Conflict of Interest Blog

The Behavioral Ethics and Compliance Index

While in the more than four years of its existence the COI Blog  has been devoted primarily to examining conflicts of interest it has also run more than fifty posts on what behavioral ethics might mean for corporate compliance and ethics programs. Below is an updated version of a topical  index to these latter posts.  Note that a) to keep this list to a reasonable length I’ve put each post under only one topic, but many in fact relate to multiple topics (particularly the risk assessment ones); and b) there is some overlap between various of the articles.  Also, on June 3 I’ll be speaking at a conference on behavioral ethics at NYU’s business school (see program agenda here) and will do a post summarizing compliance-related aspects of the program shortly thereafter. Finally, in 4Q 2016 I hope to flesh some of these ideas out into a Behavioral Ethics & Compliance Handbook.

INTRODUCTION 

Business ethics research for your whole company (with Jon Haidt)

– Overview of the need for behavioral ethics and compliance

– Behavioral C&E and its limits

– Behavioral compliance: the will and the way

BEHAVIORAL ETHICS AND COMPLIANCE PROGRAM COMPONENTS

Risk assessment

–  Too big for ethical failure?

– “Inner controls”

– Is the Road to Risk Paved with Good Intentions?

– Slippery slopes

– Senior managers

– Long-term relationships

– How does your compliance and ethics program deal with “conformity bias”? 

– Money and morals: Can behavioral ethics help “Mister Green” behave himself? 

– Risk assessment and “morality science”

 Advanced tone at the top

Communications and training

“Point of risk” compliance

–  Publishing annual C&E reports

– Behavioral ethics and just-in-time communications

– Values, culture and effective compliance communications

– Behavioral ethics teaching and training

– Moral intuitionism and ethics training

Positioning the C&E office

– What can be done about “framing” risks

Accountability

– Behavioral Ethics and Management Accountability for Compliance and Ethics Failures

– Redrawing corporate fault lines using behavioral ethics

– The “inner voice” telling us that someone may be watching

Whistle-blowing

– Include me out: whistle-blowing and a “larger loyalty”

Incentives/personnel measures

– Hiring, promotions and other personnel measures for ethical organizations

Board oversight of compliance

– Behavioral ethics and C-Suite behavior

– Behavioral ethics and compliance: what the board of directors should ask

Corporate culture

Is Wall Street a bad ethical neighborhood?

– Too close to the line: a convergence of culture, law and behavioral ethics

Values-based approach to C&E

– Values, structural compliance, behavioral ethics …and Dilbert

Appropriate responses to violations

– Exemplary ethical recoveries

BEHAVIORAL ETHICS AND SUBSTANTIVE AREAS OF COMPLIANCE RISK

Conflicts of interest/corruption

– Does disclosure really mitigate conflicts of interest?

– Disclosure and COIs (Part Two)

– Other people’s COI standards

– Gifts, entertainment and “soft-core” corruption

– The science of disclosure gets more interesting – and useful for C&E programs

– Gamblers, strippers, loss aversion and conflicts of interest

– COIs and “magical thinking”

– Inherent conflicts of interest

Insider trading

– Insider trading, behavioral ethics and effective “inner controls” 

– Insider trading, private corruption and behavioral ethics

Legal ethics

– Using behavioral ethics to reduce legal ethics risks

OTHER POSTS ABOUT BEHAVIORAL ETHICS AND COMPLIANCE

New proof that good ethics is good business

How ethically confident should we be?

– An ethical duty of open-mindedness?

– How many ways can behavioral ethics improve compliance?

– Meet “Homo Duplex” – a new ethics super-hero?

Behavioral ethics and reality-based law

 

A big step forward for compliance & ethics officers

A long time ago, I learned of a company at which – I was told – an individual had been hired into a compliance role precisely because he would be unlikely to notice (and thus stop) the crimes in which the company was engaged.  I could not then tell if this explanation – which seemed to be based more on informed speculation than hard fact –  was true. Still, years later the company and its executives were prosecuted but the compliance person was not – perhaps because the government concluded that he had in fact been in the dark. (Presumably this wouldn’t be featured on a resume, but it  beats going to prison.)

