Close

Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.

Get updates on Compliance Week offerings, including new features, databases, research, and other resources, along with announcements of upcoming Webcasts, conferences, seminars, CPE/CLE opportunities and more.

Published every Thursday, Compliance Week Europe offers a condensed summary of risk, audit, and compliance news either originating in Europe, or of special interest to European compliance professionals. This newsletter will follow developments by the European Commission, as well as those of national governments across the region, or any U.S.-based news that might have consequence across the Atlantic. Frequency: weekly; Thursday a.m.

A fresh edition of Compliance Week delivered via e-mail and online every Tuesday morning, relentlessly focused on the disclosure, reporting and compliance requirements of our 25,000+ paying subscribers.

Published every Friday, Compliance Weekend was launched at the behest of subscribers, and offers a quick Plain English review of the week's key developments. We hope you enjoy this supplement to Compliance Week's Tuesday edition.

More Evidence That Compliance & Ethics Education Clash

Matt Kelly | May 12, 2014

Another dispatch from academia, supporting what most compliance officers already suspect: ethics & compliance programs still aren't working that well.

This time the research comes from Max Bazerman, Ting Zhang, and Francesca Gino of Harvard Business School. Their paper “Morality Rebooted: Simple Fixes to Our Moral Bugs,” published April 24, takes a wide-ranging look at “values-oriented” programs versus “structure-oriented” programs to deliver ethical messages and improve behavior. The conclusions are very much in step with what others have said, and confirm that sinking feeling so many CCOs have. Our obsession with policies, procedures, and programs to drive employee conduct (thank you, U.S. Sentencing Guidelines) isn't very effective.

The non-academic can ignore many details of Bazerman's paper, which is heavily footnoted and cited like all good academic papers are. His core insights about ethical impulses are what's worth noting. Here are a few:

  • People have a subconscious, internal ethics ledger, tallying the ethical decisions we've made—which, in turn, helps us justify some unethical act we might want to commit in the future. It's OK to be unethical this one time, we reason, because I've been extra good lately.
  • As economically rational actors, people should always cheat to whatever maximum potential punishment we can tolerate. Well, we don't; usually we cheat only to the amount necessary to get what we want, and no further.
  • People want to be accepted by their social group. If your peers at work are highly ethical, you're going to be more ethical, because you don't want to disappoint or betray your peers.
  • People are more likely to make ethical decisions when thinking in long time frames—because that long horizon smoothes over the more immediate decisions we need to make this day, this week, this reporting period. In other words, when we focus on the long term, we're more likely to focus on values.
  • Conversely, when you focus on immediate pressures to deliver, the “want self” becomes much stronger and can pressure you into subverting your ethics, because you've been so good lately anyway, and cutting one corner won't be so bad. You focus on results.

Bazerman's observations are quite similar to other research I wrote about earlier this year, from University of Tennessee law professor Maurice Stucke. Stucke was more pointed in his criticism of the U.S. Sentencing Guidelines. They are the cornerstone around which companies build ostensibly “effective” compliance programs, but the Guidelines' assumptions contradict normal human behavior in multiple ways, Stucke argued—and end up pushing compliance programs into these exacting, complicated monstrosities that nobody likes, CCOs included. 

Bazerman never mentions the Sentencing Guidelines explicitly. He does, however, jab at the shortcomings of structure-oriented ethics systems, which he defines as “[reshaping] the structure of the incentive, decision, or task to reduce the degree to which acting dishonestly is tempting, or in some cases, even an option.” Reshaping people's decisions and reducing the ability to misbehave are what compliance programs are all about, and they all spring from the U.S. Sentencing Guidelines.

Consider the other side of Bazerman's equation for a moment: the values-oriented ethics programs that strike at people's impulses more directly. Virtually every compliance professional I know would agree that stressing values are hugely important to a successful compliance program, even more than the compliance rules and controls themselves. We hear as much from regulators, too, that tone at the top, corporate culture, and embedded values are crucial. 

Bazerman's point is that organizations with the best ethics programs integrate both approaches, so the structure-oriented systems you have in place don't contradict what the values-oriented systems are trying to convey. If you want a great example (mine, not Bazerman's), consider DuPont and its four core values of safety, environment, respect for people, and ethical conduct. The structure it has in place to enforce those values includes, among other things, a rule that any time DuPont employees have a meeting, they must start by explaining which of those four values applies to what they're discussing in that room.

The idea that the best approach is to combine both approaches isn't earth-shattering on the face of it—but Bazerman's suggestion is also more complex than you'd first think. Your compliance systems and practices might reinforce the company's core values, but are all the other systems and structures around the company are doing the same? Are you sure? 

For example, talking about a strong ethical culture may be more effective than monitoring all transactions for misconduct, but if your salary system still pays based on quarterly sales goals, that's a structure that counteracts your values focus. Or as Bazerman puts it:

By failing to examine structural elements that are incompatible with their values-oriented messages, organizations may permit negligence of values, worsening the extent to which employees engage in cheating and even unintentionally promoting unethical behavior in areas where employees had not acted unethically.

That's is an important point. We can talk about the superiority of a values-oriented approach to ethics programs all we want, but if you have an inflexible structure-based approach for other business operations, that focus on values could be undermined. Bazerman recommends what I'll call an “ethical procedures audit.” That is, look around the business and ask yourself: do the structures you have in place to support business operations go against the emphasis you purport to place on values? (I'm looking at you, sales chiefs and CFOs, with your revenue quotas in tow. How flexible are those quotas, truly, if ethical standards mean your staff should pass up closing a questionable sale?)

Bazerman's research brings us another step closer to the truth, that exhaustive compliance demands from regulators leads to exhaustive compliance programs in corporations, while actual human beings prefer to focus on values and ethics. We need to get back to that appreciation of human nature, and capitalize on it rather than try to contain it.