Q&A: Honor, culture, and compliance

Washington & Lee University is unique among higher education institutions for its honor system. A single-strike policy overseen by the student body rather than by the school administration, the W&L Honor system is as simple as it is strict: No lying, cheating, or stealing. All papers and tests are signed with the pledge: On my honor, I have neither given nor received any unacknowledged aid on this [test, paper, project, etc.]. Those who break this covenant face immediate expulsion. Those who contest it may seek an honor trial before their peers. There is at least one honor violation every year, usually by freshmen who don’t think the Honor System is as serious as it says it is. There is an honor trial on average once every four years or so. But the end result is a campus where computer labs are unlocked, students can schedule their own final exams, and where personal integrity takes on a deep meaning.

Compliance Week spoke with Bob Straughan, Crawford Family dean of the Williams School and professor of business administration at Washington & Lee. As the head of the “C-School” and having worked at the university since 2000, what were his thoughts on how something like the honor system—implemented shortly after the Civil War—can still relate to contemporary compliance and ethics officers? The answer, as you might expect, comes down to culture.

What did you think when you first encountered the W&L honor system? What do you think is its greatest strength in a world where words like “honor” seem a bit antiquated?

For those who have worked in industry before, the response to the honor system ranges from healthy skepticism to complete disbelief. It’s so different from what all of us have experienced in other careers. When new faculty come in—and I experienced this 18 years ago—people tell you about it, but it takes a few months, if not a full semester, before you really believe it.

I can think to my days as a student, where I knew cheating was going on. I won’t say it was common, but it was not unusual, either. I can also think about my early career teaching elsewhere, and how I had to spend a lot of time anticipating how people might cheat and tactics to counteract. It was not the best use of my time.

In terms of the honor system’s benefits, it’s about finding ourselves in a culture where there is an assumption of trust, and being able to reclaim the time spent watching over exams or screening papers through plagiarism databases, and focus on more valuable things.

I think this is an unusual aspect of the school’s culture. Alumni ask about it: Are the students still taking care of the honor system? They place so much value on this thing which creates a presumption of trust and is entirely in the hands of the students. It is not perfect. There are honor violations. But if we want to reduce this to a cost-benefit analysis, it is clearly in favor of trusting the honor system.

I think it is important that it is framed in terms of honor. It is not a policy on cheating or dishonesty. It’s framed in terms of an aspirational construct, and in the positive.

Do you think there is an inherently higher temptation to cut corners or cheat in the world of business—specifically financial services—than in other professions?

I am not sure that dishonestly is more common there. We have extensive rules and regulations in place and close governance of the issues to expose them in the financial sector more often than we might see in other areas. There are checks and balances in the accounting profession, and there have been a lot of scandals throughout the year focused on financial improprieties, in large part because people are watching there in ways they don’t watch in other areas. If we imposed the same kinds of rules and regulations on HR and IT, maybe we would see things there that we would like to assume don’t exist, but perhaps do.

I also sense that there may be a general issue at work. I am a product of business education in the 1970s and 1980s where it was all about maximizing shareholder return. That’s what we were taught. The current generation and past generations of senior managers and analysts came through that school of thought. It feels normal to think in those ways and to make decisions to optimize a certain set of outcomes. In the current generation of students, however, there is a slightly different understanding of the mandate for business. There is a lot more discussion of parallel obligations, work-life balance, consumer welfare, and social impact while focusing on profit as well. That is a paradigm shift along the way that makes us look critically at the mindset of the 50- and 60-year-old business people that maybe we didn’t look at 20 years ago.

In the news, we see companies get in trouble, essentially, for lying, cheating, and stealing. In these cases, there is always an element of toxic culture. What is the role of culture and a business’ ability to be honest with itself, its stakeholders, and its regulatory authorities?

Culture does matter. When you enter an organization, it either conforms to your view or you conform to its view, or you get out.

But culture also matters at different levels. I have worked a lot in northern Europe. Their understanding of business as a component of a contemporary society is a little different than what we see in the U.S. Part of that is macro culture. Here, we’re focused on the individual, and maximizing “my” benefit. In other cultures, there is more priority on the benefits to the group, or the collective. That leads to a different set of criteria one might try to optimize.

A lot of firms in the U.S. are beginning to think about social impact and responsibility, but it is still secondary to the traditional focus of maximizing the bottom line. We’re coming around on that, but I believe we’ve still got a way to go.