C&E programs are not machines that run by themselves.  It takes the involvement of many – and, on some level, all – employees to make a program truly effective. But in any company the quality of the C&E officer is central to the effort.  Oddly, however, this aspect of efficacy has historically not been part of the principal official definitions of an effective C&E program.

Last week, the Department of Justice issued a new pilot policy to encourage self-reporting of FCPA violations. Here is a link to the announcement.  Much will doubtless be written about the self-reporting aspects of the policy but for me of greatest interest is the definition of an effective C&E program.

While  containing various items that are typical for lists of this sort (such as compliance culture, risk assessment, auditing and discipline for violations) it also includes the following two elements that are now to be considered by the government in assessing C&E programs:

– The quality and experience of the compliance personnel such that they can understand and identify the transactions identified as posing a potential risk.

– How a company’s compliance personnel are compensated and promoted compared to other employees.

The inclusion of these items on this list is – to my mind – a big step forward for the C&E profession.

Of course, the ways in which they are assessed by the government in investigations remains to be seen – and note that the one about promotions will be hard to apply to small organizations.   But, as a general matter, placing these items on the assessment agenda should lead to companies having more top-notch programs by recruiting and retaining top-notch people.

A compliance biography – with a dash of early compliance history

I’m very happy to announce that Ethical Systems has chosen me as their featured collaborator for April.  Here is an interview in which, among other  I discuss with “Eth Sys” various research projects I’ve worked on (or am planning) and briefly look back at aspects of the C&E field’s early history.

I hope you enjoy it.

Like “Car Talk” for C&E

On April 12 at noon ECI will present a web cast in which Steve Priest and I answer questions – on ethical culture, effective programs and other topics – submitted in advance by attendees. We will follow the free-flowing (and at times edgy) approach taken in our recently issued e-book. And, the web cast will use an audience response voting mechanism, which we’ll deploy for bench-marking some of the questions among attendees.

The web cast is free to all.

More information about it (including a link for registering) and the e-book (which is also free) can be found here.

We hope you can attend.

Assessing compliance programs

On April 6 Rebecca Walker and I will be presenting a webinar for PLI on assessing C&E programs.

More information is available here.

We hope you can attend.

Does your risk assessment touch all the bases?

Virtually every company with a compliance program conducts risk assessments, but not every risk assessment does all that the government could be expecting of it.

In my latest column in Compliance & Ethics Professional  (page 2 of PDF) I examine what a lot of companies are missing on this key point.

The Ethics Exchange

I am very pleased (and proud) that the Ethics & Compliance Initiative has just published Ethics Exchange:  Conversations on Behavior, Ethics and Compliance – a series of dialogues I had with the great Steve Priest over the past two years.

In this e-book Steve and I examine a wide range of issues relevant to the E&C field, including the importance of a “behavioral” approach to E&C practice;  the different ways in which culture plays a part in E&C work; how to make programs truly effective – through, among other things,  E&C monitoring and risk assessments; and issues relating to E&C as a career choice.

The Ethics Exchange e-book is available for free download here.

Steve and I hope you enjoy it.

A useful and underutilized tool for enhancing tone at the top

In our latest Ethics Exchange for ECI, Steve Priest and I discuss C&E on-boarding for directors and executives.

We hope you enjoy the conversation.

Referees and conflicts of interest

An interesting story (at least by the standards of this blog) from this past week concerns whether a referee in England’s  Premier League has created a conflict of interest by signing up with an agency to help him get paid for giving speeches and for other off-field affairs. As described in the Daily Mail,  the potential conflict arises from the fact that agency also represents several Premier League players.

Apparently, the ref – Mark Clattenburg – violated Professional Game Match Official Rules by not getting prior permission for entering into a relationship of this sort. But is it a COI?

A conventional analysis starts with looking at what the referee/agency relationship actually entails.  Presumably (although the article does not  say this) the agency owes him a duty to perform certain services and he owes it a duty to pay for these services. That is, he does not have a duty to perform services for it.

