Is compliance still just “putting on its shoes”?

Mark Twain famously said “A lie can travel half way around the world while the truth is putting on its shoes,” and one might think something similar about risk and C&E. Perhaps it has always been this way and maybe it always will be, at least to some extent.  But forward looking companies should look for ways to narrow or possibly eliminate the gap between the immediacy of the problem and that of the solution.

In a sense, this is much of the point of the “cultural” approach to compliance and ethics, and it can also be seen as part of the promise  – albeit still largely theoretical  – of  “behavioral” C&E.  Both seek to have C&E operate, in effect, as an instinct. (For more on behavioral ethics visit the Ethical Systems web site.) But, at least in part, the idea goes back much earlier  –  to Aristotle’s focus on ethics and habit.

There are various avenues for pursuing this goal but, as a general matter, a valuable though often underutilized approach lies in the realm of incentives. Incentives tend, I believe, to reach employees more deeply than policies and procedures do – and thus can help create instinct-like ethical behavior.

Companies indeed do seem to be more interested than ever in exploring ways to use incentives to promote strong C&E. For instance, one company I know now uses the results of internal controls testing in setting compensation for its senior executives. This kind of measure might not sound particularly exciting, but it could  – at least over time – help make compliance operate as something of a reflex, in that it presumably contributes to  managers being focused on risk on a day-to-day basis (and not just on the far less frequent occasions of responding to cases of possible violations).  More generally, this and other incentive measures could be part of a larger C&E strategy of moving from  a necessary but somewhat limited “culture of honesty” to also include a broader and deeper “culture of care,” as described in this earlier post.

Moreover, C&E incentives need not be solely of the negative type, nor need they be tangible. Appealing to the better angels of our nature through praising pro-social behavior could, to my mind, be a powerful force for helping ethics move at the speed of risk, particularly with the somewhat idealistic generation of younger employees.

But, in some cases traditional economic incentives are indeed called for. That is why  – as discussed in these earlier posts – the notion of “moral hazard” should play a greater part than it currently does in many C&E programs.

Finally, note that incentives are just one type of tool in the C&E “tool box.”  And, whether it be through a cultural/behavioral approach or something else, the risk-reduction discussion should include consideration of all available tools – which is what a C&E risk assessment offers …or, at least, should. (For more on risk assessment generally, please download this complementary e-book, available at CCI.)

 

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