Conflict of Interest Blog

Ethical “have-nots”

The central notion of behavioral ethics is that We are not as ethical as we think and the central notion of compliance/ethics programs is that they can help fill the gap – at least for business organizations – left by our imperfect human nature.  But do C&E programs actually work? The Institute for Business Ethics’ recently published 2015 Ethics at Work survey of employees in the UK and Western Europe – available for free download here (and another aspect of which was discussed last week on this blog) – has some important data on this always compelling issue.

Among other things, the study asked whether the respondents’ respective employers had various elements of a C&E program – or at least what might be considered the more ethics, rather than compliance, aspects of such – and then correlated those responses with answers to questions about the employers’ ethical behavior. The findings were striking.

For instance, of those respondents (from Continental Europe) whose companies had all the elements of a program, 74% said that their line manager supports them in following the company’s ethical standards but for those with none of these elements the number was a mere 27%. The results were nearly identical for a question about whether those who violate their companies’ ethical standards are disciplined.

While not as grim as Thomas Hobbes’s famous description of unchecked human nature causing life to be “nasty, brutish and short,” this picture of the ethical “have nots” is nonetheless quite dreary.  For someone considering investing in, seeking employment at or doing business with such an ethical laggard it could repellent  enough to influence a decision unfavorable to a company. And in light these stakes, is there any defense for corporate directors and senior managers who choose not to have C&E programs for their companies?

Tending to personal matters on company time

Last week the Institute of Business Ethics published its 2015 Ethics at Work survey of employees in the UK and Western Europe, available for free download here.  One of the findings was that “employees tend to be more lenient towards conducting personal activities during work hours, than other practices.”

For instance, in Western Europe (France, Germany, Italy and Spain), more than 90% of respondents found it unacceptable to pretend to be sick to take the  day off,  charge personal entertainment to their employer or engage in “minor fiddling of travel expenses.” Eighty-five percent thought it was not okay to “use company petrol for personal mileage” and 76% said the same of “favoring family or friends when recruiting or awarding contracts.” However, only 59% had such a view of using the internet for personal use during work hours and only 52% said that it was wrong for employees to make personal calls from work.

Frankly, I’m surprised that the disapproval percentages for the last two questions were as high as they were.  To the extent that respondents could tell (from instruction, context or otherwise) that they were part of an ethics survey perhaps that – based on the notion of “framing” –  played a role in the results. But regardless of this methodological quibble, the authors’ conclusions about employees’ views of personal use of company time and resources are almost surely sound.

In this connection, they note that the fairly widespread acceptability of “using the internet during hours is perhaps indicative of the way in which lines between work and home have increasingly become blurred over the past few years, as the 21st Century business landscape becomes increasingly mobile and flexible and less reliant on employees being physically present in the office.” This makes sense to me, and I think that a successful conflicts of interest/use of company  resources regime is one that accepts these (and other similar) modern realities.

That is, for many employees (particularly those with young children), a total bar on using phone or intranet for personal purposes is simply impractical, and thus cannot be a true ethical issue – as there is effectively no choice involved. The same is obviously not true with respect to fudging expenses or faking sick days.

The alternative, harsher view would be that embodied in a classic episode of the TV series The Office (the US one), concerning (among other things) a “time theft” policy applicable to the company – under which even a four-second yawn is seen as a transgression.  Besides being impractical and unfair, branding reasonable use of company time/facilities as morally wrong could actually lead to other, more worrisome wrongdoing – by making reasonable uses the first step on a “slippery slope,” as described here.

On the other hand, reasonable personal use really should be limited to uses that a) are truly personal, and do not further other business  interests; and b) cannot harm the company by subjecting its tangible or intangible property or other interests to risk. For instance, many years ago a client of mine learned that an employee was using company phones to run an “escort service.”  Although he apparently did so only during his lunch hour, the reputational harm to the company was clear enough to justify firing him.

Finally, and in a somewhat related vein, you might find of interest this prior post on the connections between ethical standards at work and those in our home lives.

Too big for ethical failure?

An article last month in a magazine published by the NY Times provided the occasion for a noteworthy COI discussion.  The Times had given Laura Arrillaga-Andreessen the assignment of profiling the head of Airbnb for an issue of “T” magazine. However, her husband, Marc Andreessen, is a substantial investor in that company – which was not disclosed in T’s (very favorable) article about Airbnb, as described here.

T’s editor explained the lack of disclosure as follows: “it was my mistake in not asking her if there were any potential conflicts. This was an oversight on my part. I say this not as an excuse, but she is, separately from her husband, a billionaire (making her through marriage a billionaire twice over) and for that reason I think I failed to consider any monetary conflict in her case.”

A writer in Gawker characterized this explanation as saying, in effect, that billionaires are too rich to have conflicts of interest.  I think that’s a fair comment.

While the specifics of this case are particularly interesting to Silicon Valley watchers, for C&E professionals the notion of being too rich to be corrupted is sadly an oft-told tale.   It comes up most frequently in the gifts/entertainment and other COIs areas when C&E officers are asked to approve a transaction (e.g., entertainment provided by a vendor) for a high-level employee that would be impermissible for others in the organization. The basic thought is that the individual in question already has so much money (or what money can buy) that more won’t affect her judgment.

There is a logic to this, but it is based on the increasingly discredited homo economicus view of human nature.   This view would presumably treat the corruptibility of a person in a given situation as fraction with the amount being offered as the numerator, the individual’s total wealth the denominator, and the larger the overall number the greater ethical risk.

By contrast, when viewed through the lens of behavioral science (and human experience), the rich and powerful can be seen as more corruptible than others, as discussed in prior posts such as this one.   The most memorable expression of this may be the saying attributed to the late Leona Helmsley that “only the little people pay taxes.”   But the reflection of actual COI risk being concentrated near “the top” echoes through our new stories on a nearly daily basis.