Of course, if part of the way he was paying the agency for its services was by promoting the interests of its other clients, including the Premier League players they represent, then that would be a COI.  But imputing such a duty to a relationship of this sort seems like a real stretch.  After all, the same analysis would apply to the players the agency represents – assuming two or more are from different Premier League teams – which I think would make little sense.  Put otherwise, it is hard to imagine either a ref or a player throwing a match to curry favor with  an agent who they are already paying.  (Or, to look at a structurally similar COI situation: if a law firm or an investment bank represents two  clients with adverse interests the firm/bank may have a conflict – but the clients don’t.)

So, from a conventional analysis I don’t see this as the stuff of a conflict.  But, there are other considerations when it comes to COIs and referees.

One of these is what might be called a “needs analysis.”  That is, certain types of activities require a higher standard when it comes to COIs to protect the efficacy of those activities.  Serving as a judge or on a jury are examples of this; for both, a COI analysis includes looking at potential biases – which, generally speaking, one wouldn’t do in the commercial world, where typically “interests” must be tangible to be deemed conflicting.  (Another example is serving in a procurement function, which – as described in this recent post – may necessitate  a “Caesar’s wife” approach to COIs.)

Referees are, of course, like judges and juries.  And so for the good of the game, it may make sense to apply a higher standard for them, although I’m not sure exactly how one would articulate it.

The other consideration is that – unlike judges and juries – referees often must make truly split-second decisions.  From a psychological perspective, these harried circumstances may mean some heightened degree of ethical vulnerability – and that in turn may indicate peril in a referee’s having a connection to a player in a game that he is officiating.   (For more on the surprisingly potent role of biases that lurk below the surface and undercut our ethical performance see these prior posts on “behavioral ethics.“)

Must we choose between ethics and compliance?

Ethics and compliance have long been seen by some as representing essentially inconsistent approaches to promoting desirable conduct in companies.  I have never been persuaded by this oddly Manichean worldview. Rather, and as previously argued in Compliance & Ethics Professional (page 2 of  the PDF), I believe that compliance can give ethics “body” and ethics can give compliance “soul.” Or, as the 2004 amendments to the U.S. Sentencing Guidelines for Organizations indicate, companies should have “compliance and ethics” programs.

Moreover, many “middle-aged” programs (discussed more generally in this piece on the CCI web site ) need all the help they can get.  For those struggling to maintain a sense of urgency in their programs, the answer to the question “Ethics or compliance?” is a resounding “Both, please.”

Of course, there are some C&E challenges that companies face that largely require “C” but little or no “E.” (A recent posting here suggests that these include dealing with requirements of anti-corruption, export control and competition law.)  The converse is true as well.

But some risk areas – such as conflicts of interest – clearly need healthy elements of both. More importantly, so does the overall platform for ensuring that companies do the right thing, such as paying due attention to C&E in incentive structures.

The importance of incentives to C&E was addressed in a piece last weekend in the NY Times by Gretchen Morgenson  about a recent proposal by Professors Claire A. Hill and Richard W. Painter of the University of Minnesota Law School “for making financial executives personally liable for a portion of any fines and fraud-based judgments a bank enters into, including legal settlements” regardless of fault.  The proposal, she notes, quoting one of the professors, “would help instill a culture… ‘that discourages bad behavior and its underlying ethos, the competitive pursuit of narrow material gain.’”

Clearly the goal here is to go beyond traditional notions of compliance to promote a more truly ethics-driven approach to banking.  But by using the mechanisms of “carrots and sticks” to achieve that goal, it is also very much in the heartland of compliance.

While the case for this sort of an approach may be strongest in the financial services industry, its logic is applicable more broadly.  For instance, a large company in any industry might adopt a policy that if any of its divisions are prosecuted the leaders of that division will bear some of the costs incurred by the company.  However, and in the spirit of the Sentencing Guidelines themselves, I think that an executive who could show that she made a strong effort to promote C&E in her division – going beyond promoting mere rule abidance, to embrace a truly cultural view of ethics – should be spared some of this punishment.

Of course, few, if any, other industries have had the perverse incentives C&E-wise that financial services (generally speaking) have, which is why I would temper the no-fault aspect of the Hill and Painter proposal as applied to other areas of business.  But any company in which the managers are not the owners faces the potential for at least some “moral hazard” when it comes to mitigating C&E-related risk, as discussed in the prior posts collected here.  That is why  companies of all kinds need to consider how they provide incentives for ethics and compliance.