Lessons from employees who break the rules

One of the most discouraging things about leading a corporate compliance program is having to address, discipline, and sometimes discharge employees who fail to live up to our standards of ethical conduct. I personally find this aspect of the job discouraging because we spend so much time and effort trying to educate our employees on our expectations that any time we see unethical behavior it feels (in some ways) like a failure on our part.

The reality is there are many reasons why employees break the rules. Examining these reasons can be instructive in helping improve your overall compliance program. With that in mind, here are some of the reasons that I’ve heard from employees about why they broke the rules, along with some tips on how you can use this information to improve your own compliance program and messaging to employees.

Pressure. Every job has pressure that ramps up or down depending upon the time of year, sales cycles, management changes, or other things that may be going on within a company at any given time. From a software developer working to meet a product release deadline to the salesperson trying to achieve quota to the finance employee trying to ensure that the quarterly books close without any deficiencies, pressure takes many forms and impacts all of us.

There are some things that companies can do to reduce the likelihood of compliance and ethical breaches that can result from workplace pressure. First and foremost, when pressure leads otherwise good people to do bad things, there has likely been a failure of leadership somewhere in the company. It’s the job of every manager, starting with the CEO, to regularly remind employees that performance should never come at the expense of ethical standards and compliance rules.

Many managers spend a great deal of time talking about winning, beating the competition, execution, etc., but far too many fail to qualify these messages. They fail to drive home the point that winning only matters when we do so by playing within the rules. When employees are under pressure, they sometimes resort to putting on ethical blinders—and bend the rules to suit their immediate needs (getting the contract signed, meeting a deadline, etc.).

Management’s failure to regularly and clearly emphasize the importance of acting with integrity in all business dealings is a missed opportunity that may contribute to otherwise ethical people doing unethical things.

Next, while every company wants to be successful in the marketplace, it is imperative that they take the time necessary to ensure that the goals they are setting for employees are realistic and obtainable without unnatural (i.e., illegal or unethical) actions. The term “stretch goal” is very common in business parlance, and there is certainly nothing wrong with pushing employees to achieve the best possible outcome. Far too many companies, however, cannot distinguish between targets that stretch (which are desirable) and targets that strain (which often lead to employees taking unnecessary risks or engaging in unethical or even illegal conduct).

Whether the compliance team should be actively involved in goal setting across the organization is open to debate, but some gatekeeping function (like finance or HR) should be involved in the process. Companies that are serious about ethical conduct must take the time to ensure that employee goals are attainable and that the organization is not creating a system where success is next to impossible without bending or breaking the rules.

Compliance officers are well aware that desperate people do desperate things. When employees feel that their job is on the line if they fail to meet targets (even ones that are objectively unrealistic), the pressure multiplies … as does the likelihood that bad things will happen. The media accounts of past misdoings at places like Volkswagen and Wells Fargo illustrate this point quite well.

Finally, to help combat the effects of pressure on employee behavior, it’s always a good investment to regularly remind employees of the importance of escalating issues and concerns early and often. Escalation of issues is the best way to help ensure that potential compliance issues don’t become compliance problems. Of course, encouraging employees to report and escalate issues only works if your company has created an environment where employees can raise issues and concerns without fear of reprisal for doing so.

Temptation. Let’s be honest: There are vendors out there who will do just about anything to win your company’s business. The larger the vendor and the bigger the potential sales opportunity, the greater the incentive to bestow lavish gifts and hospitality upon your company’s decision makers. What started as an occasional lunch or dinner, could easily morph into tickets to the theatre or sporting events, expensive holiday gifts and, in the worst cases, personal financial incentives in exchange for your business.

Employee misconduct will never disappear, but taking the time to focus on why your employees are committing misconduct in the first place is time well spent. When we take the time to understand the employee motivation that led to the misconduct, we can take steps to improve our overall compliance program and perhaps reduce future compliance transgressions.

Employees are human, and who wouldn’t love an all-expense paid trip to the Super Bowl or the World Cup? The temptation to accept these types of gifts is strong. Coupled with the fact that many of us believe that we are not corruptible (and that accepting such offers of hospitality is therefore okay because it won’t impact our judgment), such temptation is a clear recipe for trouble.

We will never eliminate temptation, but there are a few things companies can do to help steer employees in the right direction. First, establish clear rules around what is or is not allowed relating to gifts and entertainment. Some companies accomplish this through very prescriptive rules and limits; others take a more relaxed approach that relies on employee common sense and good judgment. Either of these approaches can be successful if given proper context and clear examples of what is allowed and what is not.

Companies should also consider creating some type of a registry that requires employees to enter information about any accepted gift or hospitality. This allows companies to record, report on, and audit internal behavior to help ensure that the value and number of gifts from any particular vendor are reasonable and consistent with company rules. Of course, even this rigorous system of checks and balances would not prevent an unethical employee from reporting on what he or she has received, particularly when the gift or hospitality exceeded company limits. The failure to use the gift tracking system, however, could provide a basis for imposing discipline on a non-compliant employee.