Additionally, there are many types of conflicts that cannot be measured in a purely monetary way, such as those involving  glory (as described here), friendship (discussed in the second case in this post) or family relationships (discussed here). Even if  they are not inherently more susceptible to COIs, from a situational perspective, the high and mighty presumably are faced with more frequent pressures and temptations of this sort than are most other individuals (as briefly touched on in this earlier post).

Making the most of managers’ C&E duties

Nearly every corporate code of conduct has a “managers’ C&E duties” section.  But most companies don’t do nearly enough to reinforce those duties in other parts of their C&E program (e.g., policies, training, other communications, auditing, investigations, discipline and personnel evaluations).

In my latest column in Corporate Compliance Insights I offer various suggestions for leveraging your company’s policy on managerial C&E accountability.

I hope you find it useful.

Compliance certifications and the law

Certifications play various roles in C&E programs (including but not limited to ensuring COI compliance).  But the legal efficacy of these sorts of documents varies widely based, in part, on the risks of certifying falsely – as discussed in my latest column in C&E Professional (page 2 of PDF.)

I hope you find it interesting.

And, for further reading on COI-specific certifications, please see this post and  this one.

“Behavioral compliance”: the will and the way

“Behavioral ethics” information and ideas have, to date, been used far more to identify ethical challenges than to design approaches to address such challenges. In “Behavioral Ethics, Behavioral Compliance” (which can be downloaded for free here ) Professor Donald C. Langevoort of the Georgetown University Law Center takes up this latter task, and provides a  number of practical suggestions for compliance-and-ethics (“C&E”) professionals to consider in applying this body of knowledge to their day-to-day work.

Among these are:

– Certifying compliance in advance – rather than after the fact – of the conduct in question.

– Using behavioral insights – particularly concerning loss aversion – to identify monitoring strategies and priorities.

– Avoiding too much monitoring, as that can “crowd out the kind of autonomy that invites ethical thinking.”

– A more behaviorally attuned approach to compliance incentives and interventions.

Perhaps most importantly, Professor Langevoort offers this broader perspective on what exactly is meant by “behavioral compliance”:  “To be clear, it is not some new or different brand of compliance design, but rather an added perspective. Just as compliance requires good economics skills, it requires psychological savvy as well, to help predict how incentives and compliance messages will be processed, construed and acted upon in the field… The behavioral approach to compliance offers some concrete interventions to consider, but is mainly about doing conventional things (communication, surveillance, forensics) better.” (I agree with this view and in prior posts  – collected here  – have offered suggestions of several other ways to use behavioral insights to do conventional C&E things better.)

But more than the sum of such parts, I believe that the real significance of the field lies in the potential that its overarching message – “we are not as ethical as we think” –  can help corporate directors and senior managers appreciate the need for C&E programs generally.  While know-how is important here, what’s most wanting in many companies is making C&E a top priority. By showing the C&E risk that is seemingly inherent in the human condition, behavioral ethics can help make this case.

ECI forms benchmarking group for conflicts of interest

Yesterday the Ethics & Compliance Initiative (f/k/a the ECOA) announced the formation of four benchmarking groups to examine topics of significant interest to C&E practitioners.

One of these is conflicts of interest, and I’ll be co-chairing that group with Mark Snyderman of Laureate Education.

If you’re an ECI member I hope you’ll consider joining the group.  And if you’re not, I hope you’ll consider joining ECI – to take part not only in this benchmarking project but the many other programs it offers.

C&E program assessments – a “teachers’ guide”

This week I chaired the PLI Advanced Compliance & Ethics Workshop – and presented on program assessments.

The PPTs for this presentation can be found here. The first part provides an overview of assessments (methodology and scope) and the second a high-level description of assessment criteria.

I hope you find it useful.

Conflicts of interest presentation from SCCE conference

On Monday I spoke on COIs at the SCCE’s annual Compliance and Ethics Institute. The presentation materials can be found here.

I hope you find them useful.

Glory as a conflict of interest?

An editorial last week in JAMA – the Journal of the Medical Association  by Anne R. Cappola, and Garret A. FitzGerald about conflicts of interest in medical research notes that “disclosure policies have focused on financial gain. However, in academia, the prospect of fame may be even more seductive than fortune. Thus, the outcome of a study may influence publication in a high-impact journal, invitations to speak at conferences, promotion, salary, and space. Even though an investigator may publicly eschew any direct financial reward from a sponsor, such fiscal and professional benefits may accrue to them indirectly from the institution, if they attract clinical trials with their attendant indirect costs.”

This is, I think, an important point, and its logic goes beyond the context about which the authors write to COIs of many other kinds.  Support for this broader view can be found in a study showing the impact of social, as opposed to purely economic, factors on the conduct of auditing, and a landmark decision in 2003 of the Delaware Chancery Court examining the impact of non-economic factors on possible COIs involving a corporate board. (The study and the case are discussed in this earlier post.)

The JAMA authors’ prescription for addressing this conceptual shortfall is captured in the title of the editorial –  “Confluence, Not Conflict of Interest: Name Change Necessary.”  I find the notion of a “confluence of interest” intriguing but a bit troubling too – in the way that “enhanced interrogation techniques” is. The phrase  also reminds me of a statement by then king-of-the-hill securities analyst Jack Grubman:  “What used to be a conflict is now a synergy.”  (Three years later Grubman was fined $15 million dollars and barred from the industry  for life for what were apparently still considered COIs.)

Many interests really and truly conflict with professional or other duties, as described in this post.   Expanding our recognition of what can have that effect seems like a step forward.  Soft pedaling what that impact can be does not.