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

In “Behavioral Ethics: Can It Help Lawyers (and Others) Be Their Best Selves?” – a preliminary draft of a paper which has been accepted for publication by the Notre Dame Journal of Law, Ethics & Public Policy –  Robert A. Prentice  of the University of Texas at Austin’s McCombs School of Business reviews various findings of behavioral ethics research and presents ideas for how individuals and businesses can help address the challenges posed by these findings, including:

– the use of communications strategies to counter “ethical fading”;

– the importance of punishing even minor instances of bad behavior to mitigate the danger of “incrementalism”;

– rigorous enforcement of conflict of interest polices and “setting reasonable rather than extravagant incentive structures for their employees” – both to  limit the harm cause by the “self serving bias”;

– monitoring the use of euphemisms by employees to address the often  pernicious impact of rationalizations;

– a number of measures to mitigate the powerful contextual factors that can serve as a breeding ground for unethical conduct – e.g., treating employees well, given that behavioral ethics studies have shown that “[e]mployees are more likely to act unethically if they are exhausted, time-crunched, or feel they have been mistreated”; and

– use of  a company’s “organizational reward and control systems [to] boost moral ownership…[and] create feelings of [moral] efficacy.”

For those considering how to apply behavioral ethics to strengthen compliance programs, Prentice’s piece is a very good place to start.  I also recommend Scott Killingsworth’s paper on C-suite behavior and note that over the years the COI Blog has discussed various ways of using compliance program mechanisms – such as risk assessment –  as a device for delivering behavioral ethics thinking into business organizations.

But separate from the issue of how behavioral ethics can be deployed in companies is the threshold question of how to get companies to move in this direction, i.e. persuading them of the “why to” as opposed to the “how to.”   In this connection note that:

– while some of the experiments in this field are fairly recent, the core learning of behavioral ethics – that context, as opposed to character, plays a greatly underestimated role in dictating how ethically we act – is more than forty years old; but

– notwithstanding this, it appears (from a wide range of sources) that relatively few companies consider behavioral ethics as much more than a subject of curiosity  – or what one colleague recently referred to as “parlor games.”  Another colleague recently wrote to me that people in the C&E field “just do not accept behavioral science as real” – although he added the hopeful word “yet” at the end of his e-mail. And from a review of the agenda of the many C&E conferences that have been held over the past few years behavioral ethics seems much more like an extracurricular activity than it does part of the “core curriculum” of the field.

In a way this is not a surprise.  Those managing compliance and ethics programs often struggle just to accomplish the basic goals of their jobs on a daily basis – e.g., trying to get all the sales people to take the code of conduct training or completing the due diligence of a new distributor on a rush basis – and simply may not have the bandwidth to grapple with the implications for their programs of a new view of human nature.  In addition, compliance managers are rarely challenged by senior management to be innovative to the degree that traditional business functions (e.g., R&D, sales and marketing) are.

This is where the board of directors can play a key role.  Although they cannot be expected to immerse themselves in all the research on this subject, they can and should ask management a simple question:  What are we doing about behavioral ethics in our company?  

Based on my experience, the right question from a board member can often make things happen – and happen quickly – in a company’s C&E program.  An inquiry from the board can be the catalyst for strategic thinking in a field dominated by tactical considerations.  And, in this case, if enough boards ask this question, it could be what is necessary for behavioral ethics to begin to live up to its full promise in improving behavior by businesses.

(For more on the importance of boards asking C&E questions, see this piece from the FCPA Blog.)


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