Ignorance of the rules. There are times when compliance issues arise simply because someone within your organization has not been properly trained on the rules. As compliance officers, we likely all spend a good deal of time and budget on ensuring our employees are trained, at the very least, on an annual basis. While we hope that this training is having a positive impact, there are a few things we can do to help ensure we are training on the right topics and that the training is actually “sinking in.”

It is imperative that compliance officers engage in regular dialogue with the employees working in the businesses they support. Don’t be shy about asking their opinion on compliance training and awareness. Do they understand the rules? Are there topics that they feel should be included in the training that are currently missing? Do they feel like the training is adding any value in helping them perform their jobs? The feedback you receive (if acted upon) will help you design better training for your employees that covers the right topics.

I am a big believer that any training pushed to employees must have 3 critical attributes: It must be interesting, relevant, and useful. This is easier said than done. The chief complaints I have heard about compliance training is that it is (1) boring; (2) unrelated to an employee’s job; or (3) does nothing beyond telling the employee what to be afraid of without offering any practical advice the employee can use when performing his job. If compliance communication and training is tailored so it is relevant to the employees receiving it, delivered in an engaging manner, and designed to provide information that the employee can use in his day-to-day work, the level of interest and comprehension will undoubtedly increase.

Of course, the nature of your organization plays a role in the training equation. In highly regulated industries like banking, pharma, and healthcare, the rules are much more prescriptive, and generally provide less leeway to inject things like humor and entertainment into the training. But if your employee feedback tells you that your training is not effective, it is clearly time to try something new.

Greed, stupidity, and hubris. Although these are three separate things, they appear together so often that it makes sense to cover them all in one broad stroke. Perhaps the best example that I can use to illustrate my point is expense fraud—which is a very common compliance issue at many companies.

Consider the following example: Three employees go out to dinner while traveling on company business and run up a large bill that exceeds what the company will reimburse under its expense policy. Rather than simply asking their boss for forgiveness or electing to pay the overage out of their own pockets, the employee falsify their expense reports by adding the names of a few employees (or a customer) that did not actually attend the dinner (to bring the per person charges under the expense per diem). Problem solved, right? Actually, the problem is just beginning.

In this scenario, we see the trifecta: Cheating on expenses is just plain stupid and a terrible reason for someone to lose his job (and, yes, expense fraud is an offense that leads to discharge at most companies). Next, the fraud was likely motivated by a form of greed—employees not wanting to pay out of their own pockets for costs that went above the company per diem. Finally, hubris also contributed by likely convincing the offending employees that they were smarter than the system and that their misconduct would not be detected.

So how can you reduce the likelihood of this type of occurrence? First, be open and transparent with employees about the types of compliance issues you are seeing that are landing employees in hot water. By highlighting examples of things like expense fraud to employees, clearly outlining the consequences for this misconduct, and making clear that expense fraud is not a “victimless” crime, you will hopefully get the attention of a few employees who may otherwise be tempted to commit these types of violations.

Next, it’s a good idea to let employees know that someone is watching. By highlighting your own internal controls, robust investigative processes and examples of cases (either within your company or outside of it) where the system worked and employee misdeeds were caught, you might help dissuade some employees from potentially committing misconduct in the first place.

Finally, if you have not already done so, consider incorporating some information about ethical decision making into your compliance education. There is a tremendous amount of data that clearly shows that humans are not particularly good at making ethical decisions. All of us rationalize bad behavior from time to time. In the workplace, we sometimes see what I will call the “I’ve earned this” syndrome—where an otherwise ethical employee convinces himself that he has somehow earned the right to behave unethically for his own personal gain. Employees also have limitations on their ability to fully analyze an issue or situation and this shortsightedness can also lead to poor workplace decisions. By raising awareness about the inherent flaws in our internal decision-making processes, providing employees with a framework (even a simple one) for making ethical decisions, and regularly reminding employees of the resources available to assist them when they have questions or need guidance, companies can increase the likelihood that employees will not allow faulty decision-making to lead them down a path paved with peril.

Employee misconduct will never disappear, but taking the time to focus on why your employees are committing misconduct in the first place is time well spent. When we take the time to understand the employee motivation that led to the misconduct, we can take steps to improve our overall compliance program and perhaps reduce future compliance transgressions.

About the Author

Joel Katz is senior vice president and chief ethics and compliance officer at CA Technologies (NASDAQ: CA), one of the world’s largest independent IT management software companies. As CECO, under the oversight of the Audit Committee of the company’s Board of Directors, Joel serves as the company’s leading voice on compliance and ethics issues. In 2016, he was named as a Compliance Week Top Mind.