Sometimes, making a change like this requires a really disruptive moment, such as a big fine, or some negative publicity, to force an organization to step back and rethink things. But there are also some interesting trends to consider as larger companies grapple with this question. I can point to examples where large, mostly U.S.-based companies acquired smaller firms with a culture of social impact. I think part of the reason why they do that is it is the quickest way to import culture. As you might acquire a firm with a market penetration, you might also consider acquiring a firm with a management team where this kind of culture is already second nature.

A lot of compliance officers are shifting their focus from transactional efforts (making sure certain rules are followed and documenting it) to strategic efforts (making sure the right culture is in place). Why do you think it’s harder for some companies to embrace what you might consider at W&L to be an “honorable culture”?

Some managers see the business case and social impact case as competing with each other. To maximize bottom-line profit, they may have to make sacrifices in HR policies or environmental impact, or the manner in which they interact with customers. Those firms, if they are doing anything formal with CSR [corporate social responsibility], they are probably at the 1.0 stage. They are compliance-driven, and probably focused on reducing risk in traditional ways.

The firms that accept the overlap in the Venn diagram between the business and the social case seek managers with expertise in finding that overlap so they are trading one set of criteria for another. They look at the social impact as an opportunity rather than as a cost. They see these strategies as integrated and cease to see them as competing agendas

There is growing evidence that focus on diversity issues as a socially responsible firm, and managers that can think in integrated manners are yielding higher market returns. In traditional ways, the market seems to be rewarding this in ways it didn’t 15-20 years ago.

Can you really legislate honesty and integrity? Can people really behave their best when spurred on by the threat of punishment?

If someone is prone to cut corners, if they are different between doing the right thing and doing the easy thing, then those penalties matter. At some level, you find a threshold where you don’t want to go to jail or have your career destroyed because you led your company into a situation that has a high level of risk.

But if the manager thinks in terms of integrated, ethical behavior, honor, and a moral mandate for businesses big and small, then you don’t have to pay as much attention to the compliance guidelines because it’s inherent to what you’re doing. You’re not even running up against that boundary.

I am sure in-house counsel and auditors demand it, but it’s not a hard thing. It’s not hard to cheat at W&L if you want to do it. And for those inclined to do that, say a freshman, there is a severe penalty, because the honor system is a single-sanction initiative. Maybe in the moment of transition to the culture here one might be tempted, look at that penalty, and decide it’s not worth it. But I do believe some students come here—and others evolve to this mindset—where they are not even tempted. It’s not in their makeup anymore. That is an indication that you have adopted the culture of this place in a positive way. If you go to work in a firm that thinks differently and presses to cut corners to make easy choices, that will feel uncomfortable to you.

I could point to personal experiences in other moments, when I have worked for other organizations, and things didn’t feel right. It made me ask myself, how do I personally reconcile that? Will I do what they ask me to do and rationalize it, or is this severe enough to look at other opportunities?

A bit of advice I give to students as they think about their careers outside of W&L, is to do your due diligence on these issues. Particularly for young graduates, they often fall into the trap of thinking, “I have to sell them on my capabilities.” But you’re also evaluating that employer. If you get a sense that the mindset of the firm is that of a bad firm, that is useful to know. But if you don’t bother to look for the information and gauge if their philosophy matches your own, then you have missed an opportunity and may find yourself in an uncomfortable position down the road, when you could have made a more informed choice during your interview.

In compliance, we speak often about establishing a “speak-up culture,” but this is much more easily said than done. What advice do you have for graduates about to enter the business world who might encounter an opportunity to speak up, but fear it might hurt their career?

That is where culture needs to translate into a process in a way that is transparent and empowers those persons who might otherwise feel that they lack the ability to speak up.

Have anonymous reporting mechanisms. Have mentoring programs where more senior colleagues from different parts of the company can act as a sounding board for more junior colleagues and even take the responsibility to carry complaints forward.

It does start at the top. If senior management is messaging this kind of approach as a strategic advantage of the firm—specifically in terms of recruiting the best folks and creating an environment where they want to come to work every day—and there arise examples of that reality being challenged, and those issues get attention, then it’s easier for the organization to say, “We’ve got your back. We want to hear this.” Sometimes, the best criticism we can receive is the hardest to hear, initially.