inches to her now-legendary crusade to regulate derivatives despite the adamant, logic-resistant refusal of Larry Summers, Bob Rubin, and Alan Greenspan in 1998. Sheila Bair, the FDIC chairman who is widely regarded as the sole regulator to comprehend the magnitude of the housing crisis way back in 2006, was barely mentioned in the papers until Tim Geithner reportedly began campaigning [6] to oust her on grounds she wasn't a "team player.” Ironic, considering the fact that Bair’s reluctance to go to the media showed her commitment to the “team.”

Watkins faced similar backbiting. In the weeks after her memos were released in early 2002, Watkins was praised for her honesty and courage. But then suddenly everyone was questioning her motives, somehow unable to believe a former sorority girl and professed foul mouth who worked for a company like Enron was capable of a sincerely virtuous act. In Houston, she had become a pariah for her snitching. A Forbes columnist contended that Watkins wasn't even a whistleblower [4], since she wrote her memo not to a newspaper or law enforcement officials but to Ken Lay and even managed to retain her job at the company.

Meredith Whitney, a banking analyst who is now a regular on news shows and power lists, experienced roughly the same cycle of contradictory character assassinations when she declared Citigroup effectively insolvent in October 2007. First came the wrath of management and shareholders—death threat included. After that, she recalled earlier this year in New York [7] magazine, came the dismissal of her experience and ideas. Grudging respect offset by mutterings of media whoredom followed until the bank cut its dividend a few months later as Whitney had predicted, by which point an equally-predictable chorus of “she wasn't the first” had drowned out [8] her earlier detractors.

What is most impressive about Whitney's calls is that she made them at all. Whitney not only knew when the bust was coming and that Citi would be first to fall—"Hubris is the cause of management mistakes 90 percent of the time," she told Business [9] Week [9] in 2007—she actually had seen it coming two years before, and written about it in a comprehensive October 2005 report on the coming recession. Back then she predicted the economic downturn would be spurred by banks extending “new and unprecedented access to credit” to a swath of Americans living just above poverty level. In other words, while short-term proclamations would earn her plaudits, Whitney had been building her case over the long-term.

In 2005 most Wall Street concerns about downturn revolved around luxury condo flipping in overheated markets like Las Vegas and San Diego. That's what famed bond-fund billionaire Bill Gross says he was pondering (while standing on his head in a yoga move called the Feathered Peacock) when his own housing bubble epiphany struck. Whitney's investment inspiration occurred, not while thinking about a co-op during pilates class, but during Hurricane Katrina. "So many Americans saw a side of the U.S. economy that I don't think many of us had seen before or had really digested," she told the FDIC in 2006 [10]. "It challenged me to drill down deeper into the analysis of who was at risk in terms of any type of consumer softening, or a potential recession.”

Whitney’s critics seem to chalk up her persistent pessimism about the banking sector to an excess of emotion, brought on by human suffering caused by Katrina. But she wasn’t being sappy, she was being observant: Whitney saw poor people, revisited the numbers on expanding homeownership and unprecedented bank profits, and realized none of it was sustainable.

Throughout the financial system, from Born to Bair to Whitney and Watkins, women managers have displayed a peculiar knack for looking out for the long-term even when they had every financial incentive not to. Perhaps the men in charge of things will eventually learn to reward this trait by letting them keep their jobs.